I was an incredibly good girl and my mother was incredibly opinionated: I basically did whatever she told me to do! For years I wanted to be a doctor but then I realised I absolutely hated chemistry and you couldn’t be one without chemistry. So I had a crisis after my O-Levels where I thought ‘Oh God what am I going to be then?’ So suddenly my mum said: ‘Right, that’s it then, you’re going to be a lawyer.’ She’s of that generation that absolutely idolised professions – she always called our family doctor by his first name.
Keystone Law has significantly outstripped its half-year results unveiled in September, by posting a healthy 11% increase in turnover for the full year to 31 January 2021.
Revenues were up to £55m from last year’s £49.6m, with the rate of increase nearly double the 6.5% announced in the half-year results.
Profit before tax also notably rebounded after an 18% dip declared in September due to internal investments, such as additional office space at its Chancery Lane headquarters. Profits were up marginally on a full-year basis from £5.2m to £5.4m.
Chief executive James Knight (pictured) said: ‘The nature of Keystone’s business model, whereby our 350+ lawyers were all well acquainted with remote working when lockdown began, has undoubtedly made it easier for the firm to remain 100% operationally efficient since March 2020. Nevertheless, I am extremely proud of what the firm and our people have achieved in the last year, not just for maintaining that efficiency but also for delivering solid growth.’
He also took aim at firms who would be potentially unwilling to shift attitudes towards remote working: ‘I am excited about the year ahead, not least because the vast majority of the legal profession has started to suspect something that we have known for 20 years: if the right tools and infrastructure are in place then lawyers, even when undertaking complicated, multidisciplinary transactions, can deliver a far better service if they are given flexibility and autonomy while enjoying a better work-life balance.’
Underpinning the solid results was a year of concerted senior recruitment. Over the last 12 months, Keystone has expanded its bench of principals (partner-equivalents) by an impressive 58, from 328 to 369. Between the additional office space and lateral recruitment, the firm can rightly be proud of pursuing such considerable investment while ensuring no member of staff was furloughed due to the pandemic.
In August 2020 alone, Keystone made 10 lateral partner hires covering areas such as corporate, IP and restructuring and insolvency.
After originally opting not to recommend a final dividend for the year ending 31 January 2020 due to Covid uncertainty, in light of the firm’s robust financial performance, Keystone is proposing to pay out a final dividend for the end of this financial year of 10.6p per share.
This includes a 3.5p per share payment, described as ‘the remaining value which would have been paid in respect of 31 January 2020 had the pandemic not occurred’, and a 7.1p per share payment ‘in accordance with the established dividend policy.’
Keystone Law is producing a resilient performance as the year unfolds, the firm’s interim results show, with revenues up despite the financial impact of the Covid-19 lockdown, but profits have slumped following internal investment at the UK-listed firm.
Revenue in the first half of the firm’s financial year was up 6.5% to £24.5m from £23m last year. However, adjusted profit before tax was down 18% to £2.2m for the period ‘due to investment in the central office support team as well as additional office space in Chancery Lane.’
‘It was a good start to the year until lockdown stopped things,’ Keystone’s CEO James Knight (pictured) told Legal Business. ‘New client demand was down around 30% at one point though it is now almost back to pre-Covid levels.’
The firm’s last full set of financials for the year to 31 January 2020 showed revenue was up 16% to £49.6m, with Keystone continuing a run of pacey financial results in recent years. Increasingly it is thought firms with a strong cash position are best placed to endure the economic uncertainty brought by the Covid-19 lockdown. Should that be the case, Keystone will feel confident after ending its interim period with a net cash figure of £6.9m compared to £3.4m in the same period last year.
Though he firm’s growth over the first half of 2020/21 was driven partly by new client needs in light of the pandemic, Keystone’s financial director, Ashley Miller, told Legal Business. ‘While it has been a bit lumpy, what we have seen is a return of the business streams to where we were pre-Covid.’
