Overview: waiting game

A big decision is approaching for Gareth Pearce (right) and his firm, Smith
& Williamson. Having decided, in principle, that a flotation would be a good
idea, the firm is to decide in April whether or not to go ahead with an Autumn
float. If it goes well, Pearce, the directors of the firm and other investors,
will make millions. A below-par float, on the other hand, could sour Pearce’s
reputation at the firm amongst other things.

What’s happened?

Currently, Tenon and Vantis are the only major listed accounting providers.
Smith & Williamson is bigger than both of them, turning over £137m in 2006.
The firm has been valued variously between £250m and £300m, though Pearce
distances himself from all such numbers.

S&W is owned by 400 shareholders, many of them directors (the equivalent
of partners). But it is also 30% owned by AGF, a Canadian investment fund whose
holding rolled over from its stake in NCL, which became part of S&W in 2002.
All of those shareholders stand to make significant amounts from a market exit.

What’s going to happen?

James Hamilton, an analyst at Numis, says there is an appetite for
accountancy firms in the City. Tenon has done well since it dropped its MBO last
year, with the share price going from 20p a year ago to 60p today. ‘There’s been
quite a lot of interest in the Tenon business,’ he says.

S&W is slightly better placed than Tenon too. Recurring revenues are more
valuable in City valuations than the one-off M &A advice type revenues.
Since S&W is an investment management firm as well as an accountancy firm,
it has more of those crucial recurring revenues. Tenon trades on a multiple of
13; S&W could expect more on profits of around £20m. Could it go wrong? The
market has been a bit uncertain of late. Hamilton says recent stock market falls
are nothing more than a ‘rounding error’ in the context of years of growth, but
it will worry those thinking of floating.

If S&W were not to fetch as much as investors hoped for, Pearce would
most likely be an unpopular man. The hundreds of directors hoping for a chunky
payout might not be too pleased. Pearce is very much playing a waiting game,
refusing to say even if S&W is looking for the main market or AIM to float
on. April could be a busy month.

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