Announcement of Intention to Float on AIM

Michael-Ward-2

Gateley (Holdings) plc, a leading national commercial law firm, today announces its intention to launch an initial public offering (“IPO”) and application for admission of its ordinary shares to trading on AIM (“Admission”). Cantor Fitzgerald Europe is acting as financial adviser, nominated adviser and broker to Gateley.

Gateley was established in the 19th Century, and has over 380 fee earners across six offices in England and an office in Dubai. Gateley provides high quality, integrated partner-led, client-focussed legal services across five core groups to over 4,000 corporate and 1,500 private clients. These core areas are Banking and Financial Services, Corporate, Business Services, Employment and Pensions and Property.

Over the last ten years Gateley has grown its revenue by a compound annual growth rate (“CAGR”) of 14.3% and operating profit by 14.8%, with strong cash generation and a typical cash conversion of 95% every year over the last three years supporting both growth aspirations and an attractive dividend policy.

In 2014 Gateley took advantage of changes to the law in England and Wales to adopt an Alternative Business Structure (“ABS”) allowing non-lawyers to own and invest in law firms. The Board believes the combination of the new ABS, the transition from an LLP to a PLC and first mover advantage through the proposed AIM listing, will provide a platform to expand and diversify its business through:

  • Greater opportunities to grow Gateley both organically and by selective acquisition – including lateral hires of individuals or teams, or of other legal firms which offer geographical expansion or specialist services;
  • The opportunity to acquire businesses offering complementary professional and other business services;
  • Alignment, through share participation, of employees’ goals with those of the business, aiding retention of staff and adding to Gateley’s recruitment appeal;
  • Facilitating a more flexible career structure, further widening Gateley’s appeal in the employment market; and
  • Enhancing the visibility of Gateley generally.

Key highlights:

A leading full service national commercial law firm

  • The Group provides legal services to over 5,500 clients, across multiple sectors from six UK offices in Birmingham, Leeds, Leicester, London, Manchester and Nottingham as well as an office in Dubai

Differentiated through high client satisfaction rankings and a strong national brand

  • Excellent rankings in legal tables and surveys helps drive new business
  • Gateley has won numerous awards since 2010 and 94 of the Group’s lawyers are ranked as ‘Leading Individuals’ in the 2015 edition of Chambers (a leading industry directory)
  • No dependence on any individual client with 30 clients representing approximately 31% of gross billings

Highly experienced and committed management team

  • Four of the six management board members have been at Gateley for over 20 years
  • Proven track record of successfully integrating acquisitions and establishing and growing new offices
  • All 81 selling partners are locked in for five years demonstrating long term commitment and alignment to the Group’s performance

The Group has a track record of sustained growth supporting an attractive dividend policy

  • Over the last ten years the Group has delivered profitable growth with CAGR of 14.3% in revenue and 14.8% in operating profit – this growth has exceeded the industry CAGR in turnover of 4.1% over the last five years
  • For the year ending 30 April 2014, Gateley reported revenues of £54.6m (2013 : £51.4m) and adjusted profit before tax1 of £7.4m (2013 : £5.1m)
  • For the six months to 31 October 2014, Gateley reported revenues of £26.7m (H1 2014 : £23.1m) and adjusted profit before tax of £2.6m (H1 2014 : £1.0m)
  • Progressive dividend policy to pay an interim and final dividend of up to 70 per cent. of adjusted profit after tax

A changing and growing legal services market

  • Changes to legislation have created a new environment for the provision of legal services, one that is expected to facilitate further merger activity and consolidation within the UK sector. The UK legal market services sector generated fee income worth approximately £30 billion in 2014 and continues to exhibit growth

Value enhancing growth strategy

  • Having established a strong brand, profitable business and leading position in the UK-centric mid- market legal services sector, the Group’s strategy is to continue to develop its business by organic growth, but also by way of acquisition
  • Organic growth to be achieved by way of alignment, through share participation, of employees’ goals with those of the business aiding retention of staff and enhancing Gateley’s recruitment appeal
  • The Group will seek to successfully acquire legal teams or firms offering niche services, sector specialism or geographic expansion and complementary business services, enabling cross-selling to existing clients and representing a stronger sales proposition for potential new clients

Michael Ward, Chief Executive Officer of Gateley, commented:

“Gateley is a successful, fast growing and entrepreneurial legal services group which operates in a rapidly changing marketplace. We believe the catalysts for value creation are now to acquire, incentivise, differentiate and where sensible diversify. These opportunities for growth will undoubtedly be most accessible as a PLC and we want to be the first to be able to take advantage of them.

Our growth and reputation over the last ten years has been driven by the quality of our people and the level of service we offer to clients. Our future as a PLC will help ensure these crucial strengths remain at the core of our development.”

