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Accountancy Firm M&A – Are You Keeping Up?
Hg Capital recently announced a partial disposal of its stake in Azets to PAI Partners. Having completed 90 deals in the UK, the deal with Paris-based PAI suggests the next leg of growth is in Continental Europe. It may also suggest the UK market is becoming too competitive for their liking, with a number of groups now vying for assets in a market that remains fragmented.
Newer vehicles include Exponent Private Equity-backed Xeinadin, which was created in 2018 as a vehicle to consolidate a group of 115 small practices. More recently, we estimate that Xeinedin has completed 7 deals over the past 12 months in businesses with enterprise values ranging from £0.9 million to £4.9 million at average multiples of 1.3x revenue and 3x EBITDA.
Beside Azets, the biggest deal in the current cycle was the acquisition of Cooper Parry by Waterland Private Equity for a reported £100 million. Cooper Parry has set-out its stall as the pre-eminent adviser to ambitious growth companies and gives Waterland the platform to enter the fray as an acquirer backed by substantial capital. We estimate that Waterland paid nearly 3x revenue and around 7x EBITDA, illustrating the premium for larger assets relative to smaller, bolt-on targets (and the associated valuation arbitrage that comes from a “buy and build” strategy).
Other relatively newly-minted PE-backed firms include Aberdeen-based Anderson, Anderson & Brown (AAB), Birmingham-based Dains, Gravita and DJH Mitten Clarke. August Equity paid £46.5 million for AAB, which included the firm’s wealth management business and Sagars, a Leeds-based practice. Dains is funded by Horizon Capital, a deal-by-deal private equity player. Gravita Group, backed by Tenzing Private Equity, officially launched in November 2022 and swiftly acquired Jeffreys Henry and Arram Berlyn Gardner (ABG) before adding Carter Backer Winter and Davis Grant to the group. Tenzing is hedging its bets with a second platform – DJH Mitten Clarke – which has already integrated a number of small practices as well as Senovo Health, a broker specialising in selling dental practices.
Less well-known vehicles include TC Group, backed by Apera Asset Management, a private debt funder to mid-market businesses in Western Europe. Furthermore, MHA MacIntyre Hudson and SMH Group have recently been active with the acquisitions of Gerald Thomas and BCL Accountants respectively, and Evelyn Partners completed the acquisition of Cambridge-based Ashcroft in April 2023.
And if you are concerned that there is not enough capital chasing small practices, SKS Business Services, which has already completed a number of deals, recently received a £48 million “war chest” for further acquisitions from Kartesia, another European provider of debt and equity packages for SME “buy and builds”.
The consolidation in the accountancy sector is well-underway and follows similar strategies in other professional and support services categories. Scale is perceived as a good thing in an industry that is undergoing fundamental change in terms of technology investment by firms and digital adoption by clients. This change is impacting the way that accountants and business advisers do their jobs and earn their fees. Accountancy Age recently quoted a mid-tier firm partner who prophesied that advisory services were set to grow to 70 per cent of the average firm’s revenues. This clearly requires a different mindset and skillset to the traditional model which relied on compliance-based accounting and tax services.
Despite the recent deal flurry, the accountancy market remains fragmented – The Institute of Chartered Accountants of England & Wales (ICAEW) has a membership of over 21,000 firms. Lee Humble, Head of UK Corporate Finance at Azets, does not expect a slowdown in the short-term but anticipates that cross-border activity will emerge as a key trend in the medium term.
The natural consequence of this plentiful capital and eager buyers focused on the sector is an appreciation in multiples being paid. Humble concurs: “Activity in the sector has been frenzied and there are a number of large consolidators hoovering up assets across the breadth of the UK. This has an inevitable pricing impact, with larger and diverse practices attracting premium multiples. Key, however, will lie with succession within the target businesses and the perceived impact of the loss of key partners and directors which can follow such a transaction.”
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