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.
Speaking to Legal Business, Keystone’s founder and chief executive of the new plc, James Knight, said that the firm had been considering listing on AIM for the past two years, however research began ‘in earnest’ earlier this year when Keystone instructed Panmure Gordon as financial adviser, nominated adviser and broker to advise on the viability of a flotation. Keystone also instructed Squire Patton Boggs and RSM to act on its behalf.
This process took a number of weeks before Keystone embarked on a roadshow to potential institutional investors to subscribe to available shares. ‘In our case we were lucky that the share offering was heavily oversubscribed, which meant that unfortunately not all of the investors got the allocation they were looking for.’
The announcement to float on the LSE follows Keystone’s conversion to an 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.
Although there have been mixed fortunes for listed law firms to date, with Slater and Gordon experiencing its fair share of difficulties in the UK following its acquisition of Quindell (now Watchstone Group)’s professional services division, Knight is confident that the structure of Keystone’s business model – the firm does not have a traditional partnership structure – sets it apart.
‘We did look at what other listed law firms had done, however, it should also be borne in mind that while the provision of legal services is the same at Gateley, Gordon Dadds and Keystone – our partners are remunerated by way of a structure that does not tie into the equity of the firm and are not directly affected by the IPO. From an ownership point of view, that is not one of the reasons why lawyers join Keystone.’
Although typically law firms float to gain capital for investment or other corporate acquisitions, Knight says that it is ‘business as usual’ for Keystone in the short term with no plans for investments in the near future.
‘This was a capital raise that was not linked to potential corporate acquisition. There is some potential debt being paid off but that is not bank debt. The reason why Keystone was so oversubscribed was because the investors really liked what we were doing. They want us to do more of the same.’
Meanwhile, Gordon Dadds has already made its first strategic acquisition since going public in August, acquiring tax advisory business CW Energy in November for £4m to ‘further the company’s intention to expand its tax advisory business’.
‘Keystone was so oversubscribed because investors liked what we were doing. They want more of the same.’
James Knight, Keystone Law
According to an LSE announcement on 1 November, Gordon Dadds paid £300,000 upon completion of the deal and expects the acquisition to immediately enhance earnings at the firm. The sum of £4m will be paid in equal annual instalments over five years and further consideration may be payable depending on the performance of the business.
The announcement also states that CW Energy, which specialises in the oil and gas industry, has three partners and a total of six employees.
Adrian Biles, Gordon Daddsʼ chief executive, said that since the flotation the business had received a ‘number of approaches to make acquisitions and also for lateral hires’ and has a ‘good acquisition pipeline’.
Gordon Dadds posted revenues of £25m for the financial year ending March 2017, up 24% from £20.2m. Since 2013, Gordon Dadds LLP has grown from £2.7m to £22.8m, boosted in part by absorbing the practice of Davenport Lyons in 2014.
The firm has seen an encouraging financial performance for the six months ending 30 September 2017. H1 revenues have grown 15% since 2016, with turnover rising from £11.3m to £12.9m. Operating profits were also boosted 44% to £3.47m.
Biles added: ‘The listing has allowed us to take in additional investment. No shareholder sold at the time of our listing or since. We were already negotiating the transactions that we closed in January and November before the listing, but we expect to close a couple of other deals before the end of the calendar year.’