Nigel Payne, Non-Executive Chairman of Gateley, commented:

“I have been very impressed with the ambition and vision of the senior Gateley team. The dynamic growth prospects, strong cash generation, and desire to look after its upcoming talent make the business a compelling investment proposition. I am very excited about the future.”

Enquiries:

Gateley (Holdings) Plc

Cara Zachariou, Communications Manager, +44 121 234 0074 or 07703 684 946

Buchanan – Financial PR adviser

Mark Edwards, Gordon Poole, +44 207 466 5000, Gateley@buchanan.uk.com

Cantor Fitzgerald Europe – Nominated adviser and broker

Mark Percy, David Foreman (Corporate Finance), David Banks, Mark Westcott (Corporate Broking and Equity Sales), +44 207 894 7000

1 Adjusted profit before tax is the historic profit before tax of the Group adjusted for changes arising from the transfer of the business from LLP to a PLC, in particular, the adding back of partner distributions and deduction of partners’ pay and NIC (under the new system) and merit bonuses.

Company Overview

Gateley is a leading national commercial law firm that provides legal services in the UK and has a presence in Dubai. The Group has over 380 fee earners including over 340 solicitors and employs over 600 people including administration and support staff across six UK offices in Birmingham, Leeds, Leicester, London, Manchester and Nottingham as well as an office in Dubai. The existing LLP business has 100 partners in its English offices. Gateley is also affiliated with a Scottish practice, HBJ Gateley, which has three offices in Aberdeen, Edinburgh and Glasgow, although this business is independent of Gateley and excluded from the proposed IPO.

Founded in Birmingham in the 19th Century, Gateley provides a comprehensive offering of commercial legal services to over 4,000 corporate and 1,500 private clients. The Group prides itself as a national firm with a strong regional emphasis, providing a high quality, integrated partner-led, client focused service across its five core groups (i) Banking and Financial Services; (ii) Corporate; (iii) Business Services; (iv) Employment and Pensions; and (v) Property.

Gateley has established a strong brand and standing of the business having won numerous awards since 2010. In both 2011 and 2012 the firm was ranked as the leading national firm for service delivery and partner relationships in the Legal Week Client Satisfaction Survey. The independent survey was conducted by Legal Week amongst 1,200 senior in-house legal professionals and across 14 industry sectors as well as the public sector. It was ranked third by deal volume in the UK in the Experian Corpfin Deal Review League 2014 and in the Q1 2015 rankings Gateley is currently retaining its first place position in the Midlands while breaking into the top 10 in the South

East for the first time. 94 of the Company’s lawyers are ranked as ‘Leading Individuals’ in the 2015 edition of Chambers (a leading industry directory).

Company Strategy

The Group’s strategy is to continue to develop its business by way of organic growth, but also by acquisition.

Organic growth

The UK legal services market continues to exhibit growth and clear opportunities exist for Gateley to grow organically, in particular from:

  • The retention of existing partners and fee earners and their commitment to Gateley and opportunities it provides, as demonstrated by the extended five year lock-in arrangements the existing partners have entered into
  • Attracting new talent wishing to be a part of a progressive legal services business
  • Enhanced cross-selling opportunities afforded by the adoption of an ABS. Whilst legal services will always remain at the heart of the business, the Directors believe there is a compelling logic to adding complementary business services, such as regulatory advice, compliance and professional training, alongside Gateley’s existing legal service offerings
  • Improving Gateley’s bank panel representation and “own account” work for banks
  • Extending Gateley’s relationships with the UK’s leading house builders and in particular in those divisions and regions where Gateley does not currently act for them
  • Expansion of specialist areas such as regulatory into other geographical areas
  • Growing Gateley’s corporate teams in each region, in particular Yorkshire and the North West
  • Developing Gateley’s project litigation offering and taking advantage of the offshore work this generates.

Acquisitive growth

In addition to organic growth, Gateley intends to take advantage of becoming the first law firm to be listed on AIM as well as having an ABS and being at the forefront of anticipated consolidation within the UK legal services sector.

Acquisition growth will be achieved through the acquisition of:

  • Legal teams or firms offering niche services, sector specialism or geographic expansion
  • Complementary business services businesses (now permitted under the ABS).

A broader set of services will increase the potential for cross-selling to existing clients and represent a stronger sales proposition for potential new clients.

Lock-in and orderly market agreement

All of the selling partners are becoming salaried employees and on Admission will be the holders of Gateley ordinary shares (“Ordinary Shares”) in aggregate, representing 50.1 per cent. of the enlarged share capital of Gateley (Holdings) Plc. All have (pursuant to the Cantor Fitzgerald Europe Lock-in Agreement) undertaken to Gateley and Cantor Fitzgerald Europe not to dispose of any interests in Ordinary Shares for a period of 12 months from Admission and for a further 12 months thereafter (limited to certain limited expectations) to deal in their Ordinary Shares only through Cantor Fitzgerald Europe, for so long as they are broker to Gateley, with regard to maintaining an orderly market.

