Third deal in eights months for Knights as it unveils strong results


Beech: Four acquisitions a year on the cards

Knights has reported strong growth in its maiden half-year results as a listed law firm along with its third acquisition in eight months.

The £1.6m deal to buy Leicester-based specialist employment law firm Cummins Solicitors is the smallest of the three, after Manchester firm Turner Parkinson for £10.8m last June and another Leicester firm, Spearing Waite, for £5.5m in October.

Those two deals helped push Knights’ revenue for the six months to 31 October 2018 up 37% to £23.9m; there was 10% organic growth within that.

Adjusted EBITDA grew by 50% to £5.3m, while adjusted profit before tax doubled to £4.4m. Net debt was £9.5m as at 31 October 2018, £2m ahead of plan and down from £28m a year earlier. This was paid down with proceeds from the float last June, which raised £28m.

Speaking to Legal Futures, chief executive David Beech said Knights was set up to handle four “mainstream” acquisitions a year, plus occasional niche deals like Cummins.

The firm has a “great pipeline” of opportunities to acquire firms like Turner Parkinson and Spearing Waite – businesses that he said had reached a “glass ceiling” because they needed investment to reach the next level.

There was a “diminishing appetite for equity partnership” among the next generation, Mr Beech said, and existing partners faced the prospect of not realising anything for their 20 years of effort. “They can’t find someone to write a cheque – outside of London, we want to be the ones who write the cheque.”

Founded in 2010, Cummins is a five-fee-earner niche law firm that in 2018 delivered revenue of £784,000 and adjusted EBITDA of £175,000, along with a margin of 22%.

Knights will acquire Cummins for just under £1.6m, comprising cash consideration of £1.1m, a £223,000 cash payment in respect of the repayment of debt, and shares in Knights equating to £250,000.

The cash consideration is subject to clawback dependent on the continued employment of founder Michael Cummins for the next two years.

Mr Beech said: “The firm has a strong reputation which supports our growth strategy and demonstrates the momentum we are now achieving. Michael Cummins is a respected leader in his field and the acquisition will enable us to take even more share in key geographical markets.”

His report to investors said that the integration of Turner Parkinson and Spearing Waite have been completed as planned, with savings of around £750,000 “by removing back-office costs”.

A striking metric revealed today was a 25% jump in increased average fees per fee-earner, to £66,000. Mr Beech said this came from the training staff on pricing better and keeping the client informed, so that they recovered their time better. Knights’ margin is up 4% to 51% as a result.

He added: “We have delivered a strong financial performance of highly cash generative and profitable growth during the half year and made good progress with our ambitious strategy to develop the business organically and consolidate the legal and professional services sector outside London.”

Knights also announced that former Procter and Gamble executive Richard King is moving from non-executive director to be its chief operating officer. He is replaced on the board by Jane Pateman, the HR director at Biffa PLC.

Knights was one of the strong performers among listed legal businesses last year, according to our recent analysis.

It floated on 29 June 2018 on 145p and closed on 31 December at 175p, up 21%. Its shares have since risen further, closing at 205p yesterday.




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