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Foulger Underwood Associates Limited Succession/merger/sale What will the exit model look like in 2021? Presentation to the MGI UK and Ireland Annual Conference.

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Presentation on theme: "Foulger Underwood Associates Limited Succession/merger/sale What will the exit model look like in 2021? Presentation to the MGI UK and Ireland Annual Conference."— Presentation transcript:

1 Foulger Underwood Associates Limited Succession/merger/sale What will the exit model look like in 2021? Presentation to the MGI UK and Ireland Annual Conference 2 December 2011 Derek Smith

2 Agenda Introduction Context My objectives The UK market and professional service firms –The past –The present –The future Succession/merger/sale –The past –The present –The future The future – what will the successful firm look like? Foulger Underwood Associates Limited

3 Context Change is the only constant The trouble with the future is that it is not what it used to be. Paul Valery The trouble with the future is that is usually arrives before we're ready for it. Foulger Underwood Associates Limited

4 Context Change is the only constant The trouble with the future is that it is not what it used to be. Paul Valery The trouble with the future is that is usually arrives before we're ready for it. Foulger Underwood Associates Limited

5 Objectives To encourage thought and discussion among members by: Giving some background on the market and to share some experiences as to where it is Looking at where the market seems to be going Perhaps questioning your current thinking and position Giving you some issues to think about by being challenging (and perhaps provocative!)

6 2001 April 2001 Tenon announced acquisition of 5 firms for £60 million 2 December 2001 Enron filed for bankruptcy Foulger Underwood Associates Limited

7 The UK market Some key changes (over the last 20 years!) Size of service providers Nature of service providers Expectations of clients Nature of services provided Legislation Regulation Litigation Foulger Underwood Associates Limited

8 The UK market Some key changes (over the last 20 years!) Size of service providers Until 1989 – the big 8 Arthur Andersen Arthur Young & Co Coopers & Lybrand Ernst & Whinney Deloitte Haskins & Sells Peat Marwick Price Waterhouse Touche Ross Foulger Underwood Associates Limited

9 The UK market Some key changes (over the last 20 years!) Size of service providers Since 2002 – the big 4 Ernst & Young Peat Marwick Pricewaterhouse Coopers Deloitte & Touche Foulger Underwood Associates Limited

10 The UK market Some key changes (over the last 20 years!) Size of service providers Since 2002 – the big 4 Foulger Underwood Associates Limited YearTop 60 firmsBig 4 firmsFirms Big 4 share £ billion % ge Number 4 (E & Y) is £1.383 billion; number 5 is £0.378 billion. Top 100 listed audits are big 4 clients

11 The UK market Some key changes (over the last 20 years!) Size of service providers Foulger Underwood Associates Limited Partners plus ,3893,1975, ,70712,4326,826

12 The UK market Some key changes (over the last 20 years!) Size of service providers – WHY?? SURVIVAL IS NOT COMPULSORY IT IS A TOUGH COMPETITIVE ENVIRONMENT AUDIT DIMINISHES and COMPLIANCE COSTS LESS CLIENTS EXPECT MORE STAFF HARDER TO HIRE AND KEEP Foulger Underwood Associates Limited Partners ,70712,4326,826

13 The UK market Some key changes (over the last 20 years!) Nature of service providers Partnerships National and international networks or entities LLPs Corporates Consolidators GRADUATE ENTRY LEVEL Foulger Underwood Associates Limited

14 The consolidators What? Acquirers of practices External shareholders/ownership Normally publicly listed Foulger Underwood Associates Limited

15 The consolidators Who? H & R Block Amex Tenon Numerica Vantis Foulger Underwood Associates Limited

16 The consolidators Why? Low value compliance and scale Distribution channel Big is better Greater scope for investment Foulger Underwood Associates Limited

17 The consolidators Do they work? H & R Block - yes Amex - no Tenon - maybe Numerica - no Vantis - no Foulger Underwood Associates Limited

