Beech: Unprecedented level of interest from partners
The Covid-19 pandemic should “accentuate the pipeline of recruitment and acquisition opportunities” for fast-growing listed law firm Knights, it said today.
The regional practice saw revenue increase by 41% to £74m in the year to 30 April 2020, a quarter of which it attributed to organic growth, with the rest down to the six acquisitions it made during the year, along with the impact of prior acquisitions.
It said this gave the firm a 3% share of the “£2.6bn addressable market for legal services outside London”.
Having previously focused solely on secondary legal markets, the acquisitions in the last year have bolstered Knights’ presence in Birmingham, Manchester and Leeds as well, while growing in cities such as York and Oxford too.
The underlying profit before tax margin increased from 17.9% to 18.3%, resulting in a 45% increase in underlying profit before tax to £13.6m.
Two years on from going public, Knights has exceeded the targets it set out then, with more than 930 fee-earners operating from 13 locations outside London, compared to 350 and six respectively in June 2018. It is now in the AIM 50 of biggest companies on the market.
The firm has over 18,000 clients, including “over 25 FTSE 100 companies (or equivalent by market capitalisation)”.
The average invoice rendered is for around £3,000, which chief executive David Beech told Legal Futures showed how much “day to day” work it handled across a broad spread of practice areas, meaning it was not reliant on any particular clients or work types.
Lock-up was 85 days, down from 88, and well below the 100-plus days commonly reported at big firms.
Knights was one of the first firms to announce cost-saving measures in the wake of Covid-19, which included stopping or deferring all non-essential capital expenditure, eliminating discretionary spend, reducing board salaries by 30% and the salaries of all staff earning over £30,000 by 10%, and making “staffing reductions to reflect a more prudent approach to resourcing”.
Mr Beech said these had stabilised the firm and there would be no further cuts, while staff would be returned to full salaries “as soon as possible”.
However, chairman Bal Johal said the board has decided that, in light of these measures, it was “not appropriate to recommend paying a dividend”.
The firm told investors that there were “early signs of a recovery in market conditions” and it was “confident of emerging in a stronger position from this current environment”.
The six acquisitions between November 2019 and April 2020 was as many as Knights could handle, Mr Beech said, and it meant “we had to leave a few opportunities behind”.
There is a pause in activity while these bed in, but the solicitor predicted that Knights would be back on the acquisition trail in the autumn to “expand our footprint further”.
In the meantime, however, recruitment was at an “unprecedented” level, Mr Beech said, with 18 partners hired in the past six weeks.
He said that partners – particularly in the big regional centres – saw the corporate structure of Knights as “a safe haven” given that they were facing reduced draws or capital calls at their existing firms. They could earn the same without the financial risk, Mr Beech said.
He refused to comment on entering the Sunday Times Rich List [1] in May – based purely on the value of his shareholding – the only person among the top 1,000 to have made their fortune solely in law.
That value has increased as Knights’ share price continues to surge.
Knights listed at 145p and closed 2018 on 175p. But its continuing acquisition activity saw the price nearly double to 334p by the end of 2019 and it was up 3.5% today to 440p at the time of writing. This gives it a market capitalisation of £349m, valuing Mr Beech’s 39.6% stake at £138m.
It hit an all-time high of 488p in February before dipping to 316p as the whole market suffered in the wake of lockdown.