The stakes in the mid-tier are especially high these days. The emergence of high-profile consolidators, including the likes of AIM-listed Tenon, Levy Gee and Jobtel, are producing a mini-revolution in a market that must also contend with recessionary worries.
However, Gareth Pearce, the affable and remarkably relaxed chairman of 12th-placed firm Smith & Williamson, has not fastened his gaze on what his fellow mid-tier contenders are doing. Speaking to Accountancy Age from the firm’s plush headquarters off London’s Oxford Street, once used by x-ray pioneer Marie Curie, he is quietly doing some pioneering work of his own.
‘We have no consolidation plans,’ explains Pearce. ‘To be honest, the process would only be a distraction for us.’ Rather, the firm’s strategy is to look at hiring good individuals and teams with the odd acquisition to support its private client, tax, auditing and investment management businesses.
‘We will look for further acquisitions on an opportunistic basis,’ says Pearce.
To illustrate this point, last year the firm bought a small pension practice in Bristol.
As for the mid-tier accountancy market as a whole, Pearce says he would be ‘amazed’ if there were not more consolidations in the near future.
He believes some if not all of the mid-tier firms, barring his own, will be involved in another bout of mergers. ‘When it will happen I do not know, but they are all talking to each other,’ he says.
But rather than worry about what other mid-tier firms are doing, Smith & Williamson has set its sights on taking business away from the Big Five.
Pearce does not mince his words on this issue. ‘I think it is short-sighted and remarkably thick of many group A firms to look at other group A firms for competition,’ he says.
His reasoning is simple. The Big Five account for more than #5bn-worth of business annually, while those below generate revenues which barely add up to a fifth of this total.
‘There is a #5bn fee income opportunity out there,’ Pearce says confidently.
‘The smallest of the Big Five earns more in fee income than numbers six to 20 combined.’
The sheer size of the Big Five means they are often conflicting themselves out of work. ‘We recently picked up a forensic accounting case which all of the Big Five had been conflicted out of,’ Pearce explains.
Second, he feels that most of the Big Five have a ‘more or less strategic intent’ to focus on multinationals. ‘While the service for many national companies is sometimes superb, it is often patchy at best,’ Pearce claims, creating an opportunity for niche players – like Smith & Williamson.
Third, it is Pearce’s belief that certain things the Big Five do are excessively expensive, throwing open opportunities for the firm.
The proof of this is naturally in the pudding, and the firm claims to have had it sweet in the last few years.
Although not at liberty to disclose the names of clients, Smith & Williamson says that it has won ‘significant professional practices work from all the Big Five, mainly for legal practices’.
The firm has taken on tax work for a major life insurance company from Ernst & Young in the last year, and provides corporate and international tax advice for a Nasdaq-listed company, which previously used the services of a certain PricewaterhouseCoopers.
Furthermore the firm provides VAT work for global financial services players, including the Liffe exchange and ANZ Bank.
This approach has helped make Smith & Williamson one of the most profitable and fastest-growing mid-tier firms. Last year the firm’s revenue jumped by 12% to #61m, with profits up 28% to #13.8m – a healthy ROI of 23%.
‘We have doubled profits every three years,’ says Pearce, a message conveyed to all departmental heads.
The firm is also growing its human capital. At the end of 2000, Smith & Williamson employed 566 people.
In February this year, the number stood at 763, an increase of almost 200 new hands on deck. And the firm has adopted a policy of nurturing talent from within, with many of the senior staff homegrown.
And while he acknowledged that things are less than certain at the moment, Pearce believes that the market will pick up again after Christmas.
‘We are looking to grow all our service lines,’ he says. ‘All our department heads feel that there are significant prospects for growth in the future.’
Based on this success and Pearce’s strategic vision there are no plans to jump onto the consolidator bandwagon that has been gathering momentum rapidly across the mid-tier.
Rather, he will continue to sail the Smith & Williamson ship on its own course with the Big Five’s fleets firmly in his sights.
‘Consolidation is largely irrelevant if you already have the skills to take work away from the Big Five,’ says Pearce.
Move on Smith & Williamson at www.smith.williamson.co.uk
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