Accountancy firms looking to grow through acquisition have traditionally relied on business brokers to match them up with suitable practices. However, the mergers and acquisitions landscape is changing, as an increasing number of firms choose to cut out the middleman.
Buying or selling a business is likely to be the single biggest transaction most people will ever make. This makes it all the more important to get it right. For the buyer, a successful acquisition means a chance to take their own business to the next level with an increased client base and the additional skills and expertise of any staff they have taken on, as well as safeguarding their firm’s future. For the seller, it means reaping the rewards of a lifetime’s work while also ensuring that the client base they have worked so hard to build is left in the safe hands of a firm which ideally shares the same values.
Traditionally, the first port of call for an accountancy firm looking to buy another has been a business broker. Appointing a third party to source a suitable seller and then broker the deal can certainly be appealing to buyers who find that running their own practice places certain demands on their time.
However, it may not always be the most appropriate option for some firms. It has to be remembered that the broker’s primary aim is to clinch the deal and earn their fee. Like an estate agent marketing a property, it is their job to make a business as attractive as possible to a potential buyer, so there is not always a guarantee that they will give you the full picture. There may also be pressure to complete on a deal, regardless of whether or not one firm is suitable for the other.
At one time, the only alternative to using a broker was for firms to attempt this work themselves, including trying to attract potential sellers. However, as Harrow-based accountancy firm RDP Newmans discovered, this is not always the best approach.
Partner David Finn said: “We would advertise in the local and trade press to say we were looking for firms to buy, but this was a bit of a scattergun approach and did not really deliver the results we were looking for; we were getting enquiries from people who wanted to buy us instead.
“We have used brokers, but found them to be completely hopeless because they were looking for a match, regardless of whether or not it was right for us.”
RDP Newmans is now one of a growing number of firms to take an alternative approach to acquisitions by including them as part of a practical marketing strategy for growth. The firm appointed an external professional marketing agency more than two years ago to take care of areas such as its website, press relations and promotional materials, as well as carrying out market research into suitable firms for acquisition and then making the first approach on RDP Newmans’ behalf – something David says the firm had not previously considered and which has resulted in two successful acquisitions.
Another firm taking the same approach is Black Country-based Nicklin, which expanded into Worcester last year with the second of two significant acquisitions in the space of just 15 months.
Managing partner Harvey Owen said: “We have used brokers before but half the time you don’t know if what they are telling you is true. I have had approaches from brokers who say they have a firm in my area that I might be interested in buying, but then ask me for my firm’s details, which they are clearly going to use to attract someone else so they can potentially set up a sale.
“By including acquisitions as part our marketing strategy, we have been able to deal with potential sellers directly because our marketing agency has done the necessary research and then made the approach.
“Agents tend to have a fixed formula for everybody which I don’t think works because every firm is different. By taking the marketing strategy route, we can move at our own pace and negotiate a proper price while cutting out the influence of the agent.
“Taking this direct approach makes people think; they may not have thought about selling or merging, but it gives them food for thought. For me, the beauty of doing it this way is that we know exactly who we’re dealing with straight away. It’s a nice, simple way of doing it.”
For Harvey, this approach has proven so successful that Nicklin is already in the process of targeting more firms for potential acquisitions.
Harvey’s views are echoed by Graham Lamont, chief executive at Cumbria-based Lamont Pridmore, who believes that taking this direct approach can help generate interest from business owners who may not be far off retirement but have not yet given any real thought to how they will exit their practice.
He said: “Although we have had good relationships with agents, this alternative approach means we can do much better market research, through our marketing consultants, and find potential acquisitions which meet our particular acquisition strategy, rather than waiting for the agent to find someone who is selling. It’s a much softer approach.
“In my experience, if you are able to get on with the seller and share their vision and values then you tend to get on with their clients too, meaning you will retain more of them. We have managed to retain 99 per cent of the clients we acquire, which we put down to having a synergy of values with the seller and also taking the time to meet their clients in person, rather than just sending them a letter.”
For Graham, whose firm has acquired eight practices in seven years, the acquisition process is about more than simply taking over another firm – it’s also about what you can do for that practice to ensure a smooth transition.
He said: “We work with the business owner over a period of time, supporting them in the wind-down phase. If they are not ready to sell for another five years, for example, then we might offer technical expertise in the meantime, helping with matters such as tax or audit, on the understanding that they will sell to you five years later. We have had cases where we have signed the deal and then taken them over a year later.
“This softer approach isn’t one we had considered until we took on our external marketing consultants. It’s always difficult to make a direct approach in your own name, so having them to carry out the market research and then make a professional approach has been invaluable.”
According to Jo Edwards, managing director at Birmingham-based professional marketing company JE Consulting, which carries out market research into potential acquisitions and sets up introductions for clients, cutting out the brokers can give firms greater freedom and control over the acquisition process.
She said: “We profile a database of practices in the client’s local area to find potential acquisitions. A suitable firm would ideally have at least two partners over the age of 60 and no obvious exit strategy, and we would also look at areas such as their fee base.
“We then make the first approach, ensuring that our client remains anonymous at this stage, and if the other firm is interested then we can make the introduction. The two firms are then free to sit down together and negotiate on their own terms, without pressure to close the deal from a broker who wants to get paid. Because we include this service as part of our clients’ retainer with us, there are no broker’s fees to pay and if they decide the deal isn’t right for them, they can walk away without having lost anything.
“Acquisitions should be part of any forward-thinking firm’s marketing strategy, but many practices do not realise that their options extend beyond appointing a broker and trying to do it themselves. In our clients’ case, they’ve got someone to profile their targets and effectively test the water with potential acquisitions, without the risks or additional costs often associated with brokers.”