M&A Market Update – Accounting firms

July 22

Its been quite an extraordinary past few years with Accountants as they, by and large, were:

  1. Busy: Before the lockdowns
  2. Busier: During the lockdowns
  3. Even more busy: After the lockdowns

The result: M&A related decision-making has been put on hold….until now.

Market Update – The short story:

Given Accountants are time poor we thought we would give you the short story.

On the one hand, Accountants are stressed, working long hours & are tired just keeping up with their existing client needs. Why? Mainly staffing. Resources are leaving, costing more & very hard to replace (even outsourced staff). 

Accountants want a solution and are bringing forward their exit plans as a result.

On the other hand, Accounting firms are in demand. Firms are being offered higher prices, longer transition periods (often with no defined time period), better equity sale terms & a share in the upside.

Additionally, the incumbent’s role moves to one of client management rather than all the stress of managing resources to complete the work. Less stress & more time to themselves & their families.

Conclusion. Good time to look at merger or sale options.

Why Abacus?

  • We know the Accounting market. That is our focus.
  • We know who is who in the market.
  • We have advised numerous Accountants on mergers & sales in recent times.

Call us on 1300 121 013.

Market Update – The long story:

What are your options? What are we seeing?

We have talked about resourcing in the past & the importance of keeping good staff.

The single largest problem for many small Accounting firms at the moment is lack of resources.

What are we hearing from our clients?

  • Staff have left for better money
  • They are asking for more money & are costing the firm a lot more
  • They also want to work less hours
  • Some staff want the flexibility of working some hours at home
  • Outsourced staff are also leaving as well & all that time we spent training them is gone.

A common theme with staff. A Manager leaves to a mid-tier firm & the only available replacements are grads with a year or two experience. This used to be mainly a problem in regional areas. Its now a problem everywhere.

Sound familiar?

So what are these Accounting firms doing? Well for those that can’t see themselves getting away from the 7 day/workweek they are looking for merger or sale options.

Fundamentally, the incumbent practitioner has had enough of the stress, time commitment & lack of personal life so they ask us to look for options that will eliviate them from these issues.

Remember you don’t need to be thinking retirement to consider a merger. We have advised younger Practitioners in mergers so they can shift from managing a practice to client relationships.

A merger partner provides Accounting firms with the back-office resources & management support to clear through all the work. This frees up the Incumbent’s time to focus on their client relationships & build the practice.

What about the other side? Are Accounting firms in demand?

The short answer is Yes.

And its not coming from Financial Planning firms its coming from other Accounting firms of various sizes & locations.

Revenue impact?

For many Accountants being busy means they do not have the capability or resources to expand their practice with their existing client base or take on new clients. As such they rarely ask for referrals & often knock-back new work.

If only they had the resources to expand the practice but where can they find additional resources? Job ads aren’t helping. So where?

A merger often provides Principals with the ability to expand the service offering to their clients, take on more work from their existing clients as well as any new clients that are referred to them.

And guess what…in a merger or sale the other partner is likely to be open to you having a share in the revenue upside post-merger (or sale).

With the good interest in Accounting firms what else has changed?

Well for one, even if your practice in regionally based, its likely we will be able to find a number of interested parties rather than being tied to one option. This creates competitive tension.

There are a lot of factors that can be negotiated in a merger or sale transaction:

  • The valuation of the practice
  • The timing of equity payments
  • Upside potential in latter payments
  • The ability to retain equity or take-on equity in the merger partner
  • Transition to exit timing
  • Amount of time working. Eg. moving from 5 days/week to 3 days/week
  • Incumbant consulting terms post-sale
  • Existing Employee terms
  • Location of practice

Gone are the days (well at least for now) where the incumbent is paid a price based on last year’s P&L & the Principal is transitioned out in six months. Although this can happen if you want.

So how does Abacus assist Practices?

This is what we do. We advise Accountants on mergers, acquisitions & the sale of their practice. We enjoy what we do & the feedback from our clients has been great.

Perhaps you should give us a call and learn a bit more on why now is a good time to look at your options.

Call us today on 1300 121 013