BusinessCorporate FinancePropping up the Economy

Propping up the Economy

When a completed buy-out is announced, accounting firms are lucky if they receive a mention at the end of the press release. Yet they play an essential role in the MBO market.

In each deal, there are often at least three different accounting firms involved – one advising the management team, the second working for the investing institutions and a third advising the vendor.

Within the deal process, these various firms are responsible for helping the management team to negotiate with the vendor, and the investors, assisting in the preparation of the business plan, financial modelling, tax planning, financial due diligence and running the auction.

Not to mention emotional support when the deal looks like failing and ordering the pizza to fuel the all-night completion meeting. All this work does not come cheap.

The combined accounting fees in an MBO typically represent between 3% and 5% of the transaction value.

With the UK buyout market worth about £16bn in 2003, this is clearly a nice earner for the accounting profession, especially over the last three years when M&A activity in general has been through a 10-year low.

In fact buyouts have, if anything, been propping up the M&A market. In 2003, they accounted for 57% by number and 48% by value of UK M&A activity.

Given these trends, it is clear to see why many accounting firms now have dedicated private equity specialists.

The UK buyout market is now showing a sustained recovery after three years of decline. In the first quarter of 2004, there were 155 buyouts worth £5bn. This performance has been boosted by the re-emergence of megadeals (buyouts over £100m).

The leisure, retail and business services sectors dominated the MBO landscape in 2003, accounting for over 60% of the market. With the advisory market becoming increasingly competitive, many accountancy firms are seeking to differentiate themselves by forming specialist teams who focus on a specific sector. Stay tuned for what 2005 holds.

  • Tom Lamb is managing director UK of Barclays Private Equity.

Related Articles

Grant Thornton recruits new corporate finance partner

Accounting Firms Grant Thornton recruits new corporate finance partner

10m Emma Smith, Managing Editor
Total fraud value at £2bn five-year high, finds BDO

Accounting Firms Total fraud value at £2bn five-year high, finds BDO

11m Stephanie Wix, Writer
MHA MacIntyre Hudson appoints corporate finance director

Accounting Firms MHA MacIntyre Hudson appoints corporate finance director

11m Stephanie Wix, Writer
Tyrie on Finance Bill 2017: ‘Making Tax Policy Better’

Consulting Tyrie on Finance Bill 2017: ‘Making Tax Policy Better’

11m Stephanie Wix, Writer
KPMG announces senior partner promotion in Newcastle

Accounting Firms KPMG announces senior partner promotion in Newcastle

11m Stephanie Wix, Writer
Independent city firm reports 70% growth

Accounting Firms Independent city firm reports 70% growth

11m Stephanie Wix, Writer
Tax avoidance crackdown sees 80% jump in additional HMRC revenue

Accounting Firms Tax avoidance crackdown sees 80% jump in additional HMRC revenue

11m Stephanie Wix, Writer
Making Tax Digital: the "unexpected item in the bagging area"

Accounting Standards Making Tax Digital: the "unexpected item in the bagging area"

11m Stephanie Wix, Writer