As we have been analyzing the info from our 2024 Excessive Progress Examine, we observed that one development technique specifically stood out. The Excessive Progress corporations—corporations that develop 20% or extra yearly over a three-year interval—have been notably prone to take part in a merger or acquisition (M&A). Skilled providers corporations have lengthy used strategic acquisitions to enter new markets and deepen their portfolio of providers, however the pattern appeared notably sturdy this 12 months.
In 2023, the 12 months our knowledge was collected, 43.9% of respondents within the Excessive Progress class reported that their corporations engaged in a merger or acquisition. That was a powerful quantity, particularly provided that the Fed raised rates of interest final 12 months, growing the price of capital.
I made a decision to dig just a little deeper and see whether or not this M&A pattern utilized equally throughout the spectrum {of professional} providers. Because it seems, there may be plenty of variance, with a lot of the exercise coming from simply two industries: authorized and accounting & monetary providers.
Why these two industries? Regardless of the market friction I describe above, there’s been plenty of current non-public fairness (PE) curiosity within the accounting business, as evidenced by PE investments in market leaders similar to Grant Thornton and Baker Tilly.
Some buyers imagine this traditionally conservative business is ripe for transformation—by way of applied sciences like AI and automation and disruptive new enterprise fashions. Additionally they see a extremely fragmented market with alternatives to create efficiencies by way of consolidation.
Regulation corporations provide comparable alternatives, and in line with a current article in Forbes, they could possibly be the following huge PE goal. And in line with authorized consultancy Fairfax Associates, M&A exercise has elevated within the first first quarter of this 12 months by 25%.
Maybe greater than different industries, accounting and regulation corporations can have a neater time assimilating acquisitions into their organizations. That’s as a result of each varieties of companies are made up of consultants who’ve been educated in comparable methods, and corporations throughout the nation often ship their providers utilizing comparable enterprise fashions. These two industries additionally provide portfolios of long-term, loyal shoppers and a observe file of optimistic money movement. That makes them enticing to consumers.
In fact, M&A is a standard technique in different skilled providers industries, as properly. Nevertheless, in 2023 not less than, their M&A exercise was extra muted. Final 12 months, as an example, a few quarter of Excessive Progress know-how corporations underwent a merger or acquisition. And on the backside finish, one of the best performing consulting corporations did so at a tepid 11.7% price.
Of these corporations that engaged in M&A, they attributed a good portion of their income to it. Right here’s how the Excessive Progress corporations in comparison with their No Progress friends:
Why do Excessive Progress corporations obtain higher outcomes? Whereas the info doesn’t reply this query, there are seemingly a wide range of causes. They might merely be extra skilled, having acquired many practices through the years. They might have a higher, clear-eyed M&A course of. They usually could also be higher at measuring the success of every acquisition—and doing what’s required to assimilate new personnel into the agency’s tradition.
Must you take into account an M&A development technique at your agency? For the uninitiated, it may be a difficult endeavor, particularly in case you are making an attempt to mix two very totally different organizations and cultures. But when your purpose is to enter a brand new market the place you haven’t any visibility, or if you could purchase particular experience in a decent labor market, an acquisition stands out as the best path ahead.
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