At a glance
By Zilla Efrat
Merger and acquisition (M&A) activity between smaller and larger accounting firms appears set to accelerate as practitioners look to better adapt to industry changes, support their clients and staff, and manage succession planning.
“In terms of our own networks, we are having more conversations and there’s a greater willingness to explore opportunities than perhaps there was a couple of years ago,” says BDO office managing partner in Brisbane, Tony Schiffmann.
He says the main driver is change. “It’s a pretty challenging environment. Competition is strong and some practitioners may not be confident that their own strategies will carry them forward in the future. They also want to remain relevant to the market they serve.”
In addition, many smaller practices watch their clients expanding rapidly, often into other countries, and are looking for ways to support clients’ growing needs.
Accounting career paths
Many recognise a need to offer stronger career paths to retain staff. “We are seeing a war for talent and some pressure on salaries in certain parts of our staffing. That’s coming not only from the profession, but also from commerce,” adds Schiffmann.
Over the past year, CountPlus member 360 Financial Advantage purchased Kerry Albert & Co in Coffs Harbour, NSW while NSW Central Coast-based Robson Partners bought local regional practice Walker & Andrews.
CountPlus CEO Matthew Rowe FCPA says the drivers behind these types of mergers include the increasing levels of commoditisation of services, constant change in technology, outsourcing, diminishing profitability, a limited ability to fund growth and the requirement for principals to personally guarantee debt for the firm and potentially for the buy-in of new partners.
Importantly, many firms haven’t clearly planned their futures. “We’ve talked with firms across the country where the owners are in their late 60s and 70s and are still working because they have no succession plans and have not considered their own exit strategy,” says Rowe.
“Both principals were starting to think about a succession plan,” she says.
“We both had roles outside our practice, a senior valued accountant was leaving and it was time for a complete upgrade of our IT system (probably moving into the cloud).”
For SEIVA, she believes the benefit was in taking on board the extensive experience of two mature professionals and “two-way mentoring”.
Accountants plan retirement
Tantau expects M&A activity to continue to grow. “There are so many mature but small sole practitioners, or small partnerships, who will be looking to retire in the next five to 10 years. It will be difficult for the current number of small practices to sell their businesses as going concerns, so they will want to maximise the value of their client list. One way to do that is to go over with the clients to the new firm and ensure that transition is as smooth as possible.”
“A number of practitioners are looking for succession options and this will only increase in the next few years based on the demographics of practitioners in our industry,” she says.
“Fewer professionals are buying into practices from within. This presents a problem for practitioners wanting to exit and it will also have a negative effect on their exit value.”
Titman says a merger provides the opportunity to find a succession plan “not only for you but also for your clients”.
Other advantages of the merger for Titman’s firm were the ability for team members to develop their career paths into specialisations and to work in international locations through overseas secondments.
“Our team was particularly excited about the access to a wide range of internal training opportunities across a range of topics, including technical and soft skills, and access to specialists within the larger group to discuss technical issues.”
The merger gave BDO access to Consolid8’s expertise in a number of niche areas, such as technology, e-commerce and franchise sectors.
Merge and grow
Schiffmann says BDO was already looking to develop this expertise, so acquiring it through a merger made sense.
“In our case, merging is a legitimate way of growing. We’ve always had a M&A strategy. Often, as you get bigger, your agility gets challenged. Smaller firms are more agile and we look at bringing in new ways of thinking,” he says.
The current level of activity is not necessarily limited to small firms merging with larger firms. It may also consist of two small firms merging.
Rowe attributes part of the heightened merger activity to the fallout of the recommendations of the Hayne royal commission [into misconduct in the banking, superannuation and financial services industry], specifically the banning of grandfathered commission for those offering financial advice.
“Two years ago, there were 12 buyers for every one practice for sale. We are now seeing eight sellers for every one buyer,” says Rowe.
He expects to see increased convergence in accounting and advice as the sector boosts its focus on the client’s best interest, higher ethical and professional standards, and the removal of conflicted remuneration.
“The Hayne royal commission is one driver of this convergence. Greater regulation and education standards of financial advisers is another,” he says.
Also having an influence, says Rowe, are consumer expectations of improved transparency and a realignment of commercial interests as financial institutions continue to exit wealth management businesses.
“The most crucial merger benefits for smaller practices in this post-Hayne environment are a stronger governance framework, strategy and high-level operational support [in HR, marketing, IT, risk],” adds Rowe.
He says CountPlus’ purchase of a 40 per cent stake in Victorian-based O’Brien Accountants & Advisors in 2018 was the first of an expected round of growth transactions as it seeks to take advantage of the trend towards convergence.
CountPlus has “an appetite” to grow the number of firms within its network and will do this by investing in only high-quality accounting and advice firms, he says.