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Merger mania takes hold

Thursday, April 12th 2001, 7:07AM

Financial planning firms are being warned to keep a close eye on the merger mania that is happening in the accountancy market as they may be next in line.

One of the big trends in the United States and now Australia is the arrival of consolidation firms. These are essentially firms that specialise in buying existing accountancy firms and roll them all up into one operation.

Two listed Australian players that have crossed the Tasman include Melbourne-based Stockford and Harts Group. Another firm Hayes Knight is also active in the market.

Harts has bought Reeves Moses Hudig, Business Results Group and Iles and Cambell, Stockford has acquired Hamilton and Associates. Colson White, which has been a part of the Hayes Knight group for many years, has rebranded itself and then merged with Bowden Impey and Sage.

Austaralian financial journalist Tony Thomas*, who authored the bible on these mergers Invasion of the Practice Snatches, estimates that half of New Zealand's medium-sized firms will be rolled up by consolidators.

He says that consolidators are interested in gaining access to accounting firms' lucrative financial planning work, plus they will start buying advisory firms.

While three firms are active in the market, another one has expressed interest in buying up businesses in New Zealand, he says.

Thomas, who spoke at the IPAC investment conference in Auckland recently, says the arrival of consolidators signals the "death of the stand alone cottage industry."

While the consolidators offer business owners a route to cash up their operations it has its problems.

The general format for a deal is that the consolidator buys firms generally with scrip. However this has had problems as the price of the consolidators' shares in many cases has fallen heavily.

Thomas says some of the consolidators are now looking to add a cash element into their deals.

His warning to people who are considering selling their business to a consolidator is: do your homework.

If the seller is not aware of what has happened in Australia then they will be "negotiating from a position of appalling weakness".

*Thomas is a leading authority on the consolidators. His award winning handbook, Invasion of the Practice Snatchers is available in New Zealand through Good Returns' bookstore. This is essential reading for anyone who is considering selling their business to a consolidator.

« Australian reforms will impact on NZ Financial Services industrySovereign takes regulation bull by the horns »

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