Is MacIntyre Hudson's association a brave new world?

THE DAWN of a new era, or same old same old?

That was the question after Macintyre Hudson brought together five of the most respected and well-known UK regional accountancy firms into what it modestly described as a “new concept for the accountancy market”.

The six founding member firms (see box) have formed MHA. The “new concept” description comes from the association aspiring to deliver a national brand, with the firms working collaboratively to develop and promote each other. However, each member firm will remain independent and retain its own local identity.

Bringing together a select band of big regional representatives is certainly different to other association models, suggest practice marriage brokers. Other large established networks, such as those offered by UHY and previously BDO, opted for a more gradual evolution.

MHA’s takeup is certainly well-formed. While there is still room for more members, it appears that the bulk of its regional coverage has been tied up.

But in terms of its structure, and what MHA is looking to achieve, very few believe that its approach is groundbreaking – more that it is treading over old ground.

Each of the six firms has paid into a pot to form a limited company that will act as MHA’s secretariat. Mike Brown from MacIntyre Hudson will serve as MHA’s chairman, and its board will comprise a representative from each member firm.

The structure mirrors most other accounting networks of the past 25 years. MHA will serve at first as a souped-up referral network. Knowledge and expertise within the firms will be passed between them.

For example, Scottish firm Henderson Loggie is strong in the public sector. Such know-how could come in handy south of the border if large swathes of Audit Commission work comes up for tender.

Tentative plans have also been made to consider centralising certain functions to save money. Procurement of services, such as staff training, is being looked at.

Some are less-than imp­ressed at MHA’s approach, marking it as low risk for low return. Ron Goldsmith, of practice M&A business Goldsmiths, said he had failed to see examples where associations and networks really created value for participants.

“How can you create value if you don’t own something?” asked Goldsmith.
Value comes from cost savings and formal links between offices. Without that there is a lack of incentive to work together, he argued.

MHA, however, believes that effort will be rewarded with more revenues. “There’s no intention to railroad the firms in a merger sense,” said Rakesh Shaunak, principal at MacIntyre Hudson.

To aid collaboration, MHA will appoint service line heads from within the six firms. These will be chosen for, among other things, their competence and business development skills.

What sets MHA firms’ strategy is the current conditions in which accountancy firms operate. Mass is viewed as important at this current juncture. Firms are concerned that without enough reach and range of services then stronger clients will simply leave them.

However, practices are struggling to manage their own cashflows at the moment, having seen debtor days increase and many clients fold.

Without a cashpot, it is easier for them to work alongside firms that are complementary, rather than rivals. The somewhat tentative agreement also gives the firms time to gauge how they would fit together culturally.

Many mergers have failed due to differing attitudes and working practices. So while the agreement may not be new, advisers believe that the model could set a trend for the near future as a low-risk alternative to a full-blown marriage.

Jane Howard, partner at Reynolds Porter Chamberlain and practice risk management expert, pointed out that creating a board structure with six equal members makes it less easy for litigation risk to be transferred between them.

In litigation against Parmalat’s auditors Deloitte, it was argued that the US arm of the firm could be litigated against because of the US firm’s controlling influence over Deloitte’s global board.

And with BDO International fending off litigation linking it with US member firm BDO Seidman, in the Banco Espirito case, Howard would not be surprised to see smaller firms become bolder at parading network livery and branding.

For the time being MHA members will live as separate entities. While MacIntyre Hudson’s aim is to eventually bring together a technically merged business, the choice will be down to what the other five want to do.

As Henderson Loggie managing partner Bob Steel (pictured) said: “Henderson Loggie has a reputation in Scotland that means we would never want to merge or lose our name…[But] I could see that becoming part of MHA would mean we could achieve more for our clients and for our future.”