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Historically, PE investment in the UK has largely focused across the Technology, Healthcare and Manufacturing verticals, however, with dry powder and valuation for technology assets remaining at record high levels investors are looking elsewhere. 

 

Traditionally, the professional service sector has been driven by legacy and partnership models crucially defining the stability and recurring revenue streams of the sector.

 

Alongside, the potential for significant technological in their practices and the bridging of a fragmented market it’s a brilliant opportunity for investment. 

 

In recent years, we have seen the Big 4 carving out arms and divisions in the run to profitability, senior partners going solo and obtaining investment, and the consolidation of the SME market into regional hubs.

 

With over 100 transactions in across Europe for Q1 what’s next for investment and what will be the crucial drivers for success?  

 

 

Accountancy Services Spotlight 

 

1. The consolidation model – ‘To consolidate or not?’ 

Regional and SME firms have a strong hold of their markets due to the intimate relationships they build with customers. This is an invaluable relationship and has typically enabled them to maintain their hold. This becomes one of the trickiest obstacles to overcome when embarking on the consolidation path. However, when this relationship is prioritised with entrepreneurial flair and technological advancement the consolidation model is very successful. 

 

2. Diversification of Services 

With access to external investment traditional firms are showing a larger appetite for diversifying and cross-selling opportunities. For example, it’s becoming apparent that the traditional accounting firms are expanding into legal, tech and wealth management offerings.  

 

3. Disruption of Traditional LLP Partnership Models 

 

Will this cause a culture clash? Will this attract new talent? How will the LLP model be disrupted? 

LLP models have certainly proven crucial to business growth within the service space however this isn’t typically the norm PE ownership is used to. LLP structures have been crucial within the space to maintain tradition and long-term client relationships and revenue.

 

However, LLP structures do provide a slight hurdle to the acquisitive nature and growth the PE industry nurtures. The disruption may present a new wave of partners incentivised by IRR metrics and earn out periods and Holdco share options, but will this be enough to disrupt legacy and tradition? 

 

 

 

 

What will this mean for the Office of the CFO and CFOs in general?

 

Two trends we’ve seen over the last 12 months within the Office of the CFO:

·       Improvement of data and visualisation tools. A lot of firms are pushing through the adoption of Power BI across finance functions and the wider function. Power BI is proving a popular tool given its versatility across multiple data sources and functions enabling finance functions to centralise and automate workflows.

 

·       Building Performance and Operational Excellence teams. As part of significant growth, it becomes apparent to grow organically it’s imperative to increase revenues and expand margins through optimisation of existing processes and controls.

 

What does this mean for the profile of a CFO?

·       With buy and build strategies being dominated by SMEs and regional plays it’s imperative that CFOs have a high degree of humility and grit.

·       It’s very important CFOs demonstrate comfort with creating efficiencies and leading from the front on technological changes.

·       CFOs who have led businesses through rapid expansion and cross-border integration will be particularly valuable in driving growth and navigating the complexities of PE-backed service firms