I’ve just read a headline suggesting that there will be more listed accountancy firms within 2 years.  This follows on from the news of the recent merger of Tenon and RSM Bentley Jennison. There are, apparently, two prospective consolidations in prospect at the moment.

A similar story first appeared on AccountingWeb last March following an announcement by Jobtel that they planned to launch a new consolidator in the UK in 2010. This prompted me, in my then role as Guest Practice Editor, to look back at the successes and failures of previous consolidations in the accountancy marketplace. My piece was titled: Will a new accountancy consolidator be any more successful? I was unequivocal in my view that were major obstacles to overcome.

I remain of that view. To paraphrase my comments in March:

1 -  Profit forecasts

Where is the financial incentive for anyone to invest funds in an aggregation of accountancy firms whose profits will shrink post consolidation? Remember all partners’ profits shares will become salaries and subject to 13.8% employers’ NICs. This additional cost will dwarf the hoped for cost savings. If profit forecasts and projections are realistic it’s hard to see a real financial incentive for investors who understand the marketplace.

2 – Partners’ earnings

Again the Employers’ NICs are likely to reduce partners’ prospective earnings in the short-term. Will the hope of capital growth (and it can only be hope) be sufficient compensation for the reduction in drawings and profit shares? I doubt there are many younger and middle aged partners who will willingly forsake their current earnings for prospective capital growth.

The only way around this would be for the consolidated practice to retain some form of LLP structure (as Numerica attempted latterly to introduce). Whether external investors would still be interested in such practice remains to be seen.

Julian Hamilton of Jobtel responded to my comments in March and indicated on the AccountingWeb thread that the partners would receive proceeds from the sale of their goodwill to the new entity and could invest such monies to top up their post consolidation earnings; he also noted that top ups would also come, in time, from  dividends paid by the consolidated practice.

3 – International association

Could a new consolidated practice achieve traction without being part of a decent sized international association? Are there any left that do not currently have adequate UK representation? Would a new consolidated practice have sufficient ability to service work referred from overseas or would such expertise need to be recruited – at additional cost?

4 – Management and leadership

This will also be a challenge as has been shown by those who have gone before.

In my AccountingWeb piece I wished Jobtel well (and I still do, though my cynicism remains).

What do you think? Have you ever considered joining a consolidator? What would attract you to the idea?