Lucinda Kitchin examines the state of the M&A market in the light of the current global pandemic.
2020 will be remembered as the year when the world ground to a halt in circumstances precipitated by a virus of dubious origins. The world will never be the same again. We watch with interest as the story unfolds with so much change afoot.
For the best part of the past 45 years the M&A market within the profession has been largely a seller’s one, with a limited number of sellers and a dearth of purchasers. This dynamic has underpinned the tried-and-tested selling mechanism that APMA has usually employed, positioning sellers so that optimal solutions for their succession requirements can be identified. Usually this will come in the guise of the purchaser presenting the best fit for the seller’s goodwill, ensuring clients (and staff) are retained, continuity assured, and the potential for any clawbacks minimised.
Over the past few years we have seen a huge amount of change in the profession as the economy has sought to recover from the most recent recession. As competition has grown client needs have changed, technology advanced, and so the market has altered course with industry consolidations becoming usual, while practitioners and partnerships have been bought out by ambitious young and technologically able firms. Meanwhile the Revenue has been pushing from behind, forcing recalcitrant practitioners and SMEs into the 21st century with the rolling out of MTD and the many other changes beckoning from the horizon.
This has aided the M&A market in retaining its buoyancy as a number of senior practitioners prepare to give up, preferring to hedge their bets with an exit now. A small number of practitioners, however, have reported that despite their concerns over the incoming digitalisation they have found the Revenue’s staged requirements to be less onerous than anticipated and have opted to hold on a little longer.
During the period of recession and subsequent recovery, although the number of available purchasers has been fewer, there have been sufficient; and the multiples commanded have ranged from a base line of the usual 1.0x up to a less usual 1.3x and sometimes more. This is because of the potential for processes to be streamlined, the ability to offer a multi-dimensional service and opportunity to minimise costs with overseas operations (not necessarily in Asia) being considered. Acquisition opportunities are no longer limited by geography, as vendors boast of clients nationwide and overseas who need little or no hand-holding. Purchasers usually have the right systems in place to enable the servicing of those clients.
Despite the number of robust firms looking for opportunities to expand their fee base and coming away from their efforts disappointed, many are still keen to actively pursue their ambitions.
At APMA the phones have been quieter than normal as heads have been down fielding a stream of urgent, non-stop client queries as sense is made of new weekly legislation. This has been a time to cement client relationships through the offering of support, being on hand to interpret and guide, all without the certainty of being paid. Many report that public practitioners have been left to fill the gap left between the constantly-in-motion train of new measures introduced by the HMRC and the safety of the platform, life as we knew it 2020 BC (Before Covid).
Although less than before, there continues to be an appetite for acquisition.
As in the past, we anticipate the market will recover and it will thrive in good time, albeit with changes in place. To date, deals have been taking place as planned, or where not possible they have been placed on hold, soon to be resumed.
Going forward, however, there is a new awareness of our inter-connectedness, an enhanced understanding of the need to collaborate while embracing new digital platforms, to offer clients the integration of values and professional experience with technology in order to adapt to the ever-changing environment. In-house systems must be streamlined, flexibility maintained, embedding it into the new way of thinking as practitioners seek to mitigate risk. This time of change is a golden opportunity for those seeking to grow.
After the stress of January, then with March and April spent under lockdown, those sellers who can wait no longer and who would previously have had the luxury of choice must be a little less particular now as to who succeeds them and how long their clawbacks will operate.
Just as we have found, over the years, there to be a fine line between buying and selling, we can now see the fine line which exists between chaos and opportunity.