As the pandemic wanes and economies build up steam, growth is increasingly the focus in the accounting sector.
As far as Tim Underwood, managing director for Singapore at M&A consultancy Foulger Underwood, is concerned, growth through acquisition looks like being the most popular growth route. He thinks the M&A space may soon be filled with accounting firms making up for lost time.
Early in the pandemic, he explains, accountants ‘became a lot more inward-looking, given the firefighting they had to do on behalf of their clients’. The inevitable result was a shutdown in M&A activity.
Things look very different now. ‘As it transpires, accounting firms haven’t been as impacted as first anticipated, ’ Underwood says, ‘and some of the broader professional services firms have done exceptionally well, as their clients have needed additional support. Their cashflows are good, they have decent cash reserves, and practices are now back in the market wanting to deploy the M&A strategies they couldn’t pursue before.’
‘Practices are now back in the market wanting to deploy the M&A strategies they couldn’t pursue before’
In terms of organic growth, Underwood believes the opportunities will come from winning SME clients looking to set up in new jurisdictions where requirements have become more complex during the pandemic. ‘Since people can’t travel to those jurisdictions, they are more reliant on outsourced professional services,’ he says. This could mean branching into value-added services such as virtual CFO, payroll, and visa and immigration assistance.
‘In general, I think the firms that have done well during the pandemic period have managed to sit down with clients to understand what they’re looking do to over the next 12–18 months, and are ready to provide the services they need,’ he adds.
M&A strategy
For Chua Hock Hoo FCCA, co-founder of Malaysian accounting firm Cheng & Co, embarking on a M&A strategy was core to the firm’s growth. After founding the firm with Paul Cheng in 1993, the partners set themselves the goal of establishing 10 branches with 10 partners, and generating a turnover of MYR10m within 10 years.
Over the following two decades, Cheng & Co merged with or acquired more than 20 firms to become Malaysia’s largest homegrown accounting firm. ‘In the process,’ Chua explains, ‘we began diversifying our services beyond accounting and audit to become a one-stop professional centre providing innovative and creative business solutions.’
‘We began diversifying our services beyond accounting and audit to become a one-stop professional centre’
An early push for digital transformation has been a pillar of Cheng & Co’s success. ‘Not only were we well prepared to go down the digital route for nearly every aspect of our operations when Covid-19 hit Malaysia, we are also in a strong position to expand our services to companies abroad through foreign M&As and offer crossborder outsourcing services,’ Chua says.
Today, the aim is to be seen as more than just an audit firm. ‘Our focus for the future is on non-audit business models,’ Chua says. ‘With a non-audit business, we have the opportunity to go for listing and to execute M&As to expand internationally.’ He adds that the company’s annual growth target is 30%, to be delivered in equal parts by organic, cross-selling and trendsetting strategies.
Internal growth
Organic growth has been the preferred route for the Hong Kong SAR branch of ShineWing International, a Beijing-headquartered global accounting network that now has member firms in 16 regions, including 27 branches in mainland China.
Roy Lo, managing partner of the Hong Kong-based firm since it became part of ShineWing in 2005, says: ‘Our most successful strategy has been conducting promotional activities in different cities in mainland China, talking directly with mainland clients to attract them to use the Hong Kong business platform to develop business overseas. By holding seminars or meetings locally in Mandarin, we have built up strong client relationships where our firm is recognised as a key business partner.’
With organic growth boosted by the recent acquisition of a local firm, ShineWing Hong Kong has expanded from just a few founding partners at startup to around 450 people today.
The firm continues to play an important role as a two-way conduit between China and the world that leverages the capital market. In the past two years, though, it has pivoted into new service areas. ‘We see the company moving more and more into high-value assurance and consulting services, such as cybersecurity, anti-money laundering services and digital transformation,’ Lo explains.
Strategic acquisitions could also play a bigger part in the future for ShineWing Hong Kong. Lo says possible M&A candidates have already been identified and merger negotiations are expected to begin. ‘If I wanted to develop a new business, like AI or blockchain consultancy, the M&A of a firm with that expertise is a way to quickly build a pool of talent,’ he says.
More information
Find out how practitioners have transformed their practices by providing clients with sustainability services at ACCA’s annual virtual conference ‘Accounting for the Future’, which will run from 23 to 25 November.
