Options if struggling to buy fee blocks or practiceby
Norman Younger assesses the options and considerations for practices looking to acquire fee blocks or an entire practice.
For some time, supply and demand for purchasing fee blocks or an entire practice have been mismatched.
Many buyers are constantly frustrated by their inability to expand by acquisition, which is of course the fastest and most direct way to add fees.
Mass retirement of baby boomers has yet to materialise and still has a few years left to run, given that the last of them was born in 1964. So, it pays to look at alternatives to power your practice’s growth.
Buyers generally fall into three categories:
Private equity and investors
They’re looking to capitalise on a buoyant sector and create value in the medium to long term by growing a network that they can sell on.
Buyers in this category have a game plan that is based solely on acquiring practices that meet certain criteria across a sector or geographic area to gain critical mass as quickly as possible.
So, we’ll focus on the other two categories that form the bulk of acquirers, for whom there are other considerations and options.
These are the keenest cohort of would-be acquirers. They service a small client base in the evening or at weekend, while they have a full time job working in somebody else’s practice or maybe in industry.
I often refer to them as ‘bedroom operators’. That’s not in a pejorative manner but as an accurate description of their modus operandi: often working out of a spare bedroom which is how I started out back in the day – before working from home became as widely accepted as it is today.
Even nowadays, bedroom operators remain keen to move beyond their home into a proper office, whether it is a single room, on a lease or a flexible arrangement in a business centre. The reason is simply because it projects a more business-like image to prospects. But in purely practical terms, a proper office is usually more conducive to efficient working and depending on location and setting it is also an excellent way to network and get their name out there.
They tend to be the keenest to buy as it is their key to independence allowing them to break free from employment. Often they can only afford a smaller block of fees and sellers may be reluctant to pass their clients on to rookies, which makes it harder to source a suitable match.
They need to understand that they may have to pay a higher multiple than they had in mind to get on the ladder, with some deals now going to “best and final” offer. But over the longer term that extra is insignificant and well worth paying.
The problem with waiting for something to come along is that before they realise it, years can pass and the frustration mounts, maybe with crunch career decisions at work.
I would advise them to push for organic development by broadening the range of services they offer clients as well as pushing for more clients through a marketing campaign.
Small established firms
This next group of keen buyers are seeking to get to the next level, maybe by doubling in size or taking on a significant increase in fees. As Covid recedes a new catalyst is spare capacity in the office as staff work more from home, while the firm is in a lease with considerable time to run.
Although they might be working substantially from home at the moment, the high street presence makes it easier to find the size of practice they seek, as sellers will be more amenable to trust them to care for their clients.
Once again, they shouldn’t let time pass them by. They need to leverage their existing success to woo new business and use their premises to bring in other disciplines such as legal clinics or pension advice in a collaborative manner.
While doing this they should consider looking at a merger. Although it may not have been their first consideration, a merger might be their best option to get to the next level given current market conditions.