What happens with the IT infrastructure when two practices merge? What is the strategic approach? How long should it take to move one party onto the other’s platform? Are there reasons to hold off and maintain disparate systems? Does the merger raise any peculiarities or issues particular to the sector? Read on…

The financial and analytical acumen that practitioners gain in their studies doesn’t always translate into them making the best decisions when it comes to their own business.

And the merger of two practices – generally the acquisition and absorption of one into another – is certainly an area that relies on strong diligence, project management and planning, rather than the detail of FRS 102 or the latest Finance Act.

So, how much does ‘technology’ form the merger or acquisition process? Focus may be on complementary client bases and service lines plus the culture and working practices of staff and partners – does IT get a look-in as a key aspect of dealmaking and integration among practices?

For Keith Underwood, MD of practice advisers Foulger Underwood, undertaking IT due diligence should be a key part of any merger, and to an increasing degree.

“IT has become a key factor in helping generate additional profitability by putting the two practices together onto a single platform,” he says.

“You’d want as much of that to take place on day one as possible to gain rationalisation and a benefit to the bottom line.”

One anonymous practitioner told AdvanceTrack that during an acquisition of a smaller practice the approach was simply “you’re coming onto our system”. But they had failed to gauge the quality of the acquiree’s technology – or the lack of quality in their own system: “Looking back, at the point of merger there should have been a review of the overall systems from a big, small and joint perspective. The due diligence was focused on securing the financial deal, rather than the logistics.”

Mark Taylor, a technical manager in the ICAEW’s IT Faculty, concurs. It can be difficult to set out a stall for knowing how the tech integration will work, he says, but consideration must be made as part of the pre-deal diligence process.

“For some organisations it will come down to who has the ‘newest and shiniest kit’, particularly if one of the parties has been through a recent IT change,” says Taylor.

“A lot of decisions will be made as you approach the merger: the fit seems right on a client and cultural level, and then the IT representatives from each side meet and find out things are similar. The tech will be as much a reason to merge, as cultural, client base or service approach.”

The digitisation of practices is being driven by regulation (Making Tax Digital; complex, continuous tax updates; FRS102; and GDPR), along with the ability of new tech to automate processes that were once manually intensive. The increasing pace of change of technological advances means that many practices have moved quickly to new cloud-based platforms and services. Others are muddling through, making smaller changes or putting in more effort to stay still.

Without wishing to over-generalise, there will be a substantial number of firms whose owners are looking to get out before having to invest in change. For practices that have digitised their offering, the slow-movers can become attractive targets.

“Because one firm is more technically mature than another, the acquirer will say ‘rather than you have to invest, why don’t you merge with us and we’ll save you that pain?’,” explains Taylor.

“It puts you in a position to take over a firm that’s not digital savvy – digital often drives cost savings as well.”

Conversely, Underwood has seen deals “killed” where the acquirer is paper-intensive in its processes, and can’t find a way to embed a digital-only practice into the fold.

Data protection

GDPR is worth mentioning. Data protection and privacy rules have broadened, and punishments increased greatly, under the new European legislation. So, the process of client data transfers in a merger or acquisition require a robust approach.

Consideration must be made that a merger project will likely see changes to systems and access controls during the process. “They’ll need breaking down a bit to allow movement,” suggests Taylor. “So you’ll need a solid change management programme in place”.

Underwood is seeing GDPR become a factor within the due diligence process of a deal. The great risk is that the acquiree practice has failed to purge itself of unnecessary or old client information.

“If a firm hasn’t cleaned their files then work is involved… if you’ve got data on people who are no longer clients, that has to be identified and deleted,” he says.

Another hurdle to clear is data formatting, says Taylor, a process he describes as “extract, transform and load”. Common problems include client dates of birth being in American format, or something other than DD/MM/YY. “It can be different things in different organisations,” he says. Again, time and cost need to be considered for such issues.

Impact on clients

There are two other extremely important considerations. First, the question of client-facing IT must be considered. As Underwood posits, if an acquiree’s client base uses QuickBooks and your practice’s clients use Xero, will you port them across and what impact will that have on retention?

“There will be increasing questions over the retention of clients in relation to the use of different apps or data entry. It is a risk consideration in determining the suitability of a potential target or merger,” says Underwood.

Finally, when considering your practice’s IT requirements post merger/acquisition, it’s vital to maintain flexibility where possible.

