As per the opening on my Q1 overview, we have found a slight pause to come up for air… JUST! AJ Chambers had a record Q1 on M&A activity within the legal and accounting sectors, which is traditionally a slow time of year and seldom many completions in January, February and March.
The obvious tax year end for accountants means minimal headspace for other dialogue, and within the legal sector most firms are setting up for their year ahead. Q1 2023 certainly bucked the trend.
M&A accountancy and legal practice: the variety of transactions in terms of the different levels of the ‘professional services’ ecosystem was pleasing to see. Ranging from a sole practitioner exiting to a very well-established multi-million-pound practice being acquired by a PE backed platform firm.
Q2 is forecasted to eclipse the start to the year. With numerous completions lined up and many new, exciting and attractive sale instructions obtained over the last fortnight. We are working with small practices where Partners are looking to exit; many mid-sized firms are looking to find solutions to succession issues; and practices with ambitious and dynamic leadership are looking to onboard PE or Investment backing to act upon their own growth plans as a platform.
One very interesting trend that has become clear over the last 3 months, from owners of practices of mid-large size firms, is the fear of missing out, better known as FOMO.
As more and more of their counterparts are acquired, many leadership teams of firms, who have staunchly repeated their wish to remain independent, are now looking around and seeing the market move, breeding the feeling of FOMO for many. It is not necessarily the financial pull from any consideration secured for such a transaction. But the possibility of being left behind by those around them, affecting the long term outlook of the business.
This exact scenario has led to many more conversations with owners of practices that fall into this category, speaking with our team at AJ Chambers, to understand the options available to them, as well as how certain models could look and the characteristics of those models.
The Fight For Talent
The fight for talent is another factor across both sectors. Which is moving the dial on some owners position on a merger, sale or acquisition. Many smaller firms are struggling to recruit. Or offer the level of salaries which the market is witnessing at the moment. Which is extremely competitive. Smaller firms are unable to have the finances and resources to compete with firms larger than themselves.
Many firms are now starting to:
- Turn to an alternative, via sale or merger, to strengthen resource available.
- Become more attractive to potential new talent or retaining talent through critical mass.
Likewise, increasingly we are seeing the motivation of acquiring practices for talent purposes than ever before. This is a risky move however, and a plan that needs to be carefully executed. By ensuring clear synergy and joined up thinking culturally, to make sure staff are happy in the ‘next chapter’. The integration process will have to be handled with care. Review of benefit packages is a hot topic of conversation amongst our clients. Often referring to our recruitment division for knowledge and guidance on their offering, versus their peers. To ensure they have a proposition which is appealing to their workforce and potential new members of the team. For more insight into this, please look out for our Benefits Package survey results which will be released during the course of Q2.
The number one reason for the high level of transactions is the struggle to put in place a workable succession plan internally by promoting from within.
There are, of course, many variables and factors which play into succession planning. Sometimes this is down to the ability to attract the right talent to smaller firms. Or a conscious decision by the owners to drive up profits by not building a senior team around them. However, there are two overriding reasons which are at the forefront of conversations held with Partners. Firstly, they find that many of the younger generation coming through the ranks do not have the desire to run a business. Secondly, those that are ambitious enough to step up do not have the ability to place their hands on the finances to buy out the outgoing equity holders.
Embrace The Tech
Away from the above, there are sector specific factors. Within Accountancy it is MTD (even with announced delay). And lack of embracing technology; and within the legal sector PII premiums significant increases are hitting small to mid-sized firms hard which are simply not sustainable.
All of the above has resulted in a pulsating start to 2023. And Q2 already lined up to be even busier. I foresee the rest of the year to be interesting, exciting and fast paced. For mergers and acquisitions within the Accountancy and Legal Practice sectors, all of the key drivers and motivators for sellers remain. With acquirers’ appetite for good acquisitions stronger than ever. Many new entrants will be entering the market. This much is clear from conversations held recently. With parties looking to make their mark and presence felt.
AJ Chambers are working closely with numerous funds, large networks and other independent acquirers. Who are actively looking for great opportunities in the market at the moment. We are well-equipped to advise you of the options open to you. No matter the size of your business. And ensure that you achieve the objectives you would wish to reach for the next chapter of your business.