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Return to: Home > Comments > Look east to find recovery in the firm M&A market

Look east to find recovery in the firm M&A market

There is no point in beating about the bush: the global coronavirus crisis has put a halt on mergers and acquisitions in the accountancy market. Keith Underwood, MD and Tim Underwood, Asia MD at Foulger Underwood comment

Practices are naturally focused on short-term operational and client-focused requirements. Being acquired, or acquiring another practice, requires focus and effort – which are not possible at the moment.

However, this paralysis is temporary. It will ease and move, with different time scales for different jurisdictions – and we will explain why.

Deal drivers in the European markets

Professional services firms face many challenges in running a successful firm. They must invest in IT, keep track of customer service, consider if they can scale their offering, while managing process efficiency – and if all is well, make a sound profit.

If these become a struggle, then a firm may look to merge or be acquired. But if you are looking to scale up your operations and broaden your services, you may look to acquire. These fundamental M&A drivers are unaffected in the medium and long term by the impact of coronavirus.

Indeed, the current situation is likely to prove a stimulus or catalyst for further consolidation and M&A. Some firms will struggle to adapt to an environment where employees demand and need a much higher level of management in the longer term. Working from home and flexible hours look set to be the rule rather than the exception.

Another driver may be increased demand from clients for a closer relationship with their accountant, following an increased level of support through the pandemic crisis. Maintaining this support may mean permanently restructuring service offerings, and ultimately the work that your people undertake. Such an upheaval over the longer term will be impossible for some firms.

In other words, some practice owners may feel it is the right time for a new owner to step in to lead these client developments.

A view from Asia

Moving on to reviewing the Asian accountancy and corporate services market, having suffered the coronavirus before Europe, gives us the best opportunity to gauge what will happen globally in professional services M&A in the future.

China, which first faced coronavirus, is the furthest down the track in terms of operating in the ‘new normal’ world – in other words, restarting business while maintaining diligence measures against the coronavirus’s return. Other Asian countries have similarly been relatively successful in managing its spread again and containment.

Asia, from an accountancy market perspective, tends not to have the same succession pressures as in the UK and Europe. M&A deals are more focused on smaller firms merging into larger multi-country entities – exposing themselves to more territories.

These fundamentals of the Asian market have not been altered because of the pandemic. In fact, the appeal for a smaller firm to join a larger grouping of firms is probably greater than it was before the coronavirus crisis.

The pipeline of deals was certainly held up by six weeks when lockdowns and travel restrictions were in place. Deals cannot be truly signed off over a Zoom call. Meeting in person is an important element of M&A, as with most types of major contract.

Deals where the basics were in place ‘pre-coronavirus’ are back on, and slowly moving as restrictions ease. Remote due diligence work between parties has now resumed, with a view to on-site work in the coming weeks.

But where certain Asian countries are still under lockdown, deals and sign-off have been hampered, which is frustrating where one party is free to travel and ready to move. Hong Kong, for example, is virtually back to business as normal.

The importance of online meetings should not be underplayed, though. Zoom and other tools are allowing exploratory discussions to take place and much more effectively than by previous phone or email.

The negative impact of the lockdown upon general accountancy business, no matter what jurisdiction, will be either a lack of work or difficulties in collecting cash, even when busy. Where and when this happens, we would expect to see buyers look to swoop for these practices, if they become distressed. But this is not happening in Asia – yet.

It will be dependent on accountants successfully receiving payments from clients, over the coming weeks – if not, then it will precipitate deals.

The new normal

Ultimately, coronavirus has had a huge impact on business across the globe.

Professional services organisations tend to be called on most in times of economic strife and this has been no exception. As a result, they will be looking to build new working models, using tech and recruit newly skilled people to build profitable advisory-led organisations to support new ways of working and new demands on the business.

Whether traditional partnerships look to merge together, or private equity-backed firms see opportunities to build up these businesses, deals will happen.




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