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Accountancy Plc – Floatations on the rise, say brokers

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10th May 2007
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Increasing numbers of accounting firms will be seeking stock market listings over the next 24 months, a study by Edison Investment Research has predicted. Rob Lewis reports.

The review was commissioned by corporate finance advisors Noble & Company, and included an analysis of the 32 professional services companies already listed in the UK.

“The accounting sector offers a strong investment case,” Edison found, “including high returns on capital, good cashflows and high-quality earnings… indeed, the research demonstrates that as well as incredibly strong growth characteristics, the professional services sector includes a number of counter-cyclical plays should the market face a downturn.”

The report cited the “wave of consolidation… in a fragmented industry” as one of the catalysts behind the future floatations.

Noble & Company chief exec John Llewellyn-Lloyd also saw the growing need for specialisation and the increasing complexity of transactions as providing further impetus. “Increased regulation and a trend for corporates to outsource are fuelling growth and more accounting firms are exploring the benefits of a listing,” he said.

“The traditional partnership structure is becoming less relevant,” Llewellyn-Lloyd commented, “particularly for the smaller and mid-sized firms. Listing allows them to improve their access to capital, fund expansion overseas and provide more transparent and direct motivation to staff.”

Noble even expressed a belief that the professional services sector could grow at such a rate that a new FTSE sector classification should be considered.

The Financial Reporting Council has of course been trying to promote competitiveness in the market since the publication of its discussion paper last year. In March the EU announced that it is prepared to contemplate allowing audit firms to raise external capital.

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