18 The consolidators Do they work? WHY NOT? Pay too much Buy the fiercely independent Buy out the oldest and the best and employ the less able or the young able who gain little Benefit to client? Foulger Underwood Associates Limited

19 The UK market Some key changes (over the last 20 years!) Expectations of clients More for less Certainty on price and on outcome Broader range of knowledge Exceptional service delivery BUT THEY SHOW LESS LOYALTY? Foulger Underwood Associates Limited

20 The UK market Some key changes (over the last 20 years!) Nature of services provided AUDIT requirement has changed – increased exemption, increased pressure on fees, audit and consultancy segregation COMPLIANCE SERVICES – fee pressure, low cost unqualified providers, outsourcing NEW SERVICES - multi-service norm, taxation, corporate finance, insolvency, consultancy, financial services, management information and accounts, HR services, IT services, actuarial services, specialist industry boutiques Foulger Underwood Associates Limited

21 The UK market Some key changes (over the last 20 years!) Legislation Regulation Litigation EVER INCREASING, INCREASINGLY INTERNATIONAL! INCREASINGLY RULE BASED STRONG AMERICAN and EUROPEAN INFLUENCES Foulger Underwood Associates Limited

22 The UK market Some key changes (over the last 20 years!) Size of service providers Nature of service providers Expectations of clients Nature of services provided Legislation Regulation Litigation Foulger Underwood Associates Limited

23 How the market has valued Sustainable earnings – consistency with investment Lack of baggage and clarity of vision The underlying value or worth

24 How the market now values Sustainable earnings – consistent with investment Lack of baggage and clarity of vision The underlying value or worth

25 Methodologies Capitalisation of income Capitalisation of earnings Cross-check approach

26 Plus ça change, plus c'est la même chose Capitalisation of income Capitalisation of earnings Cross-check approach

27 UK market – trends International expansion Overseas competitors crossing geographic boundaries Choosing the right expansion model: organic growth, merger /acquisition, best friends Managing risk across geographic boundaries Foulger Underwood Associates Limited

28 UK market – trends International expansion Overseas competitors crossing geographic boundaries Choosing the right expansion model: organic growth, merger /acquisition, best friends Managing risk across geographic boundaries Increasing scale Scale brings bureaucracy, an anathema to all professionals Being corporate at the top while remaining practice-based below Outsourcing of standardised work / back office functions Foulger Underwood Associates Limited

29 UK market – trends People Younger staff are more demanding, with different values and aspirations Ensuring people appointed to formal leadership positions are effective from the start and continue to be so Creating incentive models that reward collaborative and longer- term performance Appraising and developing partners Foulger Underwood Associates Limited

30 UK market – trends Winning business Many firms look and act the same Clients increasingly better informed and more demanding Creating a culture where cross-selling is the norm Leadership Greater emphasis on training, development, coaching and mentoring What the partners do sets the tone for what gets done and how it gets done Foulger Underwood Associates Limited

31 UK market – trends Technology Greater emphasis in all activities Timeframes and communications are changing faster than anything else POTS and PANS Foulger Underwood Associates Limited

32 POTS and PANS N Native, immigrant or non-dom?

33 UK market – trends Diversity and equality The inevitable changes The need for integration and community Some deep-seated prejudices The non-white British population has grown from 6.6m in 2001 to 9.1m in or nearly one in six Foulger Underwood Associates Limited

34 Leadership

35 The 2011 exit model? Foulger Underwood Associates Limited

36 The 2011 exit model FIRMS WITH: Clarity of purpose Clear vision and direction Embedded values or principles Great leadership Good communication Recognition of team dynamics Sustainability Foulger Underwood Associates Limited

37 How the market will value Sustainable earnings – consistent with investment Lack of baggage and clarity of vision The underlying value or worth

38 Sustainable earnings – consistent with investment Lack of baggage and clarity of vision The underlying value or worth How the market will value

39 Sustainable earnings – consistent with investment Lack of baggage and clarity of vision The underlying value or worth How the market will value

40 Foulger Underwood Associates Limited


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