Listed law firm raises £10m acquisition warchest

Gibraltar: Gordon Dadds eyes acquisition

Listed law firm Gordon Dadds Group today announced it has raised £10m from institutional shareholders to help fund its increasingly international acquisition strategy.

It told the London Stock Exchange that there were “many other opportunities in the sector” and its acquisitions pipeline included target businesses in Malta, Gibraltar, South Africa, China, Hong Kong and Bermuda.

The placing – generating a net £9.2m – “will be used to strengthen the company’s balance sheet in order to remain agile and move quickly on its acquisition strategy”.

The placing was at 140p, a 25% discount on yesterday’s closing price of 189p, and within hours of announcing it this morning as an “accelerated bookbuild”, Gordon Dadds confirmed that it had been successful – indeed, oversubscribed.

However, the market did not appear to react well to the move, with Gordon Dadds’ shares dropping 24% to 143.5p during the day.

The new shares will represent approximately a quarter of the group’s issued share capital following admission.

The announcement said: “The company’s acquisition strategy is now focused on firms with £10m or more of fee income or with a complementary international business.

“The directors believe that the company is uniquely placed to deliver on further opportunities in the professional services sector and will continue to seek to acquire firms at advantageous performance-based prices.”

Gordon Dadds raised £20m when it joined AIM in August 2017, with £14m designated for acquisitions. Since then, it has invested those funds in five acquisitions, taken on £6m of debt finance following the recent deal to buy City firm Ince & Co, and acquired £43m of revenues, “the results of which are flowing through the group”.

It told the market: “Although the company’s aim at the time of listing was to double revenues in three years, it has trebled revenues in the space of 18 months. The directors have delivered on their stated strategy on listing and have continued to make earnings enhancing acquisitions.”

The firm now trades as Ince Gordon Dadds since the £27m deal at the end of December to buy Ince & Co’s UK practice – although it has since emerged that this was actually a pre-pack deal, with Ince having first gone into administration.

Today’s announcement also detailed more of the rationale for the deal, saying it offered “significant cross-selling opportunities”, as well as “operating synergies” through merging the pair’s London offices. It will save £2m a year by vacating Gordon Dadds’ office.

There will also be £3m of savings a year by migrating Ince’s accounting and other “non-productive functions” to Gordon Dadds’ South Wales back-office operation

“The directors expect that the acquisition will be immediately earnings enhancing in the current year (before exceptional costs) and significantly earnings enhancing for the year to 31 March 2020.”

The operational targets are a gross margin of 50%, maintaining overheads at 30% or less and achieving net profit before tax of 15%.

Gordon Dadds achieved a net profit margin of 9.5% for the year ended 31 March 2018, but said the Ince deal would “significantly enhance” this.

The board also announced a review of the incentive arrangements for senior executives and management “to ensure they are appropriate to the revised prospects of the company” and increase the number of share options available to maintain it at 10% of the issued share capital.

“The extension of the number of options which may be granted under the company’s share scheme would be consistent with the board’s stated objective of facilitating further share ownership by the employees and consultants of the group.”

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