As H1 2023 closes, we can reflect on an extremely successful and exciting time in the accountancy and legal practice market. Here is our detailed M&A market update so far.
AJ Chambers has been involved in a variety of different practice profiles and transactions. From retiring sole practitioners through to c.£7m revenue firms joining larger investment backed platforms. With many more lined up for the second part of this year, or many still engrossed in positive discussions as a result of our introductions.
Our unrivalled network allows us to listen and deeply understand the desires, needs and objectives of owners. This is to ensure that their wishes are met. Likewise, leadership teams of practices looking to grow via acquisition or merger are currently enjoying a happy hunting ground. Fantastic options are available.
The competition in the market is leading to a broad spectrum of models, deal structures and offerings. They are all similar in approach, but with different, more nuanced differentiators. All in the hope of speaking to or catering for the various situations of owners or practices out there. This is fantastic news if you are considering the future of your business. Younger owners have been pulled into more conversations this year than previously.
The market currently is providing a happy hunting ground for those leadership teams of practices looking to grow via acquisition or merger, with some fantastic practices now open to looking at options.
This is due to current ownership retaining autonomy over networks. Or a seat at the top table of larger infrastructures to help mould and influence the future direction of the group. All whilst having ‘skin in the game’ equity wise. Many owners of this demographic view such opportunities as a chance to de-risk. Therefore they realise value built to date through a partial or full sale. But they then still hold onto the feeling and position of ownership and influence with the ‘carrot’ of a bigger pay day later on. By going on the journey with a larger firm, group or network.
Network support
As alluded to, there is a prominent network which allows for partial sale and the retention of full autonomy, brand, control and a way of running the practice as it does today, with a support network behind you. This support is in the form of acquisition funding and next generation buy-in funding for succession. In addition to the opportunity to be part of a large ‘family’ where you can share ideas and best practices. Of course, with this type of model, you have to largely rely on your own devices. You must have confidence you have the capacity and want to look after all aspects of running a practice.
Conversely, you have various options available to merge with local firms for strategic or critical mass purposes. Typically, joining a larger infrastructure means the relinquishing of certain tasks as a Partner/Director owner. Such as dealing with professional bodies, HR/recruitment, marketing and IT to name a few. Or on winning new clients which is the part most accountants enjoy the most. This is true from conversations I have with many Partners up and down the country. The trade-off is usually loss of complete autonomy or influence on the business, a significant reduction in equity holding within the practice.
It is important you engage with M&A consultants who are immersed within the sector and have a very strong grip on the market. Knowledge of the various models and those who hold good relationships with the various parties.
Final options
The final option is to onboard or attract investment yourself as firm to build and grow. For this to work, you must ensure you have a competent, driven and enthusiastic leadership group internally to act upon ambitious growth plans. With an investor involved, you will have targets to hit or make, along with many challenges. These naturally occur through a rapid growth spell from infrastructure, management to cultural alignment.
Some financial structures are weighted towards deferred consideration over a certain period. Others are more heavily stacked on the front end with as much as 60% of consideration paid upon completion. Again, the variations and flexibility on approach are there to assist in constructing a deal which satisfies all involved. Knowing how an M&A market update will evolve is key to future business.
It will be interesting to see if increased interest rates will curb or impact M&A appetite, for those who utilise lending or borrowing for acquisitions.
There is a range of options to both acquirers, sellers or those wishing to embark on the ‘next chapter’ of their business. The flexibility and pragmatism on approach to deals in the professional services arena is of great benefit. However, it makes the decision process as someone looking to sell or merge significantly more confusing.
Engage with M&A consultants immersed within the sector. And have a very strong grip on the market, knowledge of the various models. You should choose those who hold good relationships with the various parties whom you could speak with. Make sure to introduce suitable parties who understand your objectives, so that you can navigate any process as smoothly and stress-free as possible.
Gazing into the future, will interest rates curb or impact M&A appetite for those lending or borrowing for acquisitions? Furthermore, the impact more general economic dynamics will have.
We work closely with numerous funds, large networks and independent acquirers of various sizes. They are actively looking for great opportunities in the market at the moment.
If you are an Accountancy or Legal Practice owner and would like to discuss any of the above, please contact james.gosling@aj-chambers.com. Keep an eye out for our future M&A market update.
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