NAB survey shows buyers must compete for assets in a seller’s market.
Accounting firms turn to acquisitions for growth, report reveals
More than a quarter of accounting firms are looking to acquire another firm in the next 12 months but it has become a seller’s market, according to a recent NAB report.
The bank’s Accounting Financial Planning report showed 28 per cent of practices plan to purchase all or part of another business in the next two years, with acquisition rated as the third most likely form of growth in the next 12 months.
However with only 15 per cent of firms looking to sell, those on the acquisition trail were competing for assets, the report said.
NAB professional services banking executive Adam Holster said despite the increased demand, buyers were still confirming that a purchase target was a good fit strategically and culturally.
“They want to get a good understanding of the firm and its key people; it’s critical to know how two will integrate into one,” said Mr Holster, with “cultural fit” the biggest consideration.
Although gaining staff was one of the main motivations for an acquisition, Mr Holster said firms would not buy simply to increase headcount – the target firm had to have people with the capability the buyer needed.
Firms looking to make an acquisition were undertaking careful planning to ensure they had everything in order before they embarked on the purchase.
“It begins with strategic alignment between partners and other stakeholders on the type of acquisition the firm is pursuing, as well as lining up advisers and financing well in advance,” said Mr Holster.
The report said there was currently a higher proportion of regional sellers, which could present an opportunity for metro firms seeking to replicate their success through geographic expansion.
NAB state business banking executive regional and agribusiness Naomi Stuart, said regional firms would consider an acquisition where it offered good synergies, such as complementary services.
“We’ve seen more accounting firms tuck in an acquisition like a financial planning or broking firm, using it as an opportunity to provide a fuller suite of offerings and further cement customer loyalty,” Ms Stuart said.
The NAB survey indicated that only half of all firms had a formal or written succession plan.
“Building a business is building an asset; if you’re not sure what’s going to happen at the end, that creates a lot of uncertainty,” said Mr Holster.
The survey also showed that many sellers planned to stay on post-sale with an equity interest, reflecting changing attitudes within the profession towards retirement.
“There’s no one best way when it comes to succession planning,” said Mr Holster.
“You no longer have to walk out the door aged 65 and never come back. And while many are putting off succession planning, there are also more palatable options that weren’t available 10 years ago, such as selling your stake down to 5 per cent and maybe working half a day a week.”
The motivation for these arrangements was not necessarily financial pressure but enjoyment of the work for some, he said.