Hill Dickinson capitalises on private equity’s surge in accountancy sector
Private equity’s (PE) growing presence in the accountancy sector is driving demand for legal expertise, as firms like Hill Dickinson position themselves to capitalise on the busy market.
Sean Lightfoot, partner at Hill Dickinson told CityAM as part of Eyes on the Law, “it started for us about three years ago when private equity firms ventured in for the first time”.
“At that time Exponent invested in Xeinadin, one of our big clients. In the same year, Tenzing invested in DJH Mitten Clarke while Waterland went into Cooper Parry,” he explained.
He added that it was “a seminal year in terms of PE getting various platforms in this space to kind of push on from there”.
For Hill Dickinson, a British law firm headquartered in Liverpool, Lightfoot stated that acting on the Exponent/Xeinadin deal was a “good platform” for the law firm to push into more of this work.
“From our side, that relationship has bolstered our creds in the accountancy sector, so we have expanded to act on the sell side of accountancy practices,” he explained.
So why are PE firms so interested in the accountancy sector? This is a sector that comes with its own challenges such as extra layers of red tape of regulation due to audits.
Lightfoot noted that “audit work is particularly risky”, as he explained “what you’ve seen in the accountancy spaces, particularly in the Big Four, they are offloading audit clients.”
He explained that “what happened is that [work] trickles down the line to some of the small firms who are now picking up this work which they might not have got five/10 years ago”.
“There is risk attached to that work but the flip side of this [the work] is recurring in nature and PE like recurring revenue streams,” he added.
The PE trend is far from slowing down as there has been a recent surge in activity in the upper mid-level accountancy market, as just last week Apax bought Evelyn Partners accounting arm for £700m. It was also reported over the Summer that the UK arm of Grant Thornton was considering selling a stake in its business to PE.
While PE continues to target accountancy practices, Lightfoot pointed out “it will be an interesting year in the next year or two given PE has been in [these firms] for the last three to four years”.
He explained PE firms may have started to consider exit strategies at that point for those firms they went into back in 2022, the move that started off this trend.
It’s not just accountancy firms; PE has started to step into law firms as last year Inflexion took legal business DWF private following a £342m takeover.
Lightfoot noted that law firms are “quite conservative” and take a while for change, but he noted that “similar with the accounting market, once it happens, there’s kind of a rush for everyone to do the same thing”.
He believes that PE will be keeping an eye out for specialists legal entities first, such as intellectual property lawyers, as he pointed out they have a “recurring income stream”, something PE firms like to see.
For Hill Dickinson, Lightfoot stated that the firm has “very good credentials compared to other firms” in the professional services market, and as work continues to flow, the firm is looking to capitalise on its credentials.
“We still very much position ourselves as having the expertise to not only act on the institutional PE investors side, but also acting on the owner manager side, because we’ve got significant experience on both from the last 10 years,” he added.
Eyes on the Law is a weekly column focused on the legal sector.