Lifting the lid on an acquisition strategy
Richard Keyes, the managing partner at Taylorcocks, shares the firm’s acquisition strategy and reveals a model quite different from those we usually hear about.
It's not difficult to establish the motivations behind many of the mergers and acquisitions in the accountancy market, and even recently Albert Goodman outlined their philosophy and approach.
What we don’t often get to do is lift the lid on a firm’s approach when acquisitions are a core part of its growth plans.
With fees accelerating by 60% in a single year, Taylorcocks was recognised in the 2018 Top 50+50 as the UK's fastest growing firm, and as a result, moved up 10 places in the table.
Baldwins and Cogital may have pipped them to the post on growth if they had submitted numbers but unfortunately have kept themselves out of the picture. But regardless, it’s a fast growth strategy that’s working.
The core proposition
But why is growth vital to a firm like Taylorcocks? “We’ve always felt that a growing business is a healthy business. If you stop trying to do that you can lose sight what is important,” said Keyes.
“Growth means that the partners can increase what they earn, people can build interesting careers, and we can stay focussed on delivering and constantly developing our client service offering.”
While others look to grow organically over time, investing in marketing and sales development, the acquisition route provides a very different kind of opportunity for Keyes.
“Strategically there are lots of opportunities in the market at the moment, with many firms for sale or looking to find a good exit for some of the existing partners,” he said. “At the same time, we know that it is also the quickest way to grow an accountancy firm. But there are also lots of fringe benefits like picking up good staff, specialists, great new clients, and even sector expertise.”
As an example, the firm’s acquisition of Sussex-based Russell New this summer brought with it an established portfolio of charity and independent schools, as well as being able to finalise the recruitment of an agriculture specialist.
Structuring the deal
Keyes credits some success to how the commercial model works.
Typically, the central Taylorcocks business acquires a majority stake of around 76% in the selling firm, and then from the turnover it takes 15% for providing a comprehensive suite of managed central services, and 10% in revenue share.
After wages, rent and rates, this usually provides 30% of profit before tax for the partners.
Partners retain control of staffing (including setting wages), billing rates, and premises, while the central services take on the majority of the business and infrastructure, which in Keyes’ terms includes aspects such as “marketing, software, IT, recruitment, CPD, finance and accounts, PI, institute compliance, basically everything that often takes up considerable time and money from within a practice”.
The emphasis, therefore, is on the retained partners to continue performing and growing the business without getting too caught up in the day-to-day of running the practice.
In terms of paying out, the commercials themselves are pretty straightforward:
“We try and keep things very simple. For example, one of the hardest things is working out goodwill. Rather than guessing, we run our deals over three years and provide 25-35% of turnover each year for three years.
“Calculations based on last years’ turnover can just lead to a lot of warranties. We don’t have a long list of what's in and what’s out, we just say if it's there, we can see it, bill it and collect it then we count it,” he explained.
However, it’s not going to suit everyone. In reviewing the model in detail, it’s clearly designed to appeal to a certain kind of firm. But given the extent to which it’s a seller’s market when it comes to potential buyers, and a buyer’s market when it comes to price, choice in approach can help drive the best value for everyone.
So what do they look for in potential acquisitions?
Finding the right fit
The Taylorcocks strategy depends on two simple drivers: acquiring to add to an existing office or expanding its overall footprint.
“Acquisitions into existing offices are very much about the fit of the clients and the fit of that business. We look at synergies of clients and staff and prioritise those that we know we can integrate well.
“For a new location, the focus is much more about the partners and understanding the dynamic of the firm. Who is going, who is staying, and do the remaining team want to kick on. We won’t be compatible for those that are content to sit still,” continued Keyes.
Expanding services, advisory, and technology
With the addition of more clients and expertise, there are of course opportunities to expand the service range, but the focus is on building a more complete professional services suite.
“Our view is the here and now is important, we stick to the knitting around doing the best possible job around accountancy, tax and audit, and then added to this naturally will also come financial services, and legal."
And he remains pragmatic around the business advisory piece. “The whole time I've been in the profession I've been hearing about the movement from compliance to advisory and most don't know what this is. Currently, our advisory services are around hard professional advice, not the whiteboard general business advisory, and that suits for now.
“That’s not to say that the general business advisory route won’t come back into play, but it suits some partners and clients more than others, whereas the professional advisory space is more universal.”
The one area he is very clear on is the role of technology. “We’ve always invested heavily in tech, not least in our own systems. However, we also have to stay close to what’s happening right across the market with our clients too. The monetary value of compliance is decreasing so building value around the service for clients with technology at the heart has been a priority. Again, finding firm’s that share that vision brings added motivation to our acquisition strategy.”
With 10 acquisitions made in the last four years, the appetite to continue in this vein is clear. “We’d like to add a further £4m in fees next year, whether this is in a number of deals or just one we’ll see, but we can see that the model supports this kind of growth”.
Whether or not Taylorcocks has ambitions to the size and scale of some of the really big firms waits to be seen. But for the next few years at least, Taylorcocks sees plenty of reason and opportunity to continue to push on as it is.