Growing an accountancy practice by acquisition
Why does an accountancy practice acquire another firm? Is it buying clients, talent, expanding your geographical reach or branching out into new sectors or services?
The management at an accountancy firm has decided to grow the practice by acquiring another firm – a sound approach in a competitive market. The question is, are they buying for the right reasons?
Is it about increasing their client base, bringing in fresh talent, expanding their geographical reach, branching out into new sectors or services, or something else?
Whatever the purpose of the acquisition, management need to challenge themselves throughout. After all, as with house purchases, it’s easy to get wrapped up in the excitement of the deal and overlook fundamental issues that should prompt them to walk away, or at least negotiate a keener price.
The challenge should start before a target for acquisition is even identified. In our recent guide to funding, buying and selling accountancy firms we put it like this:
“Any acquisition comes with its risks. Setting out your parameters and acquisition criteria is essential and then you need to stick to your plan.”
A good place to start, in the targeting phase, is thinking about which gaps need to be filled.
For example, eCommerce is a growth market but the practice has few eCommerce clients and no partners who know this sector. Or perhaps it has offices in, say, Bristol and Cardiff and wants to gain a foothold in Swansea.
The analysis undertaken at this early stage, in the abstract, will be clearer and more logical than later on, in the heat of the moment.
An analogy might be the habit experienced auction-goers have of setting an upper limit before they enter the auction house to prevent themselves getting caught up in the excitement of the moment.
Of course they’ll also want some room for manoeuvre so the criteria shouldn’t be too strict. It’s more about thinking through the options – what would it take for the purchaser to say ‘No’ and step back? That can be a tough decision to make when time and effort has already been sunk into the task.
It’s also better to have debates and disagreements with colleagues at this stage rather than when emotions are high, contracts are waiting to be signed and solicitors are chasing for decisions.
Another useful step might be to draw up a risk register. Or, to make that sound a little bit more exciting, to wargame the acquisition process, asking:
- what might go wrong
- what might change
- and what the response could be in each situation.
For example, let’s say the primary driver of the acquisition is to build firm’s expertise in audit. It then emerges that the audit team at the target firm is unhappy about the merger and is making plans to break away. How would the acquiring firm respond?
One important step is to make sure those providing acquisition funding are in the loop. They’ll be used to the twists, turns and delays inherent in the acquisition process but will nonetheless demand transparency – and expect there to be a plan in place.
Sharing your vision
Non-disclosure agreements (NDAs) are standard during mergers and acquisitions and naturally run counter to any instinct to openness and honesty.
Nonetheless, where senior managers from both teams are within the circle, it’s worth getting them together to talk through post-acquisition plans.
Unless the motivation for the acquisition is really ruthless – buy a competitor, shut them down – the chances are that expressing it clearly and plainly will win people over.
It will also provide the opportunity to discuss any sticking points and find compromises that work for both teams. And showing that this has been thought through carefully will also be reassuring.
For more practical, in-depth advice on growing an accountancy practice read our exclusive guide to funding and borrowing.