Bold Strategic Move 8: Merging for new markets

Grant Thornton CEO Robert Quant

When it spotted a struggling competitor, a leading accountancy firm seized the moment.

Six years ago accountancy group Grant Thornton spotted a gap in the market.

There was an opportunity for a national firm to service the middle market with the traditional relationship focus of the smaller accounting firms.

Fast-forward to July last year and Grant Thornton had ironed out merger arrangements with the partners of peer firm BDO in Sydney and Melbourne, giving it prized national status as a single group rather than a series of affiliates.

The BDO firms were struggling, but had clients in the sought-after market sectors of health, property, media and technology.

Grant Thornton chief executive Robert Quant says the BDO merger was opportunistic “in that a unique set of circumstances came along, but it was not new in terms of what we were trying to execute”.

“We spent a couple of years creating an infrastructure to support a national firm. We knew we needed to be of a certain scale and capability in each of the geographic markets. Merger was always part of our growth strategy and we had discussions with a number of candidates.”

Grant Thornton also acquired the Bentley offices in Perth and William Buck in Melbourne.

Today the firm, where more than 1300 people including more than 150 partners work in six offices across Australia, has combined revenues of A$232 million.

The terms of the deal were A$20.9 million cash, A$17 million equity and contingent considerations of A$12.7 million.

Quant believes the firm received value for money in the unusual way the deal was set up – with the firm acquiring BDO’s assets but not the entity itself.

“We expected circa A$70 million in revenue and that number came in closer to A$62 million, but we’ve been able to structure it in terms of people numbers and overheads so it will add to profit on that number.”

The firm will not comment on industry speculation on the proportion of its borrowings (currently A$62 million in total, including normal working capital) attributed to the BDO deal, but as Quant says, “it was a merger where we paid for what we got”.

Quant agrees that an accounting firm undertaking its own acquisition is similar to a plumber doing his own bathroom.

“It’s one thing being an adviser to business and it’s another doing it yourself. So we really understand what the process means for our clients.”

More mergers are likely. The firm has a growth target of A$300 million by 2015 and Quant says this won’t be achieved by organic growth alone.

However, for the moment the growth strategy is about consolidation and investing in leadership and cultural development.

Kim Schmidt, formerly human resources director for supermarket giant Woolworths, is on board to lead the cultural and leadership development program at Grant Thornton.

It’s a program Quant says he wishes he’d started earlier.

“We focused on getting structure and delivery systems aligned, which was really important, but equally important was the whole ‘we are in this together and how are we going to bring the best of both worlds together to have something truly special’.

We talked about it as part of the reason and logic but I thought we could have brought that into being earlier.

“We are in a people game – anyone who underestimates the cultural issue when you are looking at a merger does so at their peril.”

This article is from the October 2013 issue of INTHEBLACK magazine.

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