RSS feedsWhen an accounting firm decides to grow via acquisition, it has to address a number of factors, among which are organisational culture and client profile to fee-earning potential and technology.
But some issues are more significant than others. There was a time, in the not too distant past, when technology could be a deal breaker. Today this is less likely, although technology is still vital to the process. ‘Technology has been key to our growth strategy,’ says Andrew Denley, one of 41 partners at Menzies, a regional firm that is expanding across the south east of England. All its partners and support staff use the same software applications and everything operates on a standard platform. So as the organisation acquires smaller firms it simply adds them on as new users.
Denley says the firm decided to move to a centralised Citrix environment five or six years ago so that Menzies could manage its IT infrastructure more easily. ‘Before we did this, upgrades were a nightmare,’ he recalls, with a lot of time wasted on tasks that could have been simplified. ‘The software can now be upgraded overnight,’ he enthuses, ‘so when we acquire a new firm we simply bolt it on.’
On a practical level, this is as straightforward as it sounds, particularly from a technology perspective. But the approach is not for every growing firm. When Mitchell Charlesworth, a 14-partner practice with five offices across the north west, upgraded its network infrastructure earlier this year, it decided against a central system. ‘We gave it serious consideration,’ says partner David Frangleton, ‘but the disadvantages outweighed the advantages for our firm.’
At the moment, all of the firm’s offices are linked electronically and data can be exchanged with relative ease, so when Mitchell Charlesworth makes an acquisition it leaves the firm’s existing infrastructure in place and each office has its own autonomous network. ‘You can work around most technology issues,’ says Frangleton. ‘It just depends on how much money you are prepared to throw at them.’ Though he is conscious that as the firm continues its expansion, it may reach the point where the disparate nature of its systems infrastructure becomes a barrier to growth.
Central perk
Not that scalability and the ability to bolt acquisitions on quickly and cleanly is the only advantage of a centralised approach. It has also helped Menzies to avoid some of the issues that can become a bone of contention between merging firms. ‘Sometimes people feel their software is superior,’ says Denley, and they may be right. But as far as Menzies is concerned, this is not the issue: standardisation is simply an essential part of the expansion process. ‘Why would we change the systems at six or seven offices to accommodate one that feels it has superior software? There is no discussion,’ he states emphatically.
Not all big fish take this approach to swallowing smaller firms. Armstrong Watson, a 36-partner firm with 14 offices across the north of England and southern Scotland, also uses software and systems to exploit economies of scale, but it is a little more flexible. ‘There is always a better way to do things,’ suggests David Austin, who is in charge of the firm’s IT. ‘I try to keep an open mind. We wouldn’t want to throw the baby out with the bath water,’ he says.
Frangleton agrees. Although Mitchell Charlesworth generally finds its acquisitions end up using the same software applications as the rest of the firm, it is open to change. ‘We always review their systems to see if there is anything we can use before we absorb them into our organisation and structure.’
Although the chances of this being the case become increasingly unlikely as the size of the acquiring firm increases, Armstrong Watson seems equally pragmatic. ‘We have technology already in place throughout our offices, so when we acquire a new firm, we have to bring the two sets of systems together in the best way for the firm.’ And he tries to do this as diplomatically as possible. ‘ People’s habits are hard to change,’ he says, ‘so we try to sell the benefits of our approach.’
Some arguments make themselves. ‘Armstrong Watson generally takes over single location practices,’ says Austin. Software and systems that work for one office aren’t always appropriate for multiple locations. But a certain amount of resistance goes with the territory and some changes have to be pushed through. ‘It can be hard to sell the benefits of something if they are not immediately obvious,’ says Austin, ‘so it can be difficult to convince people to do something differently today if they are not going to reap the benefits until three-to-six months down the line.’
What you really, really, want
Jeremy Kitchin, a specialist consultant and managing director of Accountancy Practice Mergers & Acquisitions, says: ‘The people involved have to want to embrace change,’ he says, adding: ‘It cannot come as a culture shock.’
Because of the approach Mitchell Charlesworth takes to software and systems, it can make this transition a gradual process. ‘The incoming practice needs time to adapt and get used to the new software,’ says Frangleton, and go through the necessary retraining. Data management issues can be handled on an as and when basis. ‘There’s always a lot of administrative work, such as inputting and setting up standing data,’ he adds. But it’s not the sort of thing that needs doing all at once. ‘Accounts preparation, for example, can be done for each client when the time is right.’
Menzies and Armstrong Watson are inclined to make incoming firms adopt their software and systems as soon as possible, despite the planning and training issues this creates. ‘From day one we close their old systems down and introduce our new systems,’ says Austin, so they have to get to grips with the changes fairly quickly. From some perspectives, it may seem as if this is being done just to make a point about the difference between a merger and an acquisition. But there are good reasons for the rush.
‘It is important for them to start posting their time to our system right away,’ says Austin. This is so it can subsequently be billed out easily, though this transition is not without its problems. It is not simply a matter of transferring the necessary data: it’s not unusual for two organisations to have different approaches to the way they record chargeable and non-chargeable time and changing client reference numbers can cause all sorts of problems. ‘Accountants often think of their clients as numbers, not names,’ he says, so they can have problems remembering new ones.
Ultimately, the issue of which systems are in use matters a lot less than agreement on who is going to do what, when, where and how. ‘Technology can be the glue that binds you together,’ says Austin, but it won’t do this without effort from both firms. ‘You don’t just get to this magic day and find that everything falls into place.’ You have to plan in advance. ‘Preparation is everything.’
WILLING AND ABLE
Change is never entirely painless when firms merge, so real commitment is vital to its success. ‘Staff have to be prepared to embrace change,’ says Jeremy Kitchin, the managing director of APMA, a specialist in the acquisition and merger of accountancy practices. ‘They have to want it,’ he adds, otherwise culture shock can be severe.
Everyone involved has to be clear about the objectives. ‘Both firms have to be able to communicate with each other effectively,’ says David Austin, who handles IT for Armstrong Watson. ‘I don’t think small firms always realise how much adjustment will be required to fit into a new organisation,’ he says.
‘The degree of personal control is also an issue,’ says David Frangleton, a partner at Mitchell Charlesworth. ‘There have to be perceived benefits on both sides,’ he says, ‘and the incoming partners need to be comfortable with their level of independence.’ This is one of the first factors the firm considers. ‘Culture, cost and potential economies of scale are weighed up before anything else is done,’ he adds.
Even so, the cultural differences between a firm with two or three partners and one with 20 or 30 can be considerable. ‘Most of the new firms we acquire are smaller than us,’ says Andrew Denley, a partner at Menzies. ‘They work in a completely different way and have a more general practitioner feel, while we are becoming increasingly specialised,’ he explains. Someone who rules their own fiefdom can struggle to find a comfort zone in a larger practice.
Lesley Meall is a freelance journalist
