A Guide to our Mergers & Acquisitions Service

  • February 18, 2021
 

AJ Chambers has been dedicated to servicing the UK public practice market with their talent requirements for over a decade. During this time, we've built an unrivalled network and understanding of the market; from partner relationships, to practice sizes, to client-based profiles, to services provided, charge out rates, and the working culture of those practices.

James Gosling, Head of Mergers & Acquisitions at AJ Chambers, has answered some of the most frequently asked questions and given an overview of the market for Accountancy Practice owners looking to grow their business via acquisition or for those considering exit plans or retirement.

I wanted to start with one of the most common enquiries we received from our clients. And that question is, is my business of value? This question usually comes from practice owners of £500,000 turnover or less and the short answer to that question is yes, your business is of value. We here at AJ Chambers have dealt with many transactions at this level and are able to help.

What is the process of an M&A transaction?

Every process is different but ultimately, we have a generic framework from which we work from with these transactions. First of all, there is an initial brief. We then have the signing of NDA’s which allows us to disclose the name of both buyer and seller. If there is a want to move forward at this point, we hold an initial meeting.

After the initial meeting and if there is a general consensus which everyone is positive about exploring further, we then furnish and share other financial information between both parties. Once the buyer has had a chance to digest this information and they want to move forward, we have an indicative offer at this stage. If the indicative offer is accepted, we then move to Heads of Terms. Once these terms are drafted, this allows us to have a document to move forward from and the framework about how the deal structure would look like.

After this point there is due diligence where further forensic analysis is carried out by the buyer. If the buyer is happy after this due diligence is carried out, then there is a drawing up of contracts, or an SPA, a Sale Purchase Agreement. This will have all of the framework about how the structure will look and how the deal will be closed including a completion date. Upon this agreed completion date, the transaction is completed and closed.

People often do not realise that it is the intangibles rather than tangibles that cause problems in transactions such as this. That's why it's important for us as consultants to remain involved every step of the way throughout the process. It is even more crucial that the goodwill is maintained between buyer and seller, so that if any difficult conversations need to be had, or addressed, then we, as consultants, will deal with it.

What size practices do you help sell or acquire?

Fee block sizes or practice sizes vary from deal to deal. We work with top 10 firms all the way down to smaller independent firms. In monetary terms that means from your £50K turnover all the way up to your 10 to 15 million pounds.

Has Covid-19 affected M&A activity?

Pleasingly for sellers, COVID-19 hasn't had a detrimental effect on business valuations where we are seeing them remain at pre pandemic levels. However, on occasion, the transition period on deals is expanding maybe from three to five years. This depends on the buyer’s risk profile and what their perceived risk is to protect their investment against client losses or revenue losses.

How are deals structured in today’s market?

This has actually changed over the last 18 months. Traditionally, it was always a multiple GRF and the upfront consideration was paid with two other instalments deferred, so it would be a third, a third, a third. Now with new accountancy firms coming into the market, with increases in technology and potentially outsourcing to various territories, raising up the net profit margins, people are basing valuations around EBITDA to cater for those changes.

However, we are still seeing predominantly a lot of these deals being done on multiples of GRF, or turnover. Again, this can change from deal to deal depending on what the outgoing partners are looking for. So, sometimes deals are structured from one year, two years or three plus years. Typically, we are seeing two to three years. There will always be clawbacks involved to protect the buyer’s investment.

When would you advise a firm to start exit planning discussions?

My advice is to speak to someone like ourselves as soon as you can. It doesn't matter if your retirement plans are three to five years ahead. It is good to speak to us now so we can help you prepare your business for sale. We can also at that time, speak to buyers as they may be looking at their growth strategies and have you as an acquisition in their plans going forward. We can also make sure that all the considerations that you would have are covered beforehand, and that you feel comfortable with that.

What should businesses consider when preparing to sell to potential acquirers?

This is such a broad question and one that I probably wouldn't be able to answer fully in this interview. However, what I would say is that your financials and your internal financial reporting are all in order. Added to that, make sure that in your mind you have your ideal exit, for example, how long you want to stick around for; would that be two years, three years, and ultimately what consideration you're looking to achieve.

Additionally, ensure your internal controls are in order. That would be your client files, your anti-money laundering processes, compliance, and employment contracts. In today's world look at what technology you're using and accounting software. Finally, an important message to get across is that every business has its own complications and nuances. Transparency and honesty is key right from the very start, so that we, as consultants can mitigate that or unpick these issues, ensuring that every step of the way through this process it runs as smoothly as possible.

Do you have exclusivity clauses in your terms of business?

No, from a buyer and seller side of things, there are no exclusivity clauses as such. However, when we make a formal introduction to a sell party, the buyer then is locked into the exclusivity period for that particular seller over a period of 18 months.

Are you able to assist with legal advice?

Legal advice is absolutely crucial and essential in transactions such as this for any party, and we would always advise that you seek that advice. We are not able to offer legal advice at AJ Chambers. However, we do have an incredible network of corporate and commercial lawyers who we will be more than happy to introduce to you.

Are you able to help with finance or lending facilities?

Often, our clients will use a blend of finance or borrowing, as well as their own cash reserves to complete transactions. We at AJ Chambers are unable to offer that financial help. However, we do have a great network of finance houses and other lenders which we can also introduce to you.

Our team has a wealth of combined experience in this market and welcomes existing and new clients to get in touch, for a confidential and discrete, no-obligation discussion to explore how we may work together. For more information, contact James on 020 8092 6220 or james.gosling@aj-chambers.com

To find out more about our service offering and to watch the video version of our interview visit our Mergers & Acquisitions page on our website or watch on our YouTube here: https://www.youtube.com/channel/UClaLtle9vdK5kFtVIQxzQxQ