Gordon Dadds: the right side of the law

Gordon Dadds has two key focuses. First is Gordon Dadds LLP, which is a full-service, acquisitive law firm, targeting the 'challenged' legal middle-market where firms typically generate annual fees above £10m but face competitive pricing pressure. The group also incorporates the Prolegal platform, targeting smaller firms with fees of £2m-£10m, which often lack economies of scale. Once acquired, these businesses gain access to Gordon Dadds’ Cardiff-based back office and technology hub, helping them to streamline and minimise overhead costs.

Overall, these two types of firms constitute a whopping £6.6bn pool of annual revenues. Gordon Dadds has made significant headway on its expansion ambitions, with multiple acquisitions over the years and five in the 12 months to March 2018 alone at the cost of £20.3m. Yet, for now, the shares look inexpensive against analysts’ projected earnings – representing an attractive moment to buy in.

Upon listing, Gordon Dadds sought to double revenues within three years – starting from a base of £24.9m in the year to the end of March 2017. Encouragingly, the top line rose 25.3 per cent last year, reaching £31.2m. But, for management, these results masked the momentum achieved through acquisitions, most of which were made towards the end of the year, which meant they contributed relatively little to the 12-month performance. On an annualised basis, revenues exceeded £42m – within touching distance of the group's 36-month objective.

Management’s other goal is to lift the operating margin to 15 per cent over time. Broker Arden Partners forecasts margins to increase from 9.9 per cent last year to 13.7 per cent in the year to the end of March 2020. In any case, last year's 23.3 per cent rise in adjusted pre-tax profits to £3m was good news – despite statutory numbers falling, after restructuring and flotation-related costs.

White & Black – a law firm specialising in financial technology, purchased in January for up to £3.5m – provides an example of the type of businesses being acquired. Its Far Eastern presence marked progress made on the group’s plans to move into overseas jurisdictions where English law prevails. In fact, post-period-end Gordon Dadds opened a Hong Kong office.

Beyond the law, Gordon Dadds also bought CW Energy – a corporate tax advisory business – last November for up to £8m, exemplifying its interest in complementary professional services lines. These bring enhanced cross-selling opportunities, in turn laying foundations for organic growth. With £8.4m in net cash leftover on 31 March, more transactions could be imminent, although the cash needs to be seen in context of a £17.3m deferred acquisition consideration on the balance sheet, up from £6.3m a year earlier.