I was a partner at Jeffreys Henry for 12 years. When I joined, it was sitting on around £5m in annual revenue, and about 50 employees. It was a traditional flat partnership in terms of the way that it operated and made decisions. We restructured the business and moved from that traditional partnership model to more of a business model. We had client-facing partners that were not involved in strategy, and then a leadership team which consisted of a managing partner, internal CFO, internal HR and me. We dealt with the operational side and our role was to turn this accountancy firm into a growing business.

We had a clear strategic direction and used sales and marketing, technology and offshoring amongst other tools to enable us to grow far quicker than we could have with the traditional model. We knew where we wanted to be and in the period to early 2020, we grew to £15m in annual revenue and over 100 employees. We started looking at options for how we could achieve the next stage of growth to get us to £30m in annual revenue. 

Private equity was still relatively rare within professional services at that point. We looked at traditional mergers or acquisitions through debt of other others but ultimately, we went down the private equity route – partly because it gave all the retiring partners a platform to exit at that stage. Older retiring partners tend to have quite a large stake in an accountancy firm and finding the funds to buy them out - particularly in practices that are mid-tier and larger tier – is a particular challenge nowadays with the difficulty in raising funds. 

Following that private equity investment, we acquired two other significant firms and some small bolt-on acquisitions and grew to £35m in annual revenue as a consolidated group and around 200 employees.

Running a practice of that size is very different to running a practice at the next level with £100m annual revenue and 500 employees. It’s important to take a step back and know where your skill sets are - a time to let your ego go and pass the business on to somebody that has more experience of a business at that stage. We realised that it was a good time to step back and hand over full control to the private equity firm. They implemented a new management team to take it to the next level and I left last year as part of the final exit along with seven of the other partners.

I‘ve now set up an ACCA-regulated practice with one of those partners and that is growing strongly. We have similar plans for this practice – to grow it quite rapidly. We know that there is an appetite amongst private equity and consolidators and we know exactly what they’re looking for, so from the very beginning we’ve set it up with a view to sell in four or five years. Private equity and consolidators look for a very systematic business from lead generation all the way to debt collection and processing. 

But if you have the systems and processes in place then it’s scalable and you can quickly deliver when you get new clients and that really is the difference. 

Many small practices will not be suitable for private equity – those where sole practitioners are doing everything themselves and the practice relies heavily on them. That’s more of a lifestyle practice and clients are with the practice because of the practitioner so private equity would be concerned about whether those clients would stay. Whereas if the partner or director can easily step away from the business and the business would continue operating then private equity would be more interested – or at least you would be able to ask for higher multiples on your fees and potentially even a multiple of EBITDA. A private equity firm also would not be interested in an aging practice with an aging client base and aging partners.

There has been significant investment in accountancy practices by private equity over the last couple of years but that is generally geared towards certain types of practices – bigger systemised ones. Private equity probably wouldn’t look at practices with less than £10m in annual revenue. A practice with less than £10m in annual revenue could look at merging with another practice or it might be attractive to consolidators instead. Consolidators may be private equity backed but are not directly private equity – they could be considered the middle ground. So Jeffreys Henry at the time was a consolidator that was backed by private equity, and it acquired smaller firms.

Private equity firms have a 3-5 year window where they normally sell as ultimately they need to return the funds to their investors. So every day counts and you have to have very clear goals – year one you’re going to grow by £X, and so on. It makes for a very fast paced environment which is what we wanted – we wanted to double in size and private equity gave us the backing, but also the push to deliver on that. Within the time frame that we had, we needed to acquire firms that had around £5m in annual revenue – anything smaller and it would have taken too long with the pre and post-acquisition work that is needed for every deal. We would only have looked at practices with less than £1-2m in annual revenue if they were a very specialised practice – for example a practice that is well known for dealing with transfer pricing or US tax so is very niche and has sticky clients, high value and high profitability.