The most common question we used to get was, “What is the current multiple for accounting firm deals?” Now the question is “Is the marketplace for M&A a buyer’s or seller’s market?” The answer, simply stated, is “Yes” — though much depends on the target firm’s makeup, metrics, location, bench strength, opportunities in the client base for cross-selling, and size.
The supply of other sellers in a market versus the number of firms seeking mergers and acquisitions still drives the equation. Some firms who have experienced client attrition due to the pandemic are more motivated to merge or acquire. As a result, they may propose offers that give the impression it is a seller’s market.
In much of the country, the number of firms seeking upstream mergers skews the equation in the direction of a buyer’s market. Although most firms seeking an upstream merger have a partner succession issue, we are seeing an increasing trend toward firms also looking for access to more advisory services, better technologies, and a better competitive position in their respective markets.
A recent trend is when a firm becomes, for one reason or another, especially attractive to a specific acquirer and receives an offer that seems well out of the normal range. Many niche practices are receiving premium offers, which is consistent with a seller’s market. It all depends on the market and specific practices. Firms located in small markets or the outskirts of a larger market may find fewer interested acquirers, leading to a buyer’s market for the firms that are interested.
Another recent trend we have witnessed is the number of potential buyers from outside the accounting profession that have become active in accounting firm M&A. Private equity concerns, wealth management companies, overseas buyers, and IT firms are now competing with traditional accounting practices for acquisitions — particularly specialty practices. For example, a Jeff Bezos-led venture capital fund just invested $100 million in Pilot, which is essentially a start-up online CAS firm. Firms that find themselves competing against the likes of private equity funds should consider the fact that a 10-year deferred compensation arrangement for the selling owners is not what these alternative buyers are going to offer. The demand for niche practices has created a true seller’s marketplace. Alternatively, traditional accounting firms with no strong client niches that primarily offer basic compliance work will by and large find themselves in a buyer’s market.
The supply of niche practices for sale compared to the current demand in most cases creates a seller’s marketplace. However, a traditional accounting firm with no strong client niches that primarily offers basic compliance work, will by and large find themselves in a buyer’s market.
With all that in mind, here are eight major trends — four hot, and four not so hot — in accounting firm M&A to bear in mind for 2021.