What attracts investors to accounting firms?
The merger-and-acquisition (M&A) activity within the accounting profession slowed with the onset of the COVID-19 pandemic but is once again on the upswing as firms look to accelerate growth initiatives and resolve succession issues.
For firms looking to sell, or ink deals with investment partners, how they leverage technology can have a major impact.
M&A market heats up
The M&A market is seeing an increase in activity. This is due, in part, to a growing number of private equity firms entering the accounting market.
As Allan D. Koltin, CEO of Koltin Consulting Group, explained, private equity firms perceive accounting firms as being low risk, high reward. Firms tend to be recession-proof, deliver positive cash flow with low volatility, and are ideally suited for growth as they shift away from compliance-based business models in favor of higher-margin strategic advisory services. Furthermore, accounting professionals are highly trusted advisors.
“They believe the accounting profession is going through a major transformation. Some firms are positioned to provide the next wave of products and services and industry specialization that the middle market is demanding. This will increase the price war on acquiring targeted accounting firms,” Koltin was quoted as saying in a Reuters article.
In recent years, several deals have made headlines. In August 2021, for instance, it was announced that TowerBrook Capital Partners had made a strategic investment in Top 20 accounting firm EisnerAmper.
Just a few months later, Lightyear Capital announced that it was buying into Schellman & Co., LLC.
More recently, in April 2022, New Mountain Capital announced a majority investment in professional services firms Citrin Cooperman.
It seems this is s a trend that will only continue, as private equity firms have come to discover that large accounting firms can be a very good investment.
How does integrated technology make firms attractive to buyers or venture capital?
Leveraging integrated technology is among the more popular approaches for firms looking to increase profitability and sweeten their appeal to buyers or investors.
Think of it this way: When a homeowner puts their home on the market, one of the first things they should consider is curb appeal. Is the home appealing when viewed from the street, or would it catch the eye of a prospective buyer driving by?
The same concept applies to firms looking to sell. What is it about your firm that will catch the eye of a potential buyer or investor?
As noted in a Journal of Accountancy article, president of Transition Advisors LLC Joel Sinkin advised firms looking to sell to ensure that their technology is up to date. Sinkin said,
“Buyers are wary of firms that aren’t paperless, aren’t on the cloud, or don’t have remote-working technology that runs smoothly. They often have these technologies already in place and don’t want to go through the hassle of setting it up again.”
Leveraging cloud-based solutions is no doubt a table stake for today’s firms. However, utilizing a variety of cloud-based applications and managing data across those applications can be difficult without the right tools in place. Integration is critical.
Why is integrated tech important?
Integrated technology is a powerful lever as it enables firms to work smarter and faster. When data is siloed in separate applications and disconnected systems, or firms are dependent on manual processes to enter and aggregate it, they are hurting their bottom line, as well as their value and appeal.
Consider the following efficiency gains from an integrated tech stack:
- Integrate with existing business systems to reduce manual data manipulation and streamline tax workflows.
- Reduce internal controls risks that come with the manual upload and download of data files.
- Use the same data across multiple solutions, meaning you only import once — saving you input time.
- Export data to be used by your partners or in-house analytics team for additional analysis.
Integrated technology improves operational efficiencies and mitigates risk. And, by leveraging data, firms can unlock greater growth opportunities like new products and services. This helps firms maintain their competitive edge, future-proof the practice, and ultimately drive greater profitability. These are all key ingredients for greater curb appeal.
The next step to attracting investors
Leveraging technology is an integral part of planning for a firm’s future. How does your firm rank?
Through improved efficiency, data visibility, and risk mitigation capabilities, firms leveraging integrated tech are better positioned for success as they look to venture capital or private equity investments.
