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It operates in a different way to traditional law firms
Thursday 23 Nov 2017 Author: David Stevenson

Keystone Law is set to be the UK’s third listed law firm following Gateley (GTLY:AIM) in June 2015 and Gordon Dadds (GOR:AIM) in August 2017.

Keystone’s model has been described as disruptive compared to more traditional law firms in the UK, although it is hardly revolutionary.

The company is dubbed a ‘virtual law firm’; it uses a bespoke IT system called ‘Keyed-in’ which provides lawyers with remote access to document assembly tools so they are not tied to an office.


It also offers a performance-based remuneration structure rather than paying conventional salaries. Lawyers receive support from a central London office providing meeting rooms and support staff performing administrative functions.

The model means fee-earners are freed up from running a legal practice and cost savings can be passed on to clients. The firm has been successful in winning clients, acting for top names including FIFA, Bosch, Siemens, RSA Insurance (RSA), Glencore (GLEN) and Hiscox (HSX).

The firm is gearing up for an AIM float on 27 November, having raised £15m with a placing price of 160p valuing it at £50m which is £10m more than Gordon Dadds’ market cap on admission.

Of the cash raised at IPO (initial public offering) after expenses, £5m will go to existing shareholders who are selling down their holdings and £7.4m will be used to redeem loan notes and leave the company debt-free.

A new sector arises

The legal sector is relatively new to investors given that only two law firms have so far listed in the UK, so there is still an element of education to be done in order for the market to understand how law firms work.

It’s still a tad early to judge the success of Gordon Dadds as a listed company and we note that it took Gateley almost a year to gain any traction with its share price.

Keystone has grown its revenue by around 20% per year since receiving a cash injection from private equity house Root Capital in 2014.

A quick look at the results for Keystone’s 2016 year show £26m turnover. In comparison, Gateley made £77.6m revenue with pre-tax profit up 19% to £13.1m.

Keystone has attracted lawyers from big name firms in the past including Berwin Leighton Paisner and West End firm Davenport Lyons (now part of Gordon Dadds).

It has more than 250 lawyers (all self-employed with no fixed or minimum remuneration) and 40 support staff, according to the company’s website.

A large part of its overheads are fixed and so Keystone believes it could enjoy higher operating margins as the business increases in size. We also note that Keystone’s lawyers only get paid once it does.

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