A people business: What makes a firm attractive to buyers?
Written Chris Sheedy of The Hard WordFor accounting firm owners planning an exit, a successful sale is often less about size or price than it is about culture, timing and long-term fit.
During accounting firm transactions, the public conversation often focuses only on the numbers, such as revenue multiples, recurring fees and client retention, etc.
But the reality is much more human than many firm owners realise, at least according to Michael Williams, Managing Director of The Hopkins Group, and accountant Gary Morcombe, who recently sold his business, Sayers Partners Pty Ltd, into the multidisciplinary financial services firm.
“The most important factor is that the businesses need to be culturally and strategically aligned,” Williams said. “This relates to the types of clients they’re servicing and the types of staff they employ.”
As many owners approach retirement age, succession is becoming an increasingly urgent issue. Williams has long been aware of this, pointing to demographics as a major driver.
“Sixty-five per cent of tax agents in Australia now are aged over 60,” he says. “It’s a very common scenario where accountants sit back and say, ‘I need a succession plan, but I don’t really know what that is.’”
Accounting firm buyers are changing, too
At the same time, younger accountants are often reluctant or unable to buy firms.
“It was easier when you were 20 and bought a house, and at 40 you had a lot of equity and you could use that to buy into a practice,” Williams says. “But now at 40, you’ve got a massive mortgage and kids in private schools. You just can’t afford it.”
That means there are more opportunities for mergers and acquisitions as established firms follow an acquisition strategy both for growth and to establish complementary capabilities.
The Hopkins Group, for example, began as a residential investment property advice business before growing into a broader multidisciplinary firm. It now spans financial planning, tax and accounting, finance and property advisory.
“Much of our growth has been organic,” Williams says. “But the last few years, as we’ve reached a certain size, we’ve looked at mergers and acquisitions where appropriate.”
Importantly, he said acquisitions are not just about adding revenue.
“Our view is that we’ve always wanted to build a multidisciplinary business,” he said. “We’ve got an idea of what we want to build, and we’re building towards that.”
Acquisitions are also about strategy and culture
Potential acquisitions, Williams says, are assessed not just on profitability but also on people, and on whether they fit the agreed strategic direction of the business.
“Is there a niche, or a need for us to fill?” Williams asks. “We know what we’re trying to build.”
Importantly, that doesn’t mean buyers like The Hopkins Group are only interested in perfectly polished firms. There can be advantages to highly systemised businesses, and there can also be benefits around the acquisition of what Williams describes as “renovator’s delights”.
“Both have their pros and cons as to the outcome,” he says.
The most powerful learning for those interested in selling up is that the process is never a purely commercial one.
A transaction advisor is a powerful ally
Morcombe says the sale of his own firm was deeply personal and emotionally complex after the death of a business partner created unexpected succession challenges. That made the process difficult.
However, it also reinforced the value of involving an experienced transaction advisor, in this case Kev Ryan.
“I had no experience in this area,” Morcombe says. “So, Kev was literally my coach and leader. I went through quite a few due diligence processes and he helped me with that. He really was my mentor.”
Williams says advisers play a powerful role not just around preparing documentation and managing negotiations, but also in helping sellers navigate the other transition challenges around handing over a business built over decades.
“In any transaction, there’s a huge level of emotional intelligence involved,” Morcombe says. “Selling something as personal as a business is always going to be a challenge.”
Williams says knowing that Morcombe had Kev Ryan in his corner also made his own job easier. It made the transaction far more likely to succeed, both before and after contracts were signed.
And once again this comes back to the power of people and culture, Williams says. Staff retention, the preservation of client relationships and the maintenance of continuity depends heavily on cultural fit.
“What has been their motivation for running the business?” Williams says, explain what it is he looks for in terms of culture. “How do they run the business? How do they treat staff? How do they treat clients?”
Those factors matter heavily in The Hopkins Group’s decision to proceed with an acquisition.
“We want good people in our own business,” Williams says. “We want them in our office. As long as they’re contributing and adding value, they can work for us for as long as they want.”
A new home for staff
Of course, some who sell their business are keen to continue working, as was the case with 70-year-old Morcombe, who had no urge to retire.
“I’ve still got a strong desire to keep working,” he says. “The fact that The Hopkins Group were not ageist, and they appreciate me, meant they were also a good cultural fit for me. That’s a massive bonus for me.”
The acquisition is an opportunity for him to focus heavily on client relationships and business development. Dropping much of the administrative pressures of running a firm was another major bonus.
“It would have been really difficult to keep going by myself,” he says.
This outlook is increasingly common among older practitioners, Williams says.
“A good transaction for everybody is one where Gary is excited about the role and gets a new lease on life,” he said. “What we ultimately want is Gary doing what he really enjoys.”
“There are always some parts of the role you’ve got to do. But our goal as a slightly larger business is to take as much of that off his shoulders as we can.”
For owners considering succession, the lesson is a simple one – the best deal is never just about price.
Timing, culture and strategic alignment all matter. In many cases, so does finding a pathway that works for both the seller and the next owner of the business.
As Williams says, “We want to learn from Gary’s experience with the younger staff and we want to build upon the relationships that he’s nurtured for a long time. If that happens and Gary is also happy, the clients will be well looked after and we will all make the most of the transaction, moving forward.”
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