2024 Skilled Providers M&A Tendencies

As we have been analyzing the information from our 2024 Excessive Development Research, we observed that one development technique particularly stood out. The Excessive Development 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 robust this yr.

In 2023, the yr our knowledge was collected, 43.9% of respondents within the Excessive Development class reported that their corporations engaged in a merger or acquisition. That was a formidable quantity, particularly on condition that the Fed raised rates of interest final yr, growing the price of capital.

I made a decision to dig a little bit deeper and see whether or not this M&A pattern utilized equally throughout the spectrum {of professional} providers. Because it seems, there’s lots of variance, with many 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 lots of current personal fairness (PE) curiosity within the accounting trade, as evidenced by PE investments in market leaders akin to Grant Thornton and Baker Tilly.

Some buyers imagine this traditionally conservative trade is ripe for transformation—via applied sciences like AI and automation and disruptive new enterprise fashions. In addition they see a extremely fragmented market with alternatives to create efficiencies via consolidation.

Legislation corporations supply comparable alternatives, and in line with a current article in Forbes, they may very well be the following massive PE goal. And in line with authorized consultancy Fairfax Associates, M&A exercise has elevated within the first first quarter of this yr by 25%.

Maybe greater than different industries, accounting and legislation corporations can have a neater time assimilating acquisitions into their organizations. That’s as a result of each sorts 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 supply portfolios of long-term, loyal purchasers and a observe file of optimistic money stream. That makes them enticing to consumers.

After all, M&A is a standard technique in different skilled providers industries, as properly. Nevertheless, in 2023 at the very least, their M&A exercise was extra muted. Final yr, as an illustration, a few quarter of Excessive Development know-how corporations underwent a merger or acquisition. And on the backside finish, the perfect performing consulting corporations did so at a tepid 11.7% charge.

Of these corporations that engaged in M&A, they attributed a good portion of their income to it. Right here’s how the Excessive Development corporations in comparison with their No Development friends:

Why do Excessive Development corporations obtain higher outcomes? Whereas the information doesn’t reply this query, there are seemingly a wide range of causes. They could merely be extra skilled, having acquired many practices through the years. They could 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 think about an M&A development technique at your agency? For the uninitiated, it may be a difficult endeavor, particularly if you’re making an attempt to mix two very completely different organizations and cultures. But when your aim is to enter a brand new market the place you don’t have any visibility, or if it’s worthwhile to purchase particular experience in a good labor market, an acquisition often is the best path ahead.