For Carl Reader, a co-owner of Swindon-based accountants d&t, a successful integration may set off the spark for further deals.

“If it works, then you’ll probably have found a way to fund the acquisition or merger, and have the appetite for appropriate risk. Once you have that in place, why would you not consider doing it again? So you should think about systems with a growth perspective,” says Reader.

“It’s something I’ve seen other practices do: they get fit for purpose of where they are now, but not where they’re going to be.

“Clients don’t have a ten-year life any more. From that perspective you have to think about acquisition or organic growth, so you need systems that allow the practice to grow.”

Practice viewpoint: Kingston Burrowes

Bruce Burrowes is a CIMA-qualified member in practice, running a three-office firm in Surbiton, Kingston and Wimbledon.

His small but burgeoning practice has taken on a number of client lists, and also brought across staff from acquired practices.

For him, he “keeps an eye on the tech” but it’s not a key influencer in the deal. “My starting point is that their clients will end up on my systems,” says Burrowes. “The reason is that we like to think that what we’re doing is pretty good.”

He does, however, “take a peek” at the acquiree’s tech choices and processes, “to learn”. “You talk to the seller about their tech, what they use, why they like it and how they use it,” Burrowes explains.

For his firm, part of the process of bringing acquired staff on board is to get them involved from day one on helping port across and manage their previous client list into the new system. “They’re an expert on the client, but not your systems,” he says. During that process they work with existing staff and is the first step in them becoming part of the team.

Crucially, he calls on an acquiree to produce a “control list” database. This contains details about how clients are linked together. For example, the name of the client, how they’re referred to in documentation, what businesses they own and what names they trade as. It will also contain information about what services they currently receive and what they’ve been billed.

For Burrowes this is a crucial reference document to help manage situations and double-check details when the previous practice owner has gone.

“Clients may be linked by family, it’s important to know that information,” he says.

Ultimately, Burrowes tries to manage IT risk by operating a single platform that provides a full suite of products. While expensive and no product is perfect, he knows the software covers “every eventuality” and simplifies the integration process.

“I remove risk by getting one product to do the lot,” he concludes.

Vipul’s view

AdvanceTrack MD Vipul Sheth takes the IT infrastructure issues out of the merger equation, and focuses on helping the key personnel work together

You might think that, with our main feature covering the topic of IT in practice mergers and acquisitions, I would also speak at length about the issues covered? Well, no – I think our commentators have done so extremely well, and you don’t need more from me.

I find the non-IT issues around mergers are fascinating but also extremely important. For example, considering the culture of the two organisations in a merger. More narrowly, can the senior leaders of the practices work together if both sets are staying on?

There is then lots of work to understand the skillsets of both firms’ staff, along with setting a clear idea of what post-merger financial and responsibilities will look like.

As you’ll see below, we can help take much of the IT integration weight off your back, particularly when you have so many other considerations to take into account.

The vast majority of accounting professionals see their roles developing as a result of technology in the next few years, according to new research by recruitment consultancy Renaix.

But that is not a bad thing, they believe. In fact, nine out of ten (92%) of the 200 respondents are optimistic about the impact of increased automation on the profession.

Four in five are already seeing an influence from emerging IT on their day-to-day tasks. Advanced data analytics (63%), cloud computing (42%), robotics (17%) and artificial intelligence (15%) were cited by the accountants. Only one in ten (12%) think their role will be completely automated in the near future, with 69% believing automation will make them more efficient and 59% believing it will open up opportunities to provide greater value to clients. Four in ten say it will reduce the transactional work they undertake.

More than half of respondents said they’ll have to up their game on tracking new tech developments, while also developing softer, communication-based skills.

“Finance and accounting organisations have a fantastic opportunity to drive forward digital transformation, empowering all employees to play their part in developing and implementing new ways of working,” said Renaix managing director Paul Jarrett.

“However, to do so effectively, employers need to ensure they are equipping the workforce with the right skills, as well as investing in bringing in the right talent.”

How much IT ‘knowhow’ do you need to hold in your practice? And who should hold it? Kevin Reed looks into why technology is vital to help your practice deliver high value ‘human’ services.

