viewKnights Plc

Knights showing exceptional growth as first lawyer to convert to a PLC sticks to what and where it knows best

In the year to April just ended, Knights and announced a 50% rise in revenues to £52.4mln and doubled underlying profits of £9.7mln

Law book
Since 2012, Knights has reported a compound annual growth in sales and earnings of 30%

Knights Plc (LON:KGH) was the first law firm to change into a PLC when the ownership rules changed in 2012 and nothing since has caused David Beech to regret that decision.

The traditional partnership model is creaking, the law firm's chief executive told Proactive.

People no longer are prepared to take the financial risk of stumping up £250,000 to buy into a partnership, especially with numerous law firms going to the wall.

Those failures, something unknown ten years ago, have made banks reluctant to lend to prospective partners.

But it’s not just financial pressure that has a put a question mark over the future of the law firm partnership.

The operational structure of partners doing all three of the ownership, management and law functions just doesn’t work anymore, he says.

Lawyers left to do the lawyering

Frustration at how law businesses were being run prompted him to leave the profession in 2005, but once the ownership rules changed he returned at Knights and has not looked back.

Company status allows for a clear definition between the owners/management and lawyers, Beech says.

Managers work for the owners to make the Company run efficiently leaving ‘lawyers to do the lawyering’.

It’s a philosophy that has worked spectacularly well since 2012 with compound annual growth in sales and earnings of 30%.

In the year to April just ended, Knights did even better and announced a 50% rise in revenues to £52.4mln and doubled profits to £9.7mln.

Stick to where you know

It’s not just the equity structure that has helped Knights, another key feature is that it sticks to the UK’s regions and will not venture anywhere within the M25.

Most law firms head to the Capital when they reach a size of about £60mln, but that is most definitely not on the cards at Knights.

“Our model would just not work in London,“ David Beech says pointing to the higher churn rates among staff in city firms.

Instead, the plan is to dominate secondary and third-tier cities such as Stoke, Derby and Manchester.

Knights' focus is the corporate customer and it specialises in property, mergers and acquisitions, litigation and employment work.

The regional focus makes it more aligned with customers from similar backgrounds whereas there is a different feel when they come to London to a ‘Magic Circle’ firm.

Client roster impressive

Establishing a corporate relationship is also more profitable than just acting on a transaction basis.

“We make a lot more on 'matter 500' than 'matter one'," he says.

Knights has some high-profile names on its roster.

Rolls-Royce came from a Derby connection while McDonalds, too, is a client.

The local focus also means it can retain its best staff.

In Stoke, for example, David Beech says it has 120 lawyers and for a corporate client in the area, there is little alternative.

Lawyers based in the city also want to work for the group due to its dominance.

Even without any acquisitions, Beech believes there is enough organic momentum in the business to generate 15% revenue growth per year.

Last year, the group also made four purchases, which brought in 35% of additional turnover and took the increase up to 50%.

And there is plenty more to come believes Beech.

Regional expansion on the cards

Birmingham, Leeds and Newcastle are three core cities in the UK, for example, where Knights yet establish a presence.

Other smaller towns such as Southampton, York, Harrogate, and Solihull, also fit the bill for Knights.

“They are not sexy but profitable. They have populations of 400,000 and hundreds of firms.”.

Crucially, adds Beech, no one else is following its business model, which leaves it a clear run to expand at a pace of its own choosing.

And even if you did exhaust the potential in the UK, Beech also believes there is no reason the model would not work abroad say to the outskirts of Pairs or Milan.

That though is not on the agenda in the immediate future as Beech says there is more than enough regional opportunity to keep it moving smartly ahead.

Rating reflects exceptional growth

At 275p, the company is valued at a shade over £201mln, a rating that reflects the exceptional growth being seen at present.

There are not many shares around either.  

Beech owns 45% of the company and institutions that came on board when it joined AIM in 2015 a sizeable chunk of the rest of the equity, which makes for limited availability for the stock.

Though presumably that can be addressed through the acquisition policy, especially as in a couple of years the current share price might well look a bargain.

Quick facts: Knights Plc

Price: 330 GBX

Market: LSE
Market Cap: £243.69 m

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