Accountancy consolidator Jobtel has warned it will become ‘more guarded’ as it moves closer to agreements with interested firms. The director of the UK practice consolidator, Julian Hamilton, said last week he was ‘fairly’ guarded concerning the information he was prepared to detail. But Hamilton said the company had made ‘steady progress’ in reaching agreements with firms but stated there were ‘still opportunities from medium-sized practices with good management and ambition to join us’. ‘We are now shortlisting suitable foundation firms who will become ‘regional hubs’ or Product Group Specialists to which firms in the future will gravitate,’ he said. The managing partner of one firm who was visited by the consolidator, said: ‘Although the partnership structure had given good service over the past 100 years it is now no way to run a business’. However, difficulties experienced due to the varied governance of existing firms means the negotiation process could drag on. ‘Firms are becoming more commercial and consolidation will assist in this process, as it enables partners to develop a range of products in tune with their clients’ needs,’ Hamilton added. Consolidation fever is taking hold in the UK as a number of new business imperatives emerge. Active consolidation specialists now include Tenon, Jobtel and a tie-up between legal firm Rowe and Maw and Douglas Llambias, a leading adviser in practice merger and acquisitions, are all involved. The Tenon Group has listed on AIM to raise the #50m it believed was necessary to acquire enough firms to form a competitive organisation. Jobtel believes the consolidator market is broad enough for them all to live side by side. ‘The Jobtel route is slightly different with firms themselves grouping together and forming the structure, rather than being taken over. It’s a question of keeping the creative talent interested and involved in the new business,’ added a spokesman. A number of larger firms have expressed ‘cautious interest’ in Jobtel’s plans. Llambias says: ‘The businesses that have grown over the last 25 years are those that have grown through merger or acquisition. ‘To ignore the potential of growth through acquisition or merger is not sensible, but if a company is going to explore, it should do so in such a way that they are sure a really viable firm is going to be created and that depends on the financial terms attached to the deal.’ Gordon Gilchrist, marketing consultant says: ‘The profession has a reputation for being boring, grey, undynamic and not particularly successful. That is not the most resounding recommendation for the City to put up #50m. ‘However, looking to the potential there is a much more attractive picture. For example 95% of our economy is made up of entrepreneurs. Every entrepreneur has an accountant and nobody is more trusted when it comes to finances than one’s accountant. Reconciling the image of accountants with this potential exposes a vacuum which consolidators find irresistible.’ He adds that the huge growth in financial services ‘based on the aspirations of the baby boomers of the wealthiest generation of all time is fair game for the dynamic consolidator’. CONSOLIDATORS: THE FACTS Who are they, what do they want and should I sell out to them? A new and hungry animal is on the prowl ready to gobble up mid-tier accountancy firms and bind them into giants that could rival the Big Five. They are called consolidators and have big plans. Along with H&R Block and Century Business Services, American Express is among the leading US consolidators. In total 30 or 40 of them have already grabbed independent accounting firms in readiness for big floats at some future date. In the UK it is just Tenon and Jobtel that are leading the race to get off the ground. American Express made headlines in 1998 as it attempted to consolidate UK accountancy firms. It appeared to make little progress, but now the idea is back in vogue again with a new wave of at least two UK-based consolidators actively looking to acquire mid-tier firms. Tenon and Jobtel have both publicly announced plans to consolidate the mid-tier and although both parties have played down any hint of competition, the race to secure practices has begun. Essentially consolidation is when two or more practices come together to create a larger firm based on the workings of the companies involved. Tenon, however, does not like being described as a consolidator because its aim is to acquire accountancy practices with a view to establishing a broadly based business services group. Part of its acquisition strategy is to buy firms which all have different strengths and throw their combined skills together. Advantages of consolidation – Access to capital Many mid-tier firms are unable to lay their hands on large sums of money for future practice development. A consolidation may be able to offer larger sums of capital and the potential to borrow on the strength of its balance sheets. It can also create an increase in investment for technology may become possible. – Recruitment and retention A consolidated firm may be able to offer a broader range of skills and a greater scope for career development to members of staff, which, in turn may have a positive affect on recruitment. – Wider skill base Consolidation may allow the formation of specialist teams and potentially a higher level of expertise on offer for its clients. – Capital growth Consolidation may provide an element of cash to partners and the prospect of capital growth through ownership of shares. – Strength A consolidator may be able to provide a strong management and administrative function, leaving them free to do the client work. DISADVANTAGES – Collapse Potentially, these include the failure of the consolidation. Once a firm has signed on the dotted line there may be no way out if the consolidator runs into difficulties and losses. Job losses and cost-cutting exercises could result. – Loss of independence Once a firm has joined a consolidator it may be fair to assume it will lose its independence and it may lose some control over the way the practice is run. – Terms Firms may find the terms of the consolidation may mean large amounts of capital need to be paid to the consolidator. If that happened partners would have to dramatically lift the profitability of the business to maintain the same level of profit share or take a drop in income. – Skills The level of skills within a consolidator may not improve. Although the variety of services may expand, the skills will come from the firms that have been acquired. Therefore the consolidator may become a one-stop shop rather than a higher level of expertise.
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