In addition to the Cantor Fitzgerald Europe Lock-in Agreement and to ensure retention of its more senior staff, Gateley has agreed with the locked-in shareholders to enter into enhanced lock-in arrangements. These include five year lock-in arrangements with claw-back provisions for both cash received and Ordinary Shares retained on Admission:

  • Cash will be clawed back on the basis of 100 per cent. in the first year, 66 per cent. in the second year and 33 per cent. in the third year if a Locked-in Shareholder is a “Bad Leaver” or “Retiree”
  • Ordinary Shares will be clawed back at 100 per cent. discount to market price in the three years from Admission if a locked-in shareholder is a “Bad Leaver” or “Retiree” or at a 75 per cent. discount in the fourth year and a 50 per cent. discount in the fifth year in those circumstances
  • Sales of Ordinary Shares by locked-in shareholders who are not “Bad Leavers” or “Retirees” in the first and second years after Admission will not be permitted and thereafter will be restricted to 10 per cent. in any given year subject to a minimum hold

Dividend Policy

The Board intends to adopt a progressive dividend policy to reflect the expectation of future cash flow generation and long-term earnings potential of the Group.

Based on the above expectations, the Directors intend that the Group will pay an interim dividend and a final dividend to be announced at the time of the interim and preliminary results in approximate proportions of one-third and two-thirds, respectively, of the total annual dividend. It is expected that the first dividend payment will be announced with the interim results for the six months ending 31 October 2015.

It is the intention, subject to the availability of distributable reserves and where the cash flow requirements of Gateley mean it is prudent to do so, to pay as dividends up to 70 per cent. of adjusted profits after tax. The Board may however revise the Group’s dividend policy from time to time in line with the actual results of the Group.

Board of Directors

On Admission the Board will comprise:

Nigel Payne, aged 55, Non-Executive Chairman

Nigel has over 24 years’ experience as a director of both publicly listed and private companies. He has extensive experience of listing companies and fund raising, notably in his current role as Non-executive director of AIM quoted Gama Aviation Plc and previously as CEO of Sportingbet Plc. Sportingbet was one of the world’s largest internet gambling companies and made a number of acquisitions whilst listed on the London Stock Exchange (both FTSE listed and AIM quoted). Nigel holds an Executive MBA from the IMD Business School (Lausanne, Switzerland) and a degree in Economics and Accounting from Bristol University.

Michael Ward, aged 56, Chief Executive Officer

Mike has over 25 years’ experience as a corporate lawyer, advising private and public companies, management teams and private investors. He joined Gateley in 1987 and has been instrumental in the development of Gateley. He was elected as Senior Partner in 2001 and sits on the Strategic Board. Mike was former President and Treasurer of the Birmingham Law Society and former President of the Greater Birmingham Chamber of Commerce.

Peter Davies, aged 57, Chief Operating Officer

Peter has over 30 years’ experience as a dispute resolution lawyer. He has considerable experience in construction disputes, acting for developers, contractors, sub-contractors and construction professionals. More recently, he has concentrated on providing advice to the firm’s house-builder clients. He is a member of the Law Society, TeCSA, and is also a CEDR accredited mediator. He has been involved in the management of Gateley LLP for over 20 years. He sits on the Strategic Board and Chairs the Operations Board.

Neil Smith, aged 39, Finance Director and Company Secretary

Neil joined Gateley LLP in 2008 from Grant Thornton and was appointed as Finance Director in 2011. A fellow of the Association of Certified Chartered Accountants, he has more than 20 years’ experience working in the professional services industry.

Joanne Lake, aged 51, Non-Executive Director

Joanne has over 30 years’ experience in financial and professional services; 21 years in investment banking with a number of firms including Panmure Gordon, Evolution Securities, Williams de Broe and previously 9 years in audit and business advisory services at Price Waterhouse. Joanne is a non-executive director of AIM quoted wealth-management group, Mattioli Woods. She is a Fellow of the Chartered Institute for Securities & Investment and of the ICAEW, and is a member of the ICAEW’s Corporate Finance Faculty. Joanne is also a trustee of The Hepworth Wakefield.

Michael Seabrook, aged 63, Non-Executive Director

Michael has over 30 years’ experience as a solicitor, nearly 25 of which were served as a partner in Eversheds LLP, where he performed a number of senior roles before retiring in 2011.

Since then he has held non-executive director roles at Steelite International Holdings Limited, Springboard Corporate Finance Limited, West Midlands Enterprise Limited and other businesses and acts as a trustee of the Queen Elizabeth Hospital Birmingham Charity.

Full details of the placing will be included in the Admission Document which will be published in due course.