Knights Group (AIM: KGH) targets 18% margin after £27m Moore Barlow deal

Knights Group Holdings plc (AIM: KGH) has agreed to acquire Moore Barlow LLP’s commercial and private wealth operations for £27 million in cash, adding approximately 160 fee earners and around £30 million of annual revenue as the listed legal-services consolidator deepens its presence across southern England. Completion is expected on November 1, subject to conditions, after Moore Barlow separately disposes of its personal injury, clinical negligence and Court of Protection businesses.

The acquired operations represent approximately 70% of Moore Barlow’s business by revenue. Draft FY26 accounts for the full firm show £45 million of revenue and £13 million of profit distributable to members, while the portion Knights is buying generated a corporatised EBITDA margin of only around 4%. Knights expects that margin profile to improve materially after integration and is targeting a post-acquisition profit-before-tax margin of approximately 18% after synergies and normal client and staff churn.

The transaction is material without being transformative to Knights’ current scale. FY26 underlying group revenue was £207.7 million, so the acquired £30 million revenue base is equivalent to roughly 14.4% of the existing business. The £27 million consideration represents about 0.9 times acquired annual revenue, before allowing for working-capital adjustments.

Why is Knights paying £27 million for a business with only a 4% EBITDA margin?

At approximately £30 million of acquired revenue, a 4% corporatised EBITDA margin implies only around £1.2 million of current annual EBITDA. On that simple arithmetic, the purchase price would look expensive if profitability remained at its pre-acquisition level.

Knights is clearly underwriting a different earnings profile. An 18% profit-before-tax margin applied to the same £30 million revenue base would imply approximately £5.4 million of annual PBT before considering any future organic revenue growth. The company expects the transaction to enhance earnings in its first full year of ownership.

That anticipated step-up depends heavily on Knights’ centralised corporate model. The group expects to use its existing support infrastructure, consolidate offices and remove duplicative costs rather than preserve Moore Barlow’s current operating structure unchanged. In particular, the Woking and Guildford offices are expected to be combined into a new Guildford location, while the small City of London office will be vacated.

The valuation case therefore rests less on what Moore Barlow earns today than on whether Knights can actually deliver the margin normalisation embedded in its acquisition model.

How much does Moore Barlow increase Knights Group’s scale?

Knights reported FY26 underlying revenue of £207.7 million, up 28%, underlying EBITDA of £51.5 million and underlying profit before tax of £33.2 million. Adding £30 million of acquired revenue on an illustrative full-year basis would increase the revenue platform by around 14%, before organic growth, client churn or any subsequent acquisitions.

The deal also significantly increases personnel and geographic density. Moore Barlow currently operates from Richmond, Guildford, Woking, Southampton, Lymington and a small City office, giving Knights a substantially broader position across affluent South East and South Central markets. Its strongest practice areas include real estate, private wealth, landed estates, schools and charities.

This geographic logic is consistent with Knights’ recent strategy. The group has already expanded through acquisitions in the Thames Valley, Essex, Kent and Sussex and now appears to be building a denser regional network rather than simply collecting disconnected offices across the United Kingdom.

How will Knights fund the Moore Barlow acquisition?

The entire £27 million consideration is cash, but only £18 million is payable at completion. The remaining £9 million will be paid in three equal £3 million instalments on the first, second and third anniversaries, subject to specified conditions. Knights will fund the transaction using existing banking facilities.

The group ended FY26 with net debt of £65.4 million and a banking-covenant net debt-to-EBITDA ratio of 1.5 times. It subsequently said it expects the same covenant leverage ratio of around 1.5 times at the end of the current financial year even after the Moore Barlow transaction. Knights also has a £159 million revolving credit facility committed until July 2029.

The staggered payment structure therefore reduces the immediate cash impact, although repeated acquisition activity still raises the importance of cash conversion. Knights generated 163% underlying cash conversion in FY26, which provides some support for an acquisition-led model that depends on debt not rising faster than earnings.

Why did Knights shares initially slip after another acquisition?

Knights shares traded around 172.5 pence in an early August 21 market snapshot, approximately 2% lower after the transaction was announced. The reaction was modest but suggests investors are balancing the strategic benefits of another scale acquisition against integration risk and the repeated use of debt-funded cash consideration.

The margin assumptions are likely to be central to that debate. Knights is acquiring a business operating at around a 4% corporatised EBITDA margin and expects to convert it into a business capable of approximately 18% PBT margins. Achieving that improvement without damaging client relationships or losing key fee earners will determine whether the apparent 0.9-times-revenue purchase multiple ultimately proves attractive.

Moore Barlow therefore fits Knights’ established consolidation strategy unusually well, but it also provides a clear test of that strategy. If the group can move approximately £30 million of revenue onto its higher-margin platform while holding leverage around 1.5 times EBITDA, the acquisition could make a visible contribution to earnings. If churn or integration costs erode the expected synergies, the low starting margin leaves less room for execution errors.