IN WHAT HAS BEEN A tough market for the buying and selling of accountancy firms, the acquisition of SJD Accountancy and Nixon Williams is an eye-opener.
The combination of seemingly inexorable client growth combined with many baby-boomers running ‘lifestyle practices’ has led to structural issues in recent years. The recessionary period has not been kind to any practice, but new models have emerged, some have flourished.
Hence the deal to bring SJD and Nixon Williams into a new fold, created by Sovereign Capital. And where many practices struggle to sell a 1x fees – Sovereign’s acquisitions (including funding headroom) is priced at 4x income: £100m.
At a premium
Jeremy Morgan, a director at Sovereign Capital, explained that the premium placed on the two businesses reflected their strong profitability and “massive” client spread, namely across 18,000 contractor clients. “They pay direct debit, it’s the quality of revenues…exceptional.”
The obvious option would be to merge the two offerings, particularly as they both provide services to contractors.
But Sovereign’s new owners and management see it a bit differently.
Group CEO Simon Curry says they are separate companies. “They are both growing customers, have customer preference and loyalty.”
There is the possibility of some synergies in the back-office, and opportunity for both to take best practice from each other.
But there is “no plan to crash them together”, says Curry, perhaps mindful of previous ill-feted attempts by others to go on an M&A spree in the accountancy sector. “In terms of ‘buying to consolidate, that’s not an accurate description of what we’re doing.”
Morgan points out that their models also have their differences. Nixon Williams aims at a lower price-point contractor, serving clients via phone or internet, where SJD’s price-point is higher and runs through a series of offices. “We will retain the two brands.”
Sovereign are looking to avoid getting too hands-on with the new group. Its representative do sometimes observe board meetings, or sit on them, but they don’t run them. “We buy business at appropriate prices, then management is responsible for delivering growth…it’s about management quality,” explains Morgan.
A key figure, then, will be new chairman Jeremy Newman, who brings decades of experience in managing accountancy firms. “Getting Jeremy Newman…he’s a fantastic guy, an asset,” says Curry.
There are no redundancies planned, with Morgan pointing out that it’s more a question of “trying to maintain our recruitment”.
What is exciting, Curry explains, is the opportunity for growth and expansion among contractors.
Despite holding 18,000 clients, Sovereign estimates that it represents just 5% of the market – of which half is believed to be held by high street advisers.
“It’s hugely fragmented,” says Curry. “There’s much more opportunity to grow. We’ve taken a look at long term forecasts, of which 5/6% growth p.a. is predicted.”
The purchases of SJD and Nixon Williams are just the start of the process for Sovereign, but that doesn’t mean an ever-expanding series of accountancy bolt-ons to gain share in that service-line niche. Instead, the focus is more about the sector – so other professional services advisers that help contractors will be up Sovereign’s street.
“If we can develop a one-stop-shop for contractors, that’d be interesting,” Curry concludes.
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