There is little complication with this stock. Gordon Dadds takes law, accountancy and wealth management firms and merges them.
The advantage is that Dadds looks after all the functions the acquired firms may consider non-core — such as marketing, IT, HR, insurance claims and arranging office space.
The other upside — particularly for law firms — is they can break away from the partnership model and function more like a “normal” corporate company.
Adrian Biles, chief executive officer and a lawyer himself, explains: “Partnerships require heavy levels of debt to operate and are notoriously bad at investing in things like technology as this takes away from the pay pot. Lawyers are also not trained to manage and by implementing this model they can concentrate on revenue and profit share, while we do the funding.”
Dadds listed on AIM last August through a £18.8 million reverse take-over by Work Group. Work was a recruitment firm which sold its business to Capita in late 2015 and remained a shell. The deal made Dadds the second listed law firm after Gateley.
It has acquired four law firms since the float, the latest last week when it paid £1.9 million for Cardiff-based Thomas Simon. The UK legal market is big business, clocking up £30 billion in fees last year alone. There are 10,000 registered law firms, with the top 1000 accounting for £6.5 billion in fees.
Dadds has £9.9 million cash on the balance sheet and plenty of firepower left, as acquisitions are paid for in instalments.
For instance, Dadds bought the whole share capital of Thomas Simon for £187,500 on and will pay the rest in 20 quarterly instalments.
Dadds has mostly been acquiring firms from the middle market but has its eyes on landing a major name. “We’d certainly look to snap up a renowned central London law firm. We talk to a lot of firms and complete on 20% of the people we meet.”
The major threat for the company is that there is plenty of competition in the legal space from newcomers, and it is difficult to predict what the future of the industry will look like.
It has been underinvesting for years, and firms such as Keystone Law, which listed in November, have stepped in to fill the gaps.
Keystone has developed an IT platform through which its lawyers can work from remote locations, providing offices when meetings are required.
The firm avoids the costs of maintaining office space, and the lawyers avoid the costs of commuting. It is forecasting market-beating profits.