Miller and Knight also highlighted the firm’s continued push in lateral hires, with lawyer numbers at the firm increasing to 426 over the interim period with 27 new partner-level hires. Earlier this month Keystone added three laterals to its ranks, with corporate specialist Sandra Bates and environmental law expert Yohanna Weber joining from Fladgate and Fieldfisher respectively while commercial property lawyer Alex Heaton joined from Reed Smith.
The UK’s largest listed law firm, DWF, expects the fallout from the Covid-19 pandemic to have a material impact on its profit and has entered talks with its lenders to extend its £80m credit facility and relax certain covenants.
DWF provided a trading update to the London Stock Exchange today (27 March), setting out the board’s expectation that revenue for the year to 30 April 2020 would be below previous expectations. The final quarter of each financial year is typically the most important to its financial performance, the firm said, which coincided with the coronavirus outbreak.
The firm said organic revenue growth for the year is now expected to be ‘high single-digit’ and total growth between 15% and 20%. The lower revenue and level of investment during the year – including more than £50m spent on acquisitions in Spain and a managed services business – is therefore expected to have a ‘material impact’ on profit.
Insurance and international work were expected to deliver most of the revenue growth this year, driven by international despite some issues in a number of locations due to Covid-19. Insurance is now trading ahead of management’s expectations, while litigation is also said to be less affected by the economy.
Net debt is now also expected to be higher than anticipated this year, given the lower profits and with slower collections in the current business environment. DWF has a revolving credit facility with HSBC, NatWest and Lloyds of £80m and currently expects to operate within its limits, but has entered ongoing discussions with its lenders.
‘The board believes it prudent to seek additional contingency facilities from its lenders to ensure that the group has increased headroom for working capital purposes and a relaxation of certain covenants for a period of time,’ the update said. ‘While the current environment is unprecedented, the board is confident that the group is well placed to continue to provide best service to its clients and benefit from future opportunities when the business environment normalises.’
Meanwhile, fellow listed law firm Keystone has followed Gateley, Knights and Ince in similarly providing a trading update to the market. The firm said it believed its model – in which its lawyers work remotely anyway and their fees amount to about 75% of the revenue they generate – meant it was in a strong position to deal with the impacts of Covid-19.
The firm, which operates on a financial year to 31 January 2020, said it was currently unable to assess any impact for the next financial year but would not be recommending a final dividend for this year given the uncertainty.
Revenue at Keystone Law rose by more than a third to £42.7m as the listed legal platform’s principal lawyer headcount rose 14%.
The firm’s financial results for the year to 31 January 2019 – its first full set since becoming the third UK law firm to float in late 2017 – also show a strong 57% increase in net profit before tax to £5.1m.
Keystone’s platform works by recruiting senior lawyers, called principal lawyers, who contract to Keystone, with many recruits attracted to the firm’s flexible working ethos and ability to keep 75% of fees earned.
During the financial year, the firm’s principal lawyer numbers rose to 277 from 244. Accepted offers by principal lawyers similarly rose 7% to 63, with the firm receiving 249 applications over the year. A net 20 fee-earners were also recruited by 15 principal lawyers for their practices, helping push Keystone’s overall fee-earner headcount up 21% to 321.
Founder and chief executive James Knight (pictured) told Legal Business: ‘We’re very pleased to see revenue finish 35% up on this time this year: that was on the back of strong recruitment of new lawyers and also a lot of recruitment by our existing lawyers of their own juniors. Recruitment has been stronger than expected. It’s not just about that but, ultimately, it’s a strong factor.’
Keystone rose £15m from its initial public offering (IPO), but Knight said there were still no concrete plans for the cash, with the firm unlikely to follow other listed law firms in undertaking acquisitions.
He commented: ‘We’re an ambitious firm and one of the primary reasons to IPO in the first place is that it would help us engage with a more sophisticated client; it would be good for brand recognition and enhancement. Anecdotally, that’s been very effective and for larger clients who may have hesitated in engaging with a law firm that was not in the top 20, this may – on the account of the fact it is on the public markets – have overcome any reservations they may have.’
