Remaining independent is still possible in a world of consolidation
The relationships built within a community and the understanding of client needs can be a key differentiator for businesses that have built decades of trust. Photograph: iStock
Consolidation has been a trend across industry in recent years, not least in professional services. Across the board the merger and acquisition trend has been going only one way.
Not every firm wants to be part of a national or international platform. The reasons vary wildly. For some, it’s about being able to maintain control over what work is engaged with; for others it’s a local focus. And then there are those who may feel the time simply isn’t right for them.
Whatever the reason, despite the surge in consolidation, remaining independent is still a viable and desirable option for many.
“In our experience, small, local, professional firms can remain commercially viable as they consistently deliver strong client service and build longstanding relationships that competitors can’t easily replicate,” says David Moran, tax partner at PwC Private.
A clear niche, trusted reputation and goodwill accumulated over time often give these firms a durable advantage even in sectors facing consolidation, he adds.
The old adage may be that familiarity breeds contempt but, when it comes to professional services, it’s more that familiarity breeds advantages. The relationships built within a community and the understanding of client needs can be a key differentiator for firms that have built decades of trust.
Yet those very advantages held by independent firms are often what make larger players want to add them to their portfolios. That can drive pressure to consider selling, especially from the stakeholders within the business.
“Resource constraints, especially attracting and retaining talent, or the absence of a clear succession plan, can rank high on the list of pressures likely to push firms towards a merger or sale event,” says Moran. “Technology investment and increasing regulatory complexity can also influence decisions, but succession and people issues can often drive the conversation.” Demand is rarely the problem for companies coming under pressure to sell. It’s more a matter of supply. Smaller firms can find it a struggle to maintain the operational capacity needed at all levels.
Yet, with the right structure, independence can remain a thriving model for companies, as long as they establish a strong plan around leadership.
“Remaining independent can be a sustainable and profitable strategy where a firm has a defined niche, strong leadership and a credible succession path,” says Moran. “Without these, independence may end up being a temporary phase, with a merger or sale becoming the natural next step as the business evolves.” The level and quality of preparation and adaptation are often the deciding factors when it comes to successfully maintaining a successful independent business.
“Firms that wish to stay independent over the next decade need to invest in technology, strengthen governance and put a structured succession and leadership plan in place, particularly as owners approach retirement,” says Moran. “Maintaining a clear market focus and developing deep expertise or specialisms can also help secure long-term independence.”
