2017’s bullish M&A market produced some stand out transactions in the accounting sector.
No. 3 Brett Kelly’s stunning IPO
Kelly + Partners founding partner Brett Kelly made an $8 million paper profit in a single day when his accounting firm made a blistering debut on the Australian Securities Exchange last June.
Shares in the Kelly Partners Group, which owns Kelly + Partners, have soared 74 per cent above its $1 issue price since then, pushing its market capitalisation up to $79 million (at January 17, 2018). Not too shabby for a 32-partner, 12 office firm, generating annual fees of $36 million.
With his 51 per cent stake worth $40.37 million, Kelly has reaped the rewards of vision, drive and patience. The fact that no listed accounting roll-up has sustained value over the long term has not deterred this bold entrepreneur.
Kelly has a reputation for driving a hard bargain in transactions. He’s tough on price, upfront and residual payments, and has rigorous lock-in clauses for key personnel.
But, Kelly identified a niche in the market. And has kept at it like a dog with a bone for years. His momentum will attract clients and, importantly, staff.
No. 2 AZ NGA buys P&P: Accounting firm prices surge
Azimut-backed AZ NGA’s purchase of Peters & Partners (P&P) in May was less significant in size than in what it signalled about the overlap between financial planning and accounting.
It demonstrated in a nutshell a key factor nudging accounting firm prices to record highs.
In 2015, AZ NGA was given a pot of gold from its Italian parent, independent asset manager Azimut, to buy financial planning firms in Australia. And it did – 29 of them, in fact.
P&P, however, was its first accounting firm acquisition. The buyout of Sydney chartered accounting firm, Hurwitz Geller, followed soon after. Since then, a raft of cashed up international and interstate financial planning aggregators have begun snapping up accounting firms.
Regulatory changes are the trigger behind this trend. They have brought accounting and financial planning so close together that it is not uncommon for 20 to 30 percent of financial planning work in a practice to be “owned” by accountants. As much as the financial planners may think they own these relationships, they don’t. The accountants do.
Acquisitive financial planning groups are really shaking the trees for assets which should produce some larger deals in the next 24 months.
Since financial planners can’t manage accounting firms and vice versa, it presents some interesting future challenges.
No.1 Nailing the cultural fit
Far and away the best deal we saw in 2017 took place out of the limelight in the outer suburbs. What made it magical? They nailed the cultural alignment between buyer and vendor. The outcome was sublime.
A business-minded purchaser paid the whole amount upfront, gave the exiting partner a salary above market rates, with a 12-month lock-in to be reviewed in six months.
It’s a rare and beautiful buyer who understands the psyche of accountants and will wear a 10 to 20 percent loss on the headline sale price to ensure the crucial 60 to 70 percent of clients are bedded down through the transition period.
In this case, the buyer was willing to bear some initial pain knowing that a positive relationship with the vendor would improve client and staff retention in the long run. At the same time, he could modernise the practice and substantially improve its profitability.
This was an honorable transaction between two straight shooters. It produced a superior outcome for buyer, seller, staff and clients. May 2018 bring more of this flavour!
