Listed legal business: strong results, a conflict of interest and acquisitions

Waldie: Diversifying offering

There has been a spate of announcements from listed legal businesses, with strong results for Gateley and RBG, a conflict of interest at Ince, and two more acquisitions for Frenkel Topping.

Gateley announced a 13% increase in revenue for the year to 30 April 2022 to £137m, with underlying profit before tax up 12% to £22m.

This was achieved mainly through organic growth but also three consultancy acquisitions during the year – chartered surveyors Tozer Gallagher, trade mark and patent attorneys Adamson Jones, and surveyors Smithers Purslow, at £20m Gateley’s largest deal to date.

Headcount was 1,368, with the 287 new staff split equally between legal and consultancy services. In all, Gateley has bought 10 non-legal businesses since its 2015 IPO.

Chief executive Rod Waldie said: “Legal services generated solid organic revenue growth, comparing favourably with reported UK legal industry performance. Our consultancy service lines delivered impressive organic growth of 27%, resulting in overall consolidated group organic revenue growth of 11%.

“I am particularly pleased that we completed three exciting consultancy acquisitions in the period and achieved annualised consultancy revenue of over c.£32m as we continue to grow our complementary services, diversifying our offering and deepening our connections with our clients.”

The announcement said that, “as part of our present and future acquisition strategy, we committed to a three-year revolving credit facility of up to £30m to assist with acquisitions.

“This, combined with our ever-strengthening balance sheet, places us in a good position to continue with acquisitions. To date, we have only used this for the acquisition of Gateley Smithers Purslow and only drawn down £6m.”

The board has proposed a 5.5p final dividend, 0.5p more than last year.

The stock exchange announcement said: “The period also saw the beginnings of wage cost inflation across the UK legal industry, as strong client demand continued across the sector.

“Although this first impacted international firms in the City and whilst the highest, headline-grabbing salaries remain in that part of the market, gradually the trend spread across all UK legal markets.

“The result has and continues to be that legal businesses struggling to grow and/or whose financial and remuneration models are not sufficiently strong or flexible have lost people where they cannot meet salary expectations.

“We believe that economic headwinds are likely to temper future rates of wage cost increase, and in any event within Gateley our differentiated model and our ability to offer share ownership to all of our people continues to stand us in good stead.”

RBG Holdings plc – which owns London law firms Rosenblatt and Memery Crystal, as well as litigation funder LionFish and M&A advisory business Convex Capital – saw revenue rise 45% in the first six months of 2022 to £27m, with profit before tax up 11% to £4.4m. It is paying an interim dividend of 2p.

Average revenue per fee earner dropped by £12,000 to £363,000, reflecting “the diversification of the legal services business into more non-contentious areas of law” following the acquisition of Memery Crystal”. Lock-up also increased from 102 days to 120.

LionFish has committed £11m in capital to 11 cases at the moment, of which half has been deployed, while it has also sold off ‘participation rights’ in cases, generating £2.5m this year so far. Rosenblatt is also taking on more contingent fee cases itself.

Group chief executive Nicola Foulston said: “Overall, the group has had a solid first six months which is reflected in our continued revenue and profit growth. Our diversified revenue model has proved to be resilient in these uncertain times. We have built a strong platform from which to deliver growth over the coming years.

“Our legal services business integration is almost complete with two trading brands, Rosenblatt for contentious law and Memery Crystal for non-contentious law. We are building one of London’s premier mid-tier law firms providing quality advice to entrepreneurs and high-net-worth individuals.”

Investors were told that “a number of acquisition opportunities have been identified which adhere to the group’s highly selective criteria”

The Ince Group announced yesterday that former chief executive Adrian Biles has been removed as a director with immediate effect, “as a result of circumstances which may give rise to a conflict of interest” between him and the firm.

His father, John Biles, has been replaced by Jillian Watt as head of finance and administration as well. Between them, Adrian and John Biles hold 4.5% of the firm’s shares.

Ince last month raised £9.3m needed to ward off financial problems, with Mr Biles stepping down as chief executive but remaining a director “while his departure from the board is finalised”.

Finally, Frenkel Topping – the listed business building a full-service offering to personal injury and clinical negligence claimants short of actual legal advice – has made its latest two acquisitions: expert witness business Somek and Associates for up to £7m, and N-Able Service, which provides case management and care expert reports, for up to £1.1m.

The company has bought several different businesses in recent years, including three costs law firms, and last month raised £10m to fund further acquisitions.

Chief executive Richard Fraser said: “The acquisitions reflect the accelerated execution of our M&A growth strategy…

“The board believes care and case management reports to be the largest reports required by solicitors pre-settlement and in addition, case management work post-settlement presents opportunities for repeat revenues.

“These specific areas are well covered by the addition of N-Able and Somek and should further increase our touchpoints on the journey of a potential claimant, standing the company in even better stead for unlocking AUM [assets under management] mandates from successful claimants.”

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