Q3 2023 M&A Market Update: Options, Options, Options...

As H1 of 2023 closes, we can reflect on an extremely successful and exciting first half of the year within both the accountancy and legal practice market.

AJ Chambers has been involved in numerous transactions, involving a variety of different practice profiles; from retiring sole practitioners through to c.￡7m revenue firms joining larger investment backed platforms. With many more lined up for the second part of this year, or many still engrossed in positive discussions and negotiations as a result of our introductions.

Our unrivalled network allows us to listen and deeply understand the desires, needs and objectives of owners to ensure that their wishes are met, or that they are introduced to the right acquirer who shares similar values. Likewise, the market currently is providing a happy hunting ground for those leadership teams of practices looking to grow via acquisition or merger, with some fantastic practices now open to looking at options.

The competition in the market has led to a broad spectrum of models, deal structures and offerings. They are all similar in approach, but with different, more nuanced differentiators, all in the hope of speaking to or catering for the various situations of owners or practices out there. This is fantastic news if you are considering the future of your business, as you should, within reason, find a solution that feels tailor made for you. One demographic that has been pulled into conversations this year compared to previously, are those practices that have younger owners whom still have 10 years or more still ahead of them in their career.

The market currently is providing a happy hunting ground for those leadership teams of practices looking to grow via acquisition or merger, with some fantastic practices now open to looking at options.

This is due to certain acquirers or networks allowing autonomy to be retained or maintained by the current ownership; or a seat at the top table of larger infrastructures to help mould and influence the future direction of the group, all whilst having ‘skin in the game’ equity wise. Many owners of this demographic view such opportunities as a chance to de-risk by realising some value built to date through a partial or full sale. But they then still hold onto the feeling and position of ownership and influence with the ‘carrot’ of a bigger pay day further down the line, by going on the journey with a larger firm, group or network.

As alluded to, there is a prominent network which allows for partial sale and the retention of full autonomy, brand, control and a way of running the practice as it does today, with a support network behind you. This support is in the form of acquisition funding, next generation buy-in funding for succession, an element of central support services and the opportunity of being part of a large ‘family’ where ideas and best practices can be shared. Of course, with this type of model you are largely left to your own devices and must have confidence you have the capacity and want to look after all aspects of running a practice.

Conversely, you have various options available to merge with local firms for strategic or critical mass purposes, as well as being acquired by a consolidator, or an ambitious investment backed mid-size firm. Typically, joining a larger infrastructure means the relinquishing of certain tasks as a Partner/Director owner. Such as dealing with professional bodies, HR/recruitment, marketing and IT to name a few. With the ‘heavy lifting’ being taken away from you, this allows for more time to be spent on clients or winning new clients which is the part most accountants enjoy the most. This is true from conversations I have with many Partners up and down the country. The trade-off is usually loss of complete autonomy or influence on the business, a significant reduction in equity holding within the practice.

It is important to engage with M&A consultants who are immersed within the sector, and have a very strong grip on the market, knowledge of the various models and hold good relationships with the various parties whom you could speak with.

The final option is to onboard or attract investment yourself as firm to build and grow. For this to work, you must ensure you have a competent, driven and enthusiastic leadership group internally to act upon ambitious growth plans. With an investor involved, you will have targets to hit or make, along with many challenges which naturally occur through a rapid growth spell from infrastructure, management to cultural alignment.

The financial look and feel structure wise through each of the above models are not set in stone, some are weighted towards deferred consideration over a certain period, others are more heavily stacked on the front end with as much as 60% of consideration paid upon completion. Again, the variations and flexibility on approach are there to assist in constructing a deal which satisfies and incentivises all involved.

It will be interesting to see if increased interest rates will curb or impact M&A appetite, for those who utilise lending or borrowing for acquisitions.

There is a vast range of options available to both acquirers, sellers or those wishing to merge or embark on the ‘next chapter’ of their business or personal and professional life. The flexibility and pragmatism on approach to deals in the professional services arena is of great benefit. However, as with the constant scrolling on Netflix due to the sheer amount of options of things to watch, it does make the decision process as someone looking to sell or merge significantly more confusing, with the potential of much time being wasted.

This is why it is important to engage with M&A consultants who are immersed within the sector, and have a very strong grip on the market, knowledge of the various models and hold good relationships with the various parties whom you could speak with. But, most importantly, listen and understand your objectives and requirements to ensure only suitable parties are introduced, to ensure the right options are placed before you and any process is navigated as smoothly and as stress-free as possible.

Gazing into the future and factors outside of the professional services market, it will be interesting to see if increased interest rates will curb or impact M&A appetite for those who utilise lending or borrowing for acquisitions. Furthermore, the impact more general economic dynamics will have.

AJ Chambers work closely with numerous funds, large networks and other independent acquirers of various sizes whom?are actively looking for great opportunities in the market at the moment.

If you are an Accountancy Practice or Legal Practice owner and would like to discuss any of the above further, including your exit plans, merger or indeed growth plans via acquisition, please get in touch for a confidential, no obligation conversation.

We are well equipped to advise you of the options open to you, and ensure you achieve the objectives you would wish to reach for any next chapter of your business.