Voices of M&A experience

In September, Grant Thornton’s merger with RSM Farrell Grant Sparks received the Competition and Consumer Protection Commission’s seal of approval. The deal strengthened Grant Thornton’s position as number five in the Irish accountancy market with a workforce of 800 and plans to recruit a further 200 by 2017. Paul McCann, Managing Partner at Grant Thornton, discusses the thought process behind the merger, the potential benefits, and the risks associated with such a move.

“We are an ambitious firm. We want to be Ireland’s leading financial and business advisors and we had to consider how to grow our business to achieve that. M&A had worked for us in the past and we believed that the right strategy was to focus our attention on finding the right firm. To grow our business we need the right people, there is a war for talent in our industry and merging with the right firm would automatically add to our existing pool of experts as well as delivering economies of scale for the firm. We were also focused on building niche areas of expertise that would have strong market position.

“RSM Farrell Grant Sparks had a really good reputation; we felt they were a lot like Grant Thornton in terms of their culture and entrepreneurial spirit. But they also had good niche areas of expertise and had a similar sectoral focus as us – for example, in the  areas  of technology, media and entertainment. “This   is   the   biggest   merger  Grant Thornton has done in this market and the bigger the merger, the greater the number of potential issues that can arise in the process. However, it was a very relaxed environment during the negotiations and the goodwill on both sides overcame any obstacle. One of the key risks was the negotiations being leaked both internally and externally, and there was the risk of taking our eye off the ball as the process went on. To mitigate these risks, we put dedicated teams in place on both sides to ensure all aspects  of  the  merger  were managed correctly.

“In my view, there are a number of critical elements for success. There is the need to physically bring the firms together and cross-pollinate our people. It’s only by doing this that we can merge the entities both physically and mentally, ensuring  that everyone feels part of the one firm. It’s also important to allow all of our people sufficient time to integrate and adapt to working together as one firm. And the final piece is trying to bring out the best from each side.

“I think  there  is  an  appetite  in  the profession for more firms to merge. I think many firms would like to, but there are obstacles in their way,  such  as  a  lack  of common philosophy. Sometimes, both firms’ cultures are too far apart to combine as

one firm.”

Deloitte has made a number of acquisitions in the last number of years commencing with the 2010 acquisition of Curach Consulting. This strategy was accelerated in 2014 with the acquisition of KavanaghFennell and the merger with Deloitte Leyton. In July, Deloitte acquired System Dynamics, one of Ireland’s biggest technology consulting businesses. Brendan Jennings, Managing Partner at Deloitte, shares his insights and experience.

“Our acquisition strategy is very much aligned to our overall 2020 business strategy here in Ireland and indeed the global Deloitte strategy, both of which outline our ambition to grow our business both organically and inorganically. Therefore, acquisitions will continue to be an area of focus for us over the coming years and, as a multidisciplinary business, we are interested in opportunities that are adjacent and complement existing service offerings, right across our business. Any future acquisition must be effective in achieving scale in the service offering. Our consistent goal at Deloitte is to be leaders in professional services, and any M&A activity must serve that purpose.

“Payback is an important area in terms of the attractiveness of any acquisition opportunity – any investment must bring financial and strategic benefits. Key to ensuring these success factors is a rigorous acquisition evaluation and execution methodology. This is something that we have developed to ensure that we are fully able to determine what is of interest to us, assess the opportunity comprehensively, and make strong recommendations on not only the pursuit of the acquisition, but also the shape of it. Our methodology also enables us to execute on any opportunity in a timely manner which can be somewhat unique, given the nature of a partnership model. All of these elements, we believe, make for a more successful outcome.

“We will continue to monitor the marketplace for opportunities. Ours is a broad and diverse business, and areas such as services to private businesses, cyber security, human capital, and strategy and operations, to name a few, are all areas that we are open to investment in.  As leaders in our profession, we continually monitor how we can grow and enhance our business, and so availing of the right acquisition opportunities will continue to be a priority. There are a number of key criteria we examine: is the acquisition a strategic fit with our business? What are the risks or benefits to our brand? What is the payback period based on the deal structure? In terms of scenario planning, what are the best, worst and probable cases? Engage in rounded thinking upfront, and execute on that basis. Strong governance and project management around the acquisition are important – a rigorous assessment of the opportunity, a comprehensive commercial negotiation, a robust due diligence process covering all areas including commercial, legal and beyond, and a very defined business model are all important considerations for us in any acquisition process.

“Risks that are important to examine relate to both the external and internal environments. At a macro level, how are the local and global economies expected to perform, and will this have an impact on how the acquisition performs? Talent is also an important consideration. Will key talent be happy to transfer? Critically important is an assessment on any impact on clients of our business, and of the company which may be acquired. Firms in our industry must be aware of regulatory implications given its multidisciplinary nature. For example, we are extremely mindful of audit independence requirements – knowing what questions to ask is very important. Assessing these risks and areas of consideration, and incorporating these into the aforementioned evaluation process is how best to mitigate them.  We carry out extensive scenario planning, so that we have a good feel for how these risks might impact.

“It’s all about planning, communication, and ownership. Plan upfront, communicate regularly with all relevant people, do what you say you are going to do, and do it well. Involve all the necessary work streams – from HR, facilities, IT and beyond – to ensure that all relevant areas are considered, timelines are agreed,  and that responsibility has been assigned on the delivery of these tasks. Once again, it comes back to project management. Issues will always arise, and so the ability to address them quickly is what counts. One of the most important goals in all of this is to make for a positive on-boarding experience for the people joining the company. If this

is good, they feel good about their new working environment.

“We expect M&A activity in the accountancy profession to gather pace in the year ahead. The nature of professional services firms is that our clients need and expect a broad range of skills from their service providers. This reflects the growing complexity of their businesses and the global marketplace in which they operate in. What’s more, they expect and deserve to have a connection with their providers that serves their business on a holistic level. Against this landscape, adding complementary skills will be an important part, amongst others, in meeting these client needs.