An increasing number of accounting and financial planning practices are seeking to deliver an integrated financial service offering to their clients. For many, the preferred vehicle is via a merger or acquisition.
Typically, acquirers of accounting practices have been other larger accounting practices, either through merger or acquisition. These are often called ‘tuck-ins’. Smart acquirers, which are already strong in financial planning, often look for accountancy practices with a relatively low level of involvement in financial planning so that the acquisition can be value-adding, as financial planning is expanded in the acquired practice.
We see a number of emerging trends that are becoming prevalent in the market today;
First, accounting firms are seeking to acquire or merge with financial planning practices to extend their expertise in this area of service provision, and offer a more holistic client solution.
Second, financial planning firms want to acquire or merge with accounting firms in order to integrate services, protect their clients, and capture revenue that might otherwise be referred to an external party.
Third, wealth management organisations want to acquire businesses which are strong in the accounting or SMSF sector, such as CBA’s acquisition of Count Financial, IOOF’s acquisition of DKN, or Shadforth Financial Group’s acquisition of Lachlan partners.
The strength and extent of involvement in financial advice and services is already evident in firms such as Count Financial (CBA), Securitor and Magnitude (BT Financial Group), Lonsdale (IOOF), WHK, AMP (especially Hillross, Charter and SMSF Advice), MLC, Bongiorno Financial Group, Premium Wealth Management, Infocus Securities Australia and others.
Recent corporate activity has seen consolidation in the wealth management and financial advice sectors, with many non-aligned and independently owned organisations being acquired by institutions. We think it is likely that the future growth of accountants and their involvement in financial services and advice, will see accountants being at the vanguard of a renaissance in the independent financial adviser (IFA) sector, as a portion of accountants will prefer to be independently positioned.
Accountants acquiring or merging have typically done transactions with little recognition of the goodwill value or potential. Valuations are shifting to being more EBIT multiple based depending on the quality of the practice, client base, robustness of business processes, key person reliance, succession planning etc. Financial advice or services revenues are often less than 15% or 20% of the revenue base of these accounting practices, and for many it is close to zero, where even the advice provision to SMSF clients is limited to compliance services. This represents upside potential for accounting practices or potential acquirers of such practices.
The bottom line of all the above? Increased recognition of the potential of accounting practices, greater good will recognition and increased M&A activity.
