2024 Skilled Companies M&A Developments

As we had been analyzing the info from our 2024 Excessive Progress Research, we observed that one progress technique particularly stood out. The Excessive Progress corporations—corporations that develop 20% or extra yearly over a three-year interval—had been notably prone to take part in a merger or acquisition (M&A). Skilled companies corporations have lengthy used strategic acquisitions to enter new markets and deepen their portfolio of companies, however the pattern appeared notably sturdy this 12 months.

In 2023, the 12 months our information 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} companies. Because it seems, there may be loads of variance, with a lot of the exercise coming from simply two industries: authorized and accounting & monetary companies.

Why these two industries? Regardless of the market friction I describe above, there’s been loads of latest personal fairness (PE) curiosity within the accounting business, as evidenced by PE investments in market leaders similar to Grant Thornton and Baker Tilly.

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

Legislation corporations provide comparable alternatives, and in accordance with a latest article in Forbes, they may very well be the following massive PE goal. And in accordance 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 legislation corporations can have a better 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 companies utilizing comparable enterprise fashions. These two industries additionally provide portfolios of long-term, loyal purchasers and a observe file of optimistic money move. That makes them enticing to patrons.

In fact, M&A is a standard technique in different skilled companies industries, as properly. Nonetheless, in 2023 at the least, 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, 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 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 possible 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 contemplate an M&A progress technique at your agency? For the uninitiated, it may be a difficult endeavor, particularly if you’re attempting to mix two very totally different organizations and cultures. But when your objective is to enter a brand new market the place you haven’t any visibility, or if that you must purchase particular experience in a good labor market, an acquisition will be the best path ahead.