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The trials and tribulations of practice acquisition

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Ivan Houston, the director of Scholes Chartered Accountants, pulls back the curtain on acquisitions and managing the potential difficulties of a merger.

19th Apr 2022
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There are various avenues for firms to grow organically, but the rise in practitioners looking to sell up due to technological disruption or compliance burdens has provided an opportunity for firms to scale quickly.

The image of a turbo-charged firm, with a new market, new personnel and new structure accelerating growth can make for tempting reading. 

However, as Houston notes, while the opportunities are very much real, there is always going to be a level of apprehension when it comes to taking the plunge and navigating the potential risks.

Growing pains

Houston, the director of the Orkney-based firm, knows this feeling of reticence all too well after acquiring Frost Chartered Accountants in 2019 and remembered the early difficulties of the merger.

“I think that if you didn't feel a certain level of apprehension about doing something like an acquisition, particularly for the first time, then it would be pretty odd,” Houston said, adding that his team had “an extremely important first year to address the acquisition and really a big investment of time on my part and part of all my colleagues to get things working.”

Much of this time, Houston said, was primarily focused on assuring the smooth transition for both the new team and the roster of clients joining his firm. He spent a substantial amount of time allaying their concerns and ensuring retention levels remained high. 

On the client side, this involved meeting with all his new clients personally, along with their previous accountant Steve Frost, to reassure them that a business as usual approach is what Scholes will be aiming to achieve. 

Houston described how his team “invested huge amounts of time with the clients, and for us the message was simple: look, you're still going to get to deal with the same team and we're not going to fundamentally change anything. But what you will get now is a bigger team, as well as some new services. So the message for clients was ‘this is really a win-win’.”

However, while Houston admits a lot of time and resources had been spent on speaking with clients, this focus has led to excellent retention rates three years down the line, with 95% of Frost’s clients staying after the acquisition.

This was the same with the staff who had moved over from the acquired firm, with many staying on and relishing the new opportunities that a larger firm can offer.

Finding the right firm

Houston noted that much of the success of the acquisition relied heavily on developing a quality relationship between the two firms.

“Somebody selling their practice has got a kind of a deep, personal interest in making sure their clients continue to be looked after, not just a business or an economic one,” Houston said.

Because of this, Houston made sure to emphasise to Frost Chartered Accountants that he and his team were a safe pair of hands when it came to looking after their team and clients.

“Those initial discussions with a potential partner, you have to sell yourself. You have to demonstrate professional skills of yourself and your team and explain why this is a win-win for them and their clients.”

This openness with his newfound partner is what Houston believes was key in not only making the transition smoother, but also in the retention of their client base, with Frost joining Houston on his meetings with their now shared clients.

“[Frost] must have felt comfortable because he agreed to the acquisition, and then we delivered on what we offered post-completion; Steve and I went and sat down with his clients and we started that process of getting to know them,” Houston said, believing that Frost’s continued presence at the firm has helped clients to “feel reassured” post-acquisition. 

And it seems this approach has led to excellent returns on investment, as according to Houston, “revenues, compared to five or six years ago, are up by 50%.”

A saleable practice

As a growing firm, Houston is currently on the lookout for another potential acquisition to strengthen his team in Scotland. And when talking about what he looks for in a new partner, he was relatively straightforward in his advice to those who may be looking to market their firm for a potential buyer:

“If your practice is an asset that you want to sell, it's just like any other asset you look after. There are too many small firms that stumble along for far too long. They don't invest in people, or processes or technology and they don't stay particularly up to date with skills.”

And it is this stagnation that turned Houston away from many firms while on the hunt for an acquisition, saying that while it might work for some smaller firms, “it’s not the game we’re in.”

Giving a final piece of advice to those looking to sell, Houston said: “If you want a good exit, you've got to run a good business and invest in it. Charge the right amount for your services, invest in technology, train up at least one or two youngsters every year - it's not rocket science.”

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By Hugo Fair
19th Apr 2022 12:20

We are not privy to either the purchase price or the profit margin pre/post to then.

So not clear why “revenues, compared to five or six years ago, are up by 50%” is indicative of "this approach has led to excellent returns on investment" ... especially given that the acquisition was in 2019?

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