Carl Jackson, managing partner at Quantuma takes a look at the accountancy sector and makes his predictions for the year ahead.
There is not a week that goes by where conflicts of interests in the audit and accountancy world don’t make the headlines. This has never been more true than in 2019 when the largest firms in the country, indeed the world, repeatedly found themselves front and centre of the media’s glare as high-profile failures and accounting scandals came thick and fast, repeatedly coming under fire for providing a series of conflicting services to the brands in question.
Anyone remember Patisserie Valerie? Thomas Cook? M&C Saatchi? Eddie Stobart? Ted Baker? The list goes on…
For 2020, sadly, I expect this trend to continue, but why? Increasing regulation over the last few years, and a significant rise in Competition and Markets Authority and Financial Reporting Council investigations and fines seems to have not (yet!) provided enough deterrent to prevent this trend continuing into 2020 and beyond.
This, of course, is just one part of the accountancy sector story in the last year. Recent research has shown £10 billion has been spent on accountancy and financial advice by small to medium-sized enterprises in the UK alone – and this is obviously an attractive prospect for accounting and advisory firms alike.
In recent years, private equity (PE) interest in the accountancy segment of the professional services sector has piqued and this is a trend that I am positive will continue into the new year and beyond. But why the interest? Well, aside from the £10 billion spend by small to medium-sized enterprise businesses alone, accountancy firms make for an attractive investment for PE houses, who have vast sums of money to invest, for a variety of reasons: firms tend to be highly fragmented; the sector is growing at between 5-15% year on year, and firms are profitable – and consistently so. Accountancy firms are also underpinned by recurring fees, which makes them fairly predictable – a highly sought-after characteristic when PE houses are seeking to make investments.
Conversely, PE is an attractive prospect to growing, independent accountancy practices. The average age profile of senior equity partners means that accessing PE money enables them to retire and see a value to what they have created.
Cogitel have been the UK leader in this space having made a number of significant investments over the next few years, which has included incentives for key staff to ensure retention and encourage them to engage with and participate in the creation of value – I expect this trend to continue for a number of years to come. In addition, I expect to see overseas investments from players such as KKR and Xienadin to continue to invest at pace in the coming year.
The accountancy sector will be buoyant into 2020 and beyond with opportunities for players at each end of the spectrum, if they are able to keep up the pace with advances in technology, automation of processes and outsourcing/offshoring repetitive or time consuming tasks.