Merger and acquisition (M&A) activity remains the story of the moment in Irish accounting as a roll call of deal making brings consolidation, new players and private equity into play. A changed business landscape is behind much of this.
‘Smaller accounting firms are finding it more difficult to meet regulatory challenges while also providing the range of services expected by clients,’ says Ken McAndrew of Camigo Consulting, which support firms in M&A mode.
Compounding this is the issue of succession planning. John Donoghue, CEO of Ifac – an advisory firm that has expanded rapidly through an energetic acquisitions programme – says the aging demographic of owners is significant. ‘People who went into practice in the ’70s and ’80s are naturally looking for exits,’ he says, adding that the smaller firms they lead ‘are struggling to get tax, audit and advisory people. So, they are being acquired.’
‘Culture is the invisible thread that ties together a firm’s mission, ethics and operations’
Reality dawns
If all of this means, as Donoghue sees it, that ‘it’s a great time for sellers’, it raises the pertinent question of who exactly a firm finds themselves sold to once the champagne corks have popped. As business advisers, accountants will be familiar with research suggesting that between 50% and 75% of all post-merger integrations globally fail to meet their original objectives due to cultural clashes.
Merger challenges
M&As among accounting firms require coordination and planning in areas such as:
- System integration. Using different accounting software and systems may involve a complex process of data migration. A firm’s tech stack is critical.
- Standardised processes. Standard operating procedures need to be aligned, and teams may need to be retrained where necessary.
- Communication infrastructure. Communication between both firms needs to be seamless.
- Cashflow and client service interruptions. Will there be any roadblocks to the services provided to current clients? How will clients new to both merged firms be impacted? How will this impact your firm’s cashflow?
Source: Karbon
Until recently, few saw this as a concern for their own workspace. Garry Howling of Public Practice Recruitment says questions of cultural fit are as critical to accountants as any other line of business. ‘Culture influences how employees approach their work, interact with clients and adhere to regulatory standards. It’s the invisible thread that ties together a firm’s mission, ethics and day-to-day operations,’ he says.
Amplified focus
McAndrew agrees that the issue of fit cannot be overstated. ‘Culture is king when it comes to M&A. While you may paper over the cracks to get a deal over the line, you will pay a significant price in the long term.’ The good news, he says, is that, in a competitive market, ‘buyers are trying to set themselves apart by amplifying their focus on people and culture’.
In December, MSD Accountants rebranded as DJH Ireland as it joined forces with UK accountancy group DJH. It was, says managing partner Richard Daly FCCA, the culmination of a journey that put questions of culture increasingly to the fore. After earlier attempts to grow through M&A fell somewhat flat, ‘we decided to change our approach. We looked at culture, complementary capabilities and value creation.’ When MSD was introduced to DJH, the sense of a good match was palpable, he adds. ‘Their biggest asset and number-one focus is their people, and this was very important to us.’
‘There are no short cuts to building a great culture’
For Ifac, culture is also a priority consideration in its acquisition drive. ‘We are selective. We are looking for good businesses and cultural fit. Firms that really understand a client-first model look after their employees and want a permanent home for their clients,’ Donoghue says.
More skill than process
If a good cultural match begins with finding a likeminded partner, it rarely ends there. Adam Haller of US-based Bain & Company points to research showing ‘83% of M&A practitioners that have experienced a failed deal point to problems in the integration as a primary cause’. Those who succeed, he says, ‘treat integration more as a skill than a process, recognising that each deal is unique and will require a different approach’.
Comparing cultures
At the start of the M&A journey, there are a number of points to consider:
- Definition of ‘success’. What motivates employees? Factors to consider include incentives, promotions, achieving and surpassing key performance indicators, and lifestyle.
- Management approach. How big is the distance between management and staff? Is there constant interaction between them?
- Decision-making approach. How much autonomy does the staff have to make decisions, and how important are those decisions?
- Willingness to change. How open to change does the team appear? Have things always been done the way they’re done now, or has there been constant evolution?
- Current workforce attitudes. How content are the workforce currently and what are their concerns about the M&A process?
Source: Kison Patel
Having gone so far as to create an integration team who ‘take care of the acquired firm as they join’, Donoghue says Ifac’s approach is that ‘year one and two are essentially settling-in periods. Building real relationships is essential and there are no short cuts to building a great culture.’
Daly agrees that ‘integration is not a one-off project but a continuing process’. Learnings along the way are ‘inevitable and valuable’, and the response should centre on ‘acknowledging change rather than assuming business as usual; strong messaging; and leadership from the top down’.
Human element
Having helped facilitate multiple M&A deals, McAndrew says a critical learning is that the human element is always at play. ‘All transaction processes are emotional journeys for the shareholders,’ he says. Selecting the correct buyer who is ‘strategically aligned with the future of the firm, as opposed to just chasing the highest offer’ helps keep focus on the right outcome. It’s a message that is not lost on vendors and he has seen ‘clients walk away from a higher offer because they preferred the culture with the other buyer’.
‘Time spent in getting your business M&A ready is invaluable’
For both Donoghue and Daly, key advice drawn from experience is around allowing sufficient preparation time before any deal is negotiated. Donoghue advises sellers to ‘think deeply about what you want, look for experience, understand the financing structure behind the buyer, and understand their plans, corporate and personal.’ Having found ‘the time taken to manage and complete the process was far greater than first envisaged,’ Daly says, ‘time spent in getting your business M&A ready is invaluable to reaching successful conclusions.’
With consensus that the market will remain a seller’s one for the foreseeable future, SMP owners are in a strong position to plan a promising future for the businesses they have carefully built up. Cultural fit is key to ensuring that they retain that position of strength.
More information
For background on the mergers and acquisitions trend, read the AB article 'Mid-tier firms bulk up'
