M&A Activity Heats up in Accounting Sector

Magnus Yoshikawa of Jadeja Partners says he has seen four accounting firms in the past year plummet in value. Photo: Christopher Pearce AGNES KING – AFR Mergers and acquisitions are booming in accounting. Accountancy firm broker Magnus Yoshikawa is forming a community of experienced practice managers to abseil into distressed firms to preserve their value when […]

Magnus Yoshikawa of Jadeja Partners says he has seen four accounting firms in the past year plummet in value. Photo: Christopher Pearce

AGNES KING – AFR

Mergers and acquisitions are booming in accounting. Accountancy firm broker Magnus Yoshikawa is forming a community of experienced practice managers to abseil into distressed firms to preserve their value when they are sold.

Mr Yoshikawa said he has seen four accounting firms in the last year plummet in value to 25¢ for every dollar of revenue because the founders and sole partners had died suddenly or been taken out of play by terminal illness.

Under normal circumstances these practices would have commanded $1 or $1.20 for every dollar of income, he said.

“The terms change. Instead of getting 80 or 90 per cent of the sale price up front, prospective buyers are paying 25¢ in the dollar and the balance in three or four years if the clients stick. But in the meantime, they’re in the practice gouging out the premium clients,” Mr Yoshikawa said.

He’s closed seven sales in the last two months, a record for the brokerage firm, involving practices with average annual billings of $650,000.

He said financial planners with deep pockets are driving up prices. “There are reports of multiples as high as $1.40 and $1.80 [for each dollar of revenue].”

But price, he said, was not always the clincher. A North Sydney practice he sold recently was offered $1.25 million but took $1.1 million from a party offering better continuity for staff and clients, and a better cultural fit.

This is borne out by Pitcher Partners’ recent succession planning survey of 2400 people involved in family businesses. It shows sale price is more important to people under 40, and where there were no sons in the family.

“Overall price was rated less important than continuity of the business and ongoing jobs for employees,” said Pitcher Partners partner Richard Shrapnel.

M&A in the accounting sector have been building in the last 12 months, and are expected to become more active, industry insiders say.

Acquisitive companies have been circling for years, waiting for the changing of the guard, when accounting firm owners in their late 50s and 60s would start off-loading their practices en masse. Flagged a decade ago as an inevitability, this phenomenon failed to materialise when the global financial crisis forced many silver-haired professionals to postpone retirement.

But there is a sense it’s harder to make a buck from accounting services these days and some speculate this may have created a tipping point.

PwC announced an ambitious bid to acquire global management consultancy Booz & Company in October. If the proposal passes a Booz partner vote in December, it will be the biggest deal in global accounting circles for years.

Both Deloitte and PwC have also been snapping up assets in the digital space domestically.

Deloitte Australia swallowed up Sydney-based occupational health and safety consultancy Brief Group in November, its fourth acquisition in six months.

Chief executive Giam Swiegers flagged the possibility of two more bite-sized acquisitions before the end of the year. PwC is also expected to announced a small acquisition in the next fortnight.

In the mid-market, BDO east coast practice chief executive, Chris Brant, has made it clear the firm needs to bulk up through acquisition, particularly in Melbourne, where it is underweight.

NEW ARRIVALS

Meanwhile, the newest entrant in the listed accounting aggregator space, Easton Investments, the brainchild of WHK Group founder and former managing director Kevin White, made a bold play last week.

It announced plans to acquire ­its Sydney rival Hayes Knight for $13.1 million.

It has flagged further acquisitions, while its unlisted rival Kelly+Partners is said to be weeks off closing a deal to buy a substantial Sydney firm.

Amid all this activity, Mr Yoshikawa has rebranded his brokerage to Jadeja Partners and is soliciting a former big four bank manager to run the new ­division. The venture will include an “overflow” service of temporary technical staff as well.

Mr Yoshikawa said he won’t charge a fee for playing matchmaker between firms with a surplus of tax work, for example, with another experiencing a dearth.

Firms will broker fee-sharing arrangements between themselves.

“We meet a lot of practitioners with staffing problem, especially in rural areas,” he said.

“We also meet a large number of practitioners who have retired to a coastal or rural town and are already doing locum-type work.

“The grey army, or “the wise army” as we prefer to think of them, are out there. They work very hard, have little to prove and are a great source of valuable information to an accountant in need,” Mr Yoshikawa said.

Australian Financial Review:  PUBLISHED: 03 DEC 2013 12:44:13 | UPDATED: 04 DEC 2013 12:20:34