Legal Business Blogs

‘A sufficient war chest’: Knights turn to IPO for acquisition agenda

One of the earliest adopters of the Alternative Business Structure (ABS) model is turning to the public capital markets to raise tens of millions to pay off debt and fund a war chest big enough to land three acquisitions by 2020.

Stafforshire-based Knights said on Monday (4 June) it was listing on the Alternative Investment Market (AIM), becoming the fifth law firm to do so. The float is expected to give the business a valuation of more than £100m, which would make it the largest legal initial public offering (IPO) to date.

Knights, which became an ABS in 2012 and has previously been backed by private equity investment, broke into the Legal Business 100 for the first time last year but wants to raise money to pay down its debt facilities, generate working capital and for general corporate purposes. It is yet to determine how much will be raised in the IPO.

Chief executive David Beech (pictured) told Legal Business: ‘What drove the decision was the desire to grow faster through recruitment and acquisition. We feel to do this, flotation was needed to pursue our vision.’

The firm would not specify the amount of its debt facilities, but for its accounts for the year to 30 April 2017 the firm lists a £7m bank loan and another unspecified loan of £22.3m, although debt is believed to be lower now. As well as paying most of its debt, Knights wants to add 200 fee earners by 2020.

Beech added: ‘We will have a sufficient war chest to achieve three more acquisitions.’

In late May, the firm announced an agreement to acquire Manchester firm Turner Parkinson for an undisclosed sum, adding 45 fee earners and an office to Knights’ six bases in the UK. The firm’s offices in Chester, Cheltenham, Derby, Newcastle-Under-Lyme, Oxford and Wilmslow boast 350 fee earners between them.

The firm believes it can achieve growth either through the acquisition of legal teams or firms and in new regional markets or complementary service lines. Beech believes the firm has existing strength in corporate, litigation, real estate and employment.

For the year ended 30 April 2017, Knights reported revenue of £33.5m, up 64% and fuelled in large part by the acquisition of Oxford-based Darbys in 2016, which added £10m in revenue over the year. The firm says revenue this year is £34.9m, a small uptick.

Knights’ AIM listing follows Rosenblatt this year, and Gordon Dadds and Keystone Law in the second half of last year. Gateley was the first firm to take the step back in 2015, raising £30m at a £100m valuation.

Beech believes more law firms will follow and is critical of the traditional model: ‘I think lawyers are the last bastion of equity partnership, it’s not a suitable model for profitable business and promotes internal politics. It’s a very dysfunctional model.’