Many practitioners are taking a deep breath and preparing to get their heads around what their technology requirements will be for the weeks and months ahead. Such a task is one that falls outside of their comfort zone. But while talk of AI and robots creates a 50s-style Utopian vision, the reality is more complicated, real-life and, well, human. While the world is scary enough for practices to grasp, it’s also the case for their clients. And these clients – while happy to use tech to undertake tasks to support their business, wouldn’t think that technology would replace their unique service. And that is the same for practices. Technology can free an accountant from the mundane, placing them where their clients want them to be – providing proactive advice to help them grow. And this ‘human factor’ means that practitioners must think not only about how they provide that face-to-face service, but how the increasing and evolving use of technology will impact the future skills of their staff and colleagues.

As we have outlined in recent issues of AdvanceTrack’s newsletter, practices’ people, organisational and strategic elements must be in place to make the most of technology. Software and hardware are a means to an end, not the end itself. “Do not forget that people are the means to the end as well – the end is top client service,” explains Rakesh Shaunak, group chairman of MHA MacIntyre Hudson. “The two combined deliver that service.” The Top 20 practice has looked to add some formality into its approach to understanding tech developments. It has put in place an ‘innovation group’. This group of partners and senior staff “gaze at the horizon”, and then look to align upcoming tech with client offerings.

There is a lot of hype around artificial intelligence and robotics, but for Shaunak’s practice the key focus is on data analytics. This is enabling the firm to undertake much broader audits of client data rather than just looking at samples. Quicker and more straightforward auditing means it can be undertaken more often – so interim and quarterly audits are becoming more popular. This in turn makes the full-year audit easier. It can also be used in the tax arena as well – allowing MHA MacIntyre Hudson to benchmark clients and understand where there are opportunities to provide more wealth management and wealth generation services. So what does this mean for your staff? What do they need to know to be relevant in a modern practice? Ironically, with all this talk of tech, that isn’t necessarily the main focus of your team’s skillset. As has been said, it is all about client service.

Instead, the shift in training and recruitment has been to find go-getting, inquisitive people who have an aptitude in communication – or at the very least the energy and open-mindedness to learn. This is alongside getting to grips with core accounting and finance requirements.

“For us it’s about understanding analytics, with our people valuing soft skills training more highly than technical,” says Shaunak.

“There’s more emphasis on the ability to engage.” He admits that for some existing staff, re-training can be a challenge, even where programmes are run to help change mindsets. “We don’t always get there with some people,” he says. This issue accelerates in professionals’ career development “much more quickly than previously”, says Alison Stiles, head of business development at the ICAEW.

“Can you look at that financial information, spot trends, see problems, create advice and provide it?” she asks. Concurring with Shaunak, Stiles sees a “struggle” for practitioners that fail to grasp the nettle or help develop their staff and practice in this manner. Anyone wishing to continue in the profession must appreciate that continuous learning is now key. “Adaptability has to continue on all the way through,” she says. “So CPD on tech and its impact will be critical. The model of looking at books and then you’ve ‘learnt it’ is long gone.”

The other thorny issue to consider with technology is who’s going to look after it all? Smaller practices in particular can find this a head-scratchingly difficult thing to manage. As with all small businesses though, it’s about focusing on your core service, and handing over the day-to-day running of such matters to someone else. “You don’t need to be a tech ‘expert’, but use it as a platform. Rather than foist it onto someone internally, look to outsource it,” suggests Stiles.

Shaunak says that a “sound principle whatever the size of your firm” is to separate IT strategy from IT delivery. From this point you can then consider which aspects need to stay in-house or can be outsourced. “We’ve outsourced IT equipment procurement, while an internal team looks after maintenance,” he explains. While the innovation team brings together people from around the practice, a senior manager heads up strategy. There is also an internal head of delivery. “When you have these roles combined then it breaks down, as the person will get bogged down in operational matters,” Shaunak explains.

Carl Reader, a director at Swindon-based practice d&t, says that a full-time IT director focused on operational matters is not really needed in a smaller practice but – as also suggested by Shaunak – you will need team members that see the value of technology from a client perspective.

Formalised communication between partners and the team members using technology on a day-to-day basis is critical, he believes. Without that line, a lack of understanding occurs about what tech is needed, and how things currently work.

“As firms get bigger, beyond the sole practitioner, there is often a disconnect from what the partner wants to buy and what the team wants to implement,” he explains. “The partner is sold the story for a horribly complicated dashboard, but other staff might not understand it.”

Reader believes that the technology to interact with core accounting systems that will help provide better client advice is already available – the skills gap is in “the ability to understand commercially how that impacts the client and what to tell them”.

“Business development and technical skills can be taught,” he says. “You’re looking for that spark, to be able to deliver soft skills to help clients.”