The Market Impact of the Rise in M&As

The public practice sector is constantly moving and shaking, steered by factors such as shifts in business confidence, regulatory changes, and economic cycles.

What we’re seeing currently shaping the market is a noticeable trend of mergers and acquisitions (M&A).

This wave of consolidation is reshaping the industry and having a big impact on recruitment.

Understanding the reasons behind these mergers, their impact on the sector, and the implications for talent retention and attraction can provide valuable insights for firms navigating this dynamic environment.

As the largest agency specialising in recruiting into public practice across the UK, our prominent position in the market gives us oversight of how big picture decisions trickle down into the day-to-day reality for both candidates and firms.

In this article, we’re sharing insights into the rise in M&As and what it really means for public practice.

Why are so many accountancy firms merging?

There are many reasons why an accountancy firm may want to acquire another, from pressures to reduce costs and improve efficiencies to expanding its services or geographic footprint.

Economic pressures and market competition are a likely driver for some of the acquisitions we’re seeing, as public practice, like many other sectors, is not immune to economic fluctuations. Firms face increasing pressure to cut costs while boosting income.

Merging allows firms to pool resources, streamline operations, and leverage economies of scale. This is especially crucial in a competitive market where maintaining profitability can be challenging.

Expanding service offerings can also play a critical role in a firm’s decision to merge. Clients today demand more comprehensive services beyond traditional accountancy. This includes advisory, consulting, and other value-added services.

By expanding their expertise and service offerings through a merger, firms can provide a one-stop-shop for clients and thereby increase market appeal. This is a big driver within the sector as the rise in tech integration is at the forefront of decision-making. In fact, UK CEOs are prioritising AI over sustainability .

The advent of advanced technologies, such as AI, blockchain, and sophisticated software, is revolutionising the way accountancy firms operate. Smaller firms might struggle to invest in and adopt these technologies independently. By merging, firms are better positioned to embrace technological upgrades, ensuring they stay competitive and offer cutting-edge services.

For thriving firms embarking on ambitious growth journeys, an M&A could simply be a strategic opportunity to expand into a new location. This not only broadens the client base but also provides access to new markets and local expertise, enhancing the firm's overall growth prospects.

How will the rise of M&As impact the sector?

1. Increased market concentration: As mergers lead to fewer, larger firms, market concentration increases. This can result in a more oligopolistic market structure where a few large players dominate. While this might benefit large firms with increased market power, it can make it challenging for smaller, independent firms to compete.
2. Enhanced service quality and innovation: Larger firms can invest more in innovation and quality improvements. This can lead to the development of new services and better client outcomes. The combined expertise and resources also foster an environment conducive to continuous improvement and excellence.
3. Price competition and client benefits: With increased market power, larger firms might have the leverage to offer competitive pricing. Clients can benefit from better rates due to the cost efficiencies achieved through mergers. However, this could also squeeze smaller firms, potentially leading to a homogenisation of pricing strategies across the sector.
4. Operational efficiencies: Merged entities can achieve significant operational efficiencies. By consolidating back-office functions, integrating systems, and eliminating redundancies, firms can operate more smoothly and cost-effectively. This efficiency often translates to better service delivery for clients.

How do mergers impact staff retention and recruitment?

The elephant in the staff room during a merger is redundancies. While mergers aim to create efficiencies, they often result in staff being let go.

Employees may face uncertainty regarding their job security, which can impact morale and lead to turnover.

Another downside is the potential for increased workloads and stress levels, especially during the integration phase. Employees may need to adapt to new systems, processes, and expectations.

In an ideal world, effective change management strategies and support systems are established to help staff navigate these changes successfully. However, we see time and time again how managers are missing the mark and letting talented team members slip through the net.

It’s not all doom and gloom, though. M&As can offer staff opportunities for upskilling, career advancement, and greater benefits.

Larger firms often provide more opportunities for professional development and career advancement. The diverse service offerings and larger client base mean that employees can gain experience in various areas, enhancing their skills and career prospects. This can be a significant draw for ambitious professionals seeking growth.

Merged firms can often also offer greater pay and benefits packages, making them attractive employers in a competitive job market.

Riding the M&A wave

The trend of mergers within public practice is driven by a wide range of factors and is certainly having a big impact on recruitment. We’re hearing from candidates that the market’s uncertainty is palpable, impacting staff satisfaction and team morale at all levels. Even the longest-serving team members are reacting with caution, considering their options and ensuring they have a fallback amidst a period of big change within the sector.

While these mergers can lead to increased market concentration and enhanced service quality for firms and greater development and progression opportunities for accountants, they also bring challenges, particularly in terms of staff retention and recruitment.

Firms navigating these waters are riding an uncertain wave which is showing no sign of breaking soon. It is certainly a topic of discussion amongst the Directors and Partners we’re working with, and it will be interesting to see how the market continues to reshape throughout the coming months.

Is it time to rethink your recruitment strategy amidst a challenging market? Here’s how .