Ranked #1 sell-side M&A advisor in sub-Saharan Africa (2014 Zephyr/Bureau van Dijk)
Dr. Mike Sweeting is the director of international development at BCMS. A thought leader passionate about succession planning, company exit strategies, company valuations, and how mergers & acquisitions can be used as a growth tool.

To read my recommendations, cut to the end. To understand my recommendations read the rest first!

The average life of a client for an accountancy practice has been steadily declining. However, many practices have not built that reality into either their strategic planning or even their day to day assumptions.

Understanding the Past

It made a great deal of sense to set up numerous ancillary services to clients when it was expected that they could stay for 10 or 20 years. Even then, Corporate Finance was often set up on a defensive basis. ‘Everyone else is doing it so we must as well’. Since, for many, a client selling up was a disaster, the flow of internal recommendations into one’s own team was usually a tiny trickle. Corporate Finance got the shareholders who absolutely insisted on going, and who would go to the Big 4 (or 5) of the day if not assisted. It was far preferable to try and fill capacity with fund raising, MBOs and other activities that would keep the company – if not the individual client.

The outcome was thousands of practices with under-resourced and under-utilised CorpFin departments notionally competing with the largest of their brethren. This was visible certainly in most ‘Anglo-Saxon’ style markets across the world. These same thousands then discovered the bind they were in. If they failed to sell their client, they now had the likelihood of them leaving anyway in disgust.  If they referred the client ‘up-stream’, the larger player would at the very least bring their pals to the table instead of the referrers; but could often walk off with all the business of a non-seller anyway. In either scenario if the company sold, it was still usually “goodbye”, due to the feeding frenzy generated by a ‘liquidity event’.

The needs of the present

Today, an accountancy practice keeps its client for an average of 6.5 years. It is just not feasible to attempt to be a ‘cradle to grave’ solution anymore. Neither is it worthwhile. The result has been the stunning growth in the mid and lower market of referral based relationships with third-party suppliers. Some do tax treatments. Some do coaching and mentoring. Some are management consultants. Some do mergers & acquisitions (M&A). Some do wealth management. All are specialists in that single discipline. It has become far more advantageous for the accountancy practice to concentrate on certain core skills.

Maybe some Top 50 firms in each country will continue to develop their wealth management side, or whatever. Below that, such ‘bolt-ons’ have become increasingly unlikely. Consultancy has been tried and discarded; (although in a number of high profile cases, this is due to perceived conflicts of interest as well). Accountants know deep down that they are neither management consultants nor business coaches. The last bastion is the corporate finance side, typically because one partner in the practice really loves it! It may be neither profitable nor time-effective.

The position today is that those CorpFin departments still exist in some form, even if merely on paper or the web site. It is a mark of the ‘pukka firm’, after all – isn’t it? About 10% of the team’s activity is actually to do with the sale of shares in a business. The remainder is a patchwork quilt of valuations, MBO advice (although rarely actual transactions), some property stuff, shareholder disputes, divorce related work, etc, etc. The better departments fulfil some acquisition mandates too.

My simple question is this – surely there must be a better way?

The way ahead

In this stripped-down more focused business environment, it makes sense to ally with ‘best of breed’ specialists. The various ‘networks’ have been early adopters here, attempting (quite successfully) to compete with the first tier by combining training, buying power etc.

So what should you look for to maintain your reputation, get the best for your client and make decent profits from M&A activity?

  1. Work with no more than one or two M&A firms, firms that match your own client profile in their pricing and performance.
  2. Work with firms that you can measure and monitor. Many will spend months making ‘polite noises’. Who is prepared to share their internal KPIs and their stats on your client’s progress with you?
  3. Work with M&A firms that are themselves true specialists.
  4. Work with those that share with you revenue from both their activity fees and success fees. If it is only one, some serious insecurity must lie beneath.
  5. Work with the ones that will refer back to you relevant work.

Most of all:

  1. Work with an M&A specialist whose clients go on to do other things in the business world.

Selling a company is not about retirement any more. The average age of seller has gone down steadily over the last decade. In the UK it was 63. Today it is 53 (source ONS). Here at BCMS (Xigo is a member of the bCMS group of companies) the average age in a done deal is 46 for UK clients, and lower in many other countries (eg Poland, Israel.)

68% of BCMS clients stay in business after the deal. Most of the remainder do not suddenly go off to their little place in Marbella. Some do, but they often become bored. One client sold his main business through us several years ago and became a tax exile. He bought a company off us as an acquirer a couple of years later – and sold it through us subsequently! Why this behaviour? In our case it is self-certifying. Our clients take very seriously our statement that we will sell their company for maximum value. These are serious business people who do not suddenly stop being serious. The32% who do not end up at the helm of a purchased or pioneered company again just a few years later, have plenty of choices.  Money does that for you.

Company vendors of the better sort become PE investor, or Angel investors, or open a family office, or… all of these are future long-term clients for your own practice. By working with the right M&A specialist, you can maintain revenue from ex-clients far longer than you ever did from the 6.5 year average of them and their ilk as audit clients.

Interested in finding out more about how you can work with Xigo, a member of the BCMS group of companies? Register here for our specialized seminar presented by Dr. Mike Sweeting.