If you can't beat them, join them

Many accountancy firms are seeking a merger to solve their financial problems, reports Roger Trapp

The healthy improvement in revenues reported by many accountancy firms in the past year or two indicates that the recession that clouded the first half of the decade is now over. But it appears that many firms have yet to see a return to the good times.

According to research recently published by Kato, a marketing and publishing consultancy specialising in the accountancy field, one in 10 of all firms is not growing but contracting. Indeed, many have decided to seek a merger or acquisition as a way out of their troubles.

About 45 per cent of the 1,200 randomly selected practices surveyed indicated that they planned to go down this road in the next three years. This is nearly three times the 17 per cent recorded by Kato's 1995 survey.

The main reasons for merger cited by the sole practitioners and partners with small and medium-sized firms who were covered by the survey, were to improve practice profitability, to achieve economies of scale, to increase specialist skills or services, to provide an exit route on retirement and to strengthen practice management and marketing.

The fact that improving profitability and achieving economies of scale - which leads to greater profitability - are at the top of the list suggests that "current levels of profit per partner are insufficient to meet expectations", says Kato.

But the consultancy is encouraged that - given the likely disruption of costs involved in combining two businesses - partners are preparing for merger or acquisition by putting emphasis on billing and collecting, and overall profitability.

Phil Shohet, director of Kato, says: "The Nineties have clearly seen a squeeze on fees, and considerable price competition on core compliance work. The better organised firms who have clearly defined strategies will continue to experience growth and be able to reinvest in staff, technology, services, marketing, premises, partners and, if relevant, specifically targeting acquisition."

As the survey indicates, while attention is focused on the one in 10 firms that is experiencing "negative growth", nearly three times as many are seeing annual growth of more than 10 per cent a year.

"Running a professional practice as a business unit is now essential if one is going to take control over one's destiny," adds Mr Shohet n

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