Hamish McNicol speaks to chief executive Adrian Biles about tubthumping, going public and frustration
Gordon Dadds managing partner and group chief executive Adrian Biles talks ambitions for nearly an hour before recalling a story about a businessman who never smiled in photos. The reason being those photos were always the ones that would accompany any bad news stories further down the track.
Biles, a straight talker who manages more than one smile during the conversation, does not want to bang the drum too hard just yet. But talk of Gordon Dadds’ £20m initial public offering (IPO), four acquisitions in quick-fire succession, and becoming a £100m business has put it in the spotlight.
‘It is easy to say we are fantastic, we are incredible, because we are fantastic, we have done something incredible, but it does not look great in print.’
In February, the firm made its fourth acquisition since its public float last August, buying up Cardiff-based Thomas Simon for £1.875m. This followed a £2m deal for Bristol firm Metcalfes in January, the £3m purchase of legal and professional services business White & Black earlier that month and, in November last year, the acquisition of tax advisory business CW Energy for £4m. There have been 16 acquisitions since 2013, with the group now boasting 90 partners and 139 other fee-earners.
Biles insists there is still plenty of firepower for further acquisitions as many of the deals were structured in a way that staggered payments and were not particularly draining on cash flow.
But there are plenty of sceptics of the listed-firm model route, and Biles voices his frustrations more than once about not being able to get the firm’s model and message properly across to the market.
He understands the wariness – to a degree – given listed law firms are still a rare breed and have not always gone to plan. He also concedes the brand is not where Gordon Dadds would like it to be, something he attributes to the firm, which he joined as managing partner in 2013, being a relative unknown. But he also takes aim at the mindset of large law firms and the ‘intellectual difficulty’ in seeing any value for shareholders in a listed law firm.
He points to the following scenario: approaching a firm with £30m in fee income, principally controlled by three 60-year-old senior equity partners making more than £1m a year, and the response is there is nothing he can offer attractive enough to sell.
‘That person is not necessarily thinking about anybody but himself and the other two, he is certainly not thinking about the other 30 who are coming up behind and who are now going to start to feel the burden of that money being taken out of the business and not being invested in it. But if you are him, why would you invest in it? You are going to go. Where is the economic model in that?’
It was this mentality that Biles argues was one of the benefits of going to the capital markets. The institutional money allowed the firm to consider the medium-term, not believing the ‘bullshit’ that artificial intelligence would make lawyers redundant but rather believing the world is moving at a pace you cannot not predict.
‘We know something is going to happen, we know it cannot go on, and therefore our mission is to aggregate sufficient revenue in order to help move the market onto a new model. If you have got £1m of revenue the market controls you but if you have got £500m of revenue, you can start to persuade the market that it might be possible to buy a service in a different way.’
That £500m of revenue sounds unreachable for a £23m firm, but Biles has said ‘nine figures’ is a natural goal for fee income, with potential acquisition targets being firms outside the UK top 50, an opportunity he said represents about 950 firms with £5bn of annualised fees.
There were five key points to the pitch which make it a ‘no-brainer’ for Biles: Gordon Dadds acquires the partners’ goodwill, partners are de-risked and insulated from liabilities, firms can also maintain their own branding and culture, while having access to cash and IT resources.
Michael Ward, chief executive of the UK’s first listed law firm, Gateley, says Gordon Dadds’ acquisition-heavy strategy differs to its own, but that it has done some interesting, if quite small, deals.
He argues there is a reasonable amount of potential legal listing activity and the market is at an interesting point: ‘Lawyers are generally cautious, aren’t they? It is true of most things in legal; LLPs were slow to catch on, alternative business structures were slow to catch on. You will see an acceleration but I do not know when and I do not know how many.’
For Biles, a ‘scale transaction’ involving the acquisition of an underperforming £20m to £40m firm is the ideal way to make a big splash going forward. Gordon Dadds has spoken to some firms in that bracket, which Biles believes are a perfect fit as they will struggle to grow substantially organically, while also facing the mid-market issues of succession and financing technology. The other alternative for those targets, of course, is to merge or take over another firm.
‘You do need to take advantage of economies of scale. The duplication of infrastructure is unnecessary – we have got an infrastructure that can support hundreds of millions of pounds of revenue so why not consolidate? I do not think we are getting that message across very well because we should have already done this, it solves so many of the common problems that there are.’