Knight added he was confident of attracting more talent to Keystone, eyeing the mid-tier UK legal market he said was worth about £9bn. ‘At the risk of sounding boring, it’s working well for us,’ he said. ‘We’re growing at a very good rate and we’re enjoying what we do and delivering to the shareholders.’
The firm announced a full-year dividend of 9p a share.
Recently listed Gordon Dadds acquires tax advisory business CW Energy
November saw New Law player Keystone Law become the third UK law firm to float on the London Stock Exchange (LSE), following the trail blazed by Gateley two years ago and Gordon Dadds earlier this year. The mid-market challenger firm, which was granted an alternative business structure (ABS) licence in 2013, saw shares priced at 160p and raised £15m from its initial public offering (IPO). It will be known as Keystone Law Group plc.
Following the trail blazed by Gateley two years ago and Gordon Dadds this summer, New Law player Keystone will become the third UK law firm to float on the London Stock Exchange (LSE) with shares to begin trading on 27 November priced at 160 pence per share.
Mid-market challenger firm Keystone Law, which will raise £15m from joining AIM, is valued at £50m and will be known as Keystone Law Group Plc. Panmure Gordon has been instructed by the firm to act as financial adviser, nominated adviser and broker.
Commenting on the listing, James Knight, founder of Keystone Law and chief executive of the new plc, said the intention to float marks a milestone in Keystone’s achievements so far.
He added: ‘The strong support we’ve had so far from the team, investors and clients demonstrates a genuine endorsement of what we hope to achieve. We look forward to building on that support and our own standards as we begin life as a public company.’
The announcement to float on the LSE follows Keystone’s conversion to an alternative business structure (ABS) in 2013 and an additional £3.5m cash injection from private equity firm Root Capital the following year. According to the firm, turnover stood at £26m for the financial year 2016/17.
Keystone’s float follows in the footsteps of Gateley’s landmark listing in 2015 and Gordon Dadds, which became the second law firm to float in August after a reverse takeover bid.
There have been mixed fortunes for listed law firms to date. While Slater and Gordon, which became the first law firm in the world to go public when it floated on the Australian Securities Exchange in 2007 has seen its fair share of difficulties – not least in the UK following its £637m acquisition of Quindell’s (now Watchstone Group) professional services division, arguably partners at Gateley have seen the law firm go from strength-to-strength, with a double digit increase in revenue of 16% to £77.6m for this financial year.
Veteran partners at the firm also reaped the benefits of a recent share sale which saw select partners taking home almost £500,000 after a stake in the top 50 UK law firm was sold for nearly £10m just last month.
Keystone Law has turned to boutique private equity house Root Capital to fund its growth plans, raising £3.15m in return for a 35% stake in its business.
The capital will be used in part to expand the firm’s infrastructure, and partly to acquire an equity interest from founding partner, Charles Stringer, who is retiring as IT and finance director, taking on a non-executive position and acquiring a small share of the business.
Keystone managing partner, Simon Philips, will hold a seat on the board, alongside IT director Maurice Tunney – who joined from Fieldfisher earlier this month and replaces Stringer – as well as managing partner James Knight, and directors Will Robins and Mark Machray. Keystone has also secured a financial director to start at the end of the year.
Keystone managing partner James Knight said: ‘This move signifies one of the most significant strategic developments in Keystone’s 12 year history. We have always experienced strong organic growth and this additional capital injection will help us to realise our more ambitious growth plans. Root’s investment really will enable us to rapidly improve the facilities Keystone provides to its lawyers and the service it delivers to its clients.’
According to Root Capital’s website, the private equity house ‘invests in growth businesses in the equity gap and also relish challenging deals, including public-to-privates, distressed situations and businesses which need major changes to improve their underlying strength and value.’
Managing partner of Root Simon Philips said: ‘We were drawn to Keystone because it stands out from the crowd as a forward thinking law firm with innovative leadership and a clear vision. It is not weighed down by a partnership and it has the infrastructure, people and processes to make huge waves in the legal market. We understand the firm’s unique culture and personality and the driving factors that make it so successful and look forward to nurturing these in the future.’
