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Gordon Dadds plummets on placing

The legal and professional services group announced a discounted fundraising for institutional investors
January 28, 2019

Gordon Dadds’ (GOR) shares tumbled by more than a fifth after the legal and professional services group announced a discounted placing to raise a minimum of £10m.

IC TIP: Hold at 151.5p

The fundraising closed within hours and was “well oversubscribed” – generating proceeds of around £11.5m from institutional investors. But, at 140p, the shares were placed at a 25.9 per cent markdown to the prior day’s closing price – engendering questions about why they were offered on the cheap, and whether private investors should expect a similar dilution of their interests were management to return to the market again. The new shares represented around 28.5 per cent of the group’s share capital before the placing.

Chief executive Adrian Biles reasoned that Gordon Dadds’ shares had been suspended for a period (at 182p, from 27 September 2018 to 2 January 2019), pending the completion of its acquisition of law firm Ince & Co LLP, which occurred on New Year’s Eve. They had thus been insulated from the volatility and declines seen across the broader market. Mr Biles also highlighted that he is the group’s largest single shareholder.

This information might provide some reassurance. Still, given that Gordon Dadds is an acquisitive company, we can assume that there might be further placings in future at prices that could hit non-participating shareholders.

The proceeds of the relevant fundraising will provide “financial flexibility” for Gordon Dadds’ acquisition strategy. It is focused on firms with £10m or more in fee income or with a “complementary international business”.

The group also provided more details regarding the Ince deal, which has attracted press scrutiny in recent weeks. The acquisition structure entailed Ince being placed into administration. Gordon Dadds notes that this was after “extensive due diligence” and to “to protect the interests of the Shareholders”.

The total consideration for this deal is £27.3m plus 3m (equivalent to 8 per cent of the enlarged share capital) options exercisable at 140p. While Gordon Dadds bought Ince UK, management believes that it could consolidate the results of the Hong Kong, Singapore, Dubai, Greece and Germany operations within 12 months.