The Role of Mergers and Acquisitions

Driving growth through consolidation

Organic growth alone often isn’t sufficient to achieve scale, enter new markets, or expand service offerings. M&A provides a route to growth by:

• Expanding geographic reach: Mergers allow firms to establish a presence in new regions or countries without starting from scratch. For instance, when a mid-tier firm merges with a regional powerhouse, the combined entity gains immediate access to new clients and markets.
• Broadening service portfolios: Acquisitions of niche firms specialising in tax, or ESG for example, enable larger firms to diversify their services. This diversification is especially critical as automation and AI reshape traditional compliance-focused roles in accountancy.
• Achieving economies of scale: Combining operations can lead to cost efficiencies, allowing firms to invest in technology, training, and client relationships.

Responding to market pressures

The industry faces increasing challenges, including regulatory complexity, technological disruption, and heightened client expectations. For firms in the Top 50+50, M&A has become a vital strategy for addressing these pressures:

• Technology integration: Many smaller firms lack the resources to invest in new technologies. Merging with a larger entity often brings access to advanced tools and platforms, enhancing productivity and client outcomes.
• Talent acquisition: Recruitment has become a key issue in this sector. Acquisitions often include not just client portfolios but skilled professionals whose expertise is critical for future growth.
• Regulatory readiness: Compliance with ever-changing regulations demands significant resources. Through consolidation, firms can bring together expertise and ensure they are adhering to global standards.

Enhancing competitive positioning

In an industry where the Big Four dominate, the firms in the Accountancy Age Top 50+50 must continuously innovate to compete. Strategic M&A enables these firms to:

• Increase market share: By acquiring competitors or complementary firms, Top 50+50 accountancy firms can solidify their market position and better compete against larger rivals.
• Boost brand equity: Merging with a well-known regional or specialised firm can enhance brand recognition and credibility, attracting new clients.
• Create cross-selling opportunities: Larger, integrated firms are better positioned to offer bundled services, maximising revenue per client.

Challenges and Risks

While the benefits of M&A are clear, the process comes with risks and challenges. Aligning the cultures of two firms is often the most significant hurdle. A mismatch can lead to employee dissatisfaction and client attrition. Also, clients may feel uncertain about the continuity of services during and after a merger, potentially leading to churn. And there are also potential operational disruptions as combining systems, processes, and teams requires careful planning to minimise disruptions.

Notable Mergers and Acquisitions in 2024

In 2024, several notable mergers and acquisitions occurred among Accountancy Age's Top 50+50 firms, reflecting the industry's ongoing consolidation and strategic growth initiatives. For example:

1. KPMG UK and KPMG Switzerland Merger: In June 2024, KPMG UK announced its merger with KPMG Switzerland, creating a combined audit and advisory business with gross revenues of $4.4 billion. This strategic move aims to enhance the firm's scale and capability to deliver superior client results across borders.
2. SMH Group's Acquisitions: SMH Group, ranked #82, reported multiple acquisitions in 2024. In January, they merged with Howard Matthews Partnership, followed by the acquisition of Sheards Accountants later in the year. These mergers have contributed to SMH Group's rise in the rankings, reflecting their strategic expansion efforts.
3. BKL's Significant Growth: BKL experienced substantial growth, moving from #48 to #35 in the rankings, with a 119.13% increase in UK income fees, reaching £47.68 million. While specific acquisitions were not detailed, such significant growth often indicates strategic mergers or acquisitions contributing to their expanded market presence.