Keystone successfully converted to an Alternative Business Structure (ABS) in October last year. Turnover in the last year has increased from £12.2m in 2013 to £14.1m in 2014, while Keystone also launched outside of the UK with Keypoint Law in Australia.
Keystone Law has hired into its most senior ranks a former partner from Addleshaw Goddard and SGH Martineau alongside a former general counsel (GC) of Yahoo! to bolster its disputes, corporate and TMT practices.
Robert Harvey has joined Keystone’s disputes team of 32 lawyers after leaving Addleshaw Goddard’s partnership in November last year. He joins as a consultant as Keystone, whose lawyers work from home, has no partners after converting to an alternative business structure (ABS) last year.
Harvey has experience of advising on large-scale commercial litigation and white-collar crime investigations for high-net-worth individuals and companies, including those in the FTSE 100 and FTSE 250.
Andrew Stilton joins Keystone after 34 years at SGH Martineau, where he focussed on mergers and acquisitions and corporate finance. He was previously involved in the consultation process that culminated in the enactment of the Companies Act 2006.
The third appointment is the former GC of Yahoo! UK, Liyen McCoy, who has joined Keystone’s TMT group. She joins with knowledge of the digital and telecommunications sector and sat on the management board of Yahoo! UK, where she was charged with all legal and regulatory matters. She also served as the company’s head of European compliance for three years.
James Knight, managing director of Keystone Law, said: ‘With the economy on the rise again we have seen an increase in client activity across all areas, and we are absolutely delighted that Robert, Andrew and Liyen—three leading industry figures in their respective areas—will be joining the growing teams here at Keystone.’
Keystone operates a performance-based remuneration structure rather than paying conventional salaries. Lawyers receive support from a central London office, which provides meeting rooms and support staff and performs the firm’s administrative functions.
Last year Keystone hired ten lawyers, including six partners, from firms including Berwin Leighton Paisner (BLP) and Davenport Lyons and Nokia’s director of legal and IP Stephen McCue.
Addleshaw Goddard, meanwhile, saw DWF last week hire its former national head of employment, Andrew Chamberlain, to take on an identical role at his new firm. This shortly followed the news that global accountancy giant EY had hired Addleshaw’s corporate managing partner Philip Goodstone in a bid to build up its UK legal credentials.
The virtual law space has a new entrant after former Mercedes-Benz UK group general counsel and head of compliance Iain Larkins this month left his role at the luxury vehicle company to found virtual commercial firm Radius Law.
Speaking to Legal Business, Larkins, who has worked in-house for 14 years, says the fundamental premise of Radius Law is to provide good commercial advice in areas including contract, disputes and competition at a ‘highly competitive’ rate, something he says is still difficult to achieve at many traditional law firms.
‘We created a model where the lawyers are free to give good commercial advice and worked hard on finding the right lawyers. Most of the lawyers have previous commercial experience and in many cases, have done business roles in-house. It was a rigorous process to prove they would give good commercial judgment rather than just legalese,’ Larkins commented.
The company is starting from small beginnings, with five lawyers on its books, who will all work from home and none of whom are expected to bring clients with them.
‘What’s attractive to lawyers wanting to join is there’s no expectation that you’ll bring a big following. Lawyers can come in and do the work they love doing without the hassle of having to bring a bunch of clients,’ Larkins adds.
Similar small sized models to Radius Law have been steadily emerging across the sector, including virtual firm Mackay Carter Shaw headed by former London Stock Exchange legal chief Tom Mackay together with Jennifer Carter Shaw, a commercial lawyer formerly at Curtis, Mallet-Prevost, Colt & Mosle.
At the larger end of the scale 130-lawyer Keystone Law this year converted to an alternative business structure and turned over £12.3m (an increase of 9.8% on 2011/12). Elsewhere, leading flexible resource providers such as Axiom and Lawyers on Demand (LoD) have traditionally sent lawyers to work with the client on site, although this summer LoD launched a new offering, ‘on call’, where lawyers will undertake legal work for other law firms, often from their own home.
Radius Law received authorisation from the Solicitors Regulation Authority on 1 September.