Listed firm Knights posted a double-digit rise in underlying half-year profits today as it announced another acquisition. The national firm has agreed to buy Bristol firm Meade King in a deal worth £2.1m, the first acquisition made by Knights since last May.
In audited interim results, covering the six months ended 31 October 2022, Knights said that revenue rose by 19% to £71.2 on the same period in 2021/22. Underlying profit before tax increased by 19% to £9m.
Knights noted that underlying pre-tax profit, which excludes acquisition- and other non-recurring costs, provides the most meaningful measure of group performance.
Net debt increased from £29m to £35.6m, although the Knights board said this was ‘in line’ with expectations. The company will pay an interim dividend of 1.53p, compared with 1.46p.
The latest results suggest a welcome upturn on 2021/22, when full-year underlying profit before tax fell 2% to £18.1m – a figure that Knights had already warned would be below previous expectations. Knights shares, which once traded at 490p, plummeted following that warning and reached a nadir of 61.4p in October before staging a partial recovery.
David Beech, chief executive, said the firm had thrived despite a ‘relatively flat market’ and driven its revenue growth through acquisitions.
He added: ‘Knights has delivered profitable, cash-generative growth over the period and maintained this positive momentum into the second half. We are delighted that our group is now the largest regional commercial law firm in the UK. The strength of the Knights brand, and our reputation as a trusted and quality adviser, underpins our ability to attract and retain top industry talent, high-quality clients and acquisition targets.’
The latest Knights acquisition represents the firm’s first foray into Bristol and a second office in the south west on top of its Exeter base. In its unaudited accounts for the year ended 30 April 2022, Meade King reported revenue of £2.7m and profit margin of around 5%. Following full integration, the Knights board expects a profit margin of around 17% and to be immediately earnings-enhancing.
Knights will acquire Meade King from its four existing equity partners on a debt-free basis for a total of £2.1m. This comprises an initial cash payment of £1.5m, with deferred payments of £200,000 over three years. The cash will come from Knights’ existing facilities and completion is expected to take place on 17 February, when 29 fee-earners will transfer.
The Knights results show that its most recent acquisitions have produced mixed outcomes. The company bought Yorkshire firm Keebles in June 2021 but subsequently scrapped its legal aid, personal injury and volume debt and conveyancing work, reducing expected revenue from the business by £1.5m.
During the second half of FY22 the acquisitions of Archers Law LLP and Langleys Solicitors LLP were completed. These additions have contributed £7.4m of revenue in the half year to 31 October 2022 and are ‘performing as expected at acquisition’.
In July 2022, Knight disposed of Home Property Lawyers Limited (HPL) which was acquired as part of the Langleys acquisition but identified as non-core. For the period prior to exchange, HPL contributed revenue of £700,000 and made a pre-tax loss of £100,000.
Knights Group shares slipped 2.4% this morning.
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