Global M&A trends in accounting
August 3, 2023
Recently, International Accounting Bulletin invited Kreston Global members to comment on global M&A trends in accounting. Mergers and acquisitions (M&A) have become a critical competitive strategy for companies worldwide. However, the landscape varies significantly across developed and developing markets. Kreston Global members Alexandre Kouame partner at Exco ECA in the Ivory Coast, George Itotia from Kreston KM in Kenya, and Chairman of the Board, Rich Howard from CBIZ MHM, share valuable insights to the discussion. Read the full article here or the summary below.
M&A in US and Canada
In developed markets like the US and Canada, M&A activity in 2022 was largely driven by a skills shortage. Companies have had to adapt, embracing remote working environments and supplementing resources through outsourcing and offshoring. Here, M&A provides a platform for immediate resource and capability amalgamation. Another surprising driver for M&A in these markets is succession. As Rich Howard points out, many partners in accounting firms approaching retirement age are seeking mechanisms to monetise their contributions, and M&A provides a sustainable solution.
Technology in M&A
Technology has played a significant role in M&A activity. To stay competitive, firms are investing heavily in technological development and implementation. Private equity investment, while creating some buzz, is not the dominant investment form in the US, according to Howard. Regulatory scrutiny may accompany the introduction of third-party capital, ensuring that relationships between firms and private equity groups adhere to the rules and regulations of the accounting sector.
M&A trends in Africa
Despite the M&A trends in developed markets, businesses in Africa face serious challenges. The lack of liquidity is a crippling factor, and raising funds or attracting investment for crucial M&A operations is difficult. Alexandre Kouame, accountant and statutory auditor at Exco ECA (a Kreston Global member firm), believes the issue lies with the financial sector, particularly European banks operating in African markets. These banks often support European companies established in Africa rather than local businesses.
George Itotia, a partner at Kreston KM, highlights that M&A in Africa isn’t merely about promoting growth, but survival. High taxes and low lending contribute to liquidity problems, resulting in many companies folding. He notes a shift by local lenders to invest in long-term government securities rather than in the private sector, deemed too risky. Thus, foreign direct investment is essential for local M&A to thrive.
However, M&A’s financial, tax, and legal challenges in Africa make partnerships a more viable alternative. Strategic partnering helps local companies collaborate on technology and enhance local personnel’s skills. Although private equity is gaining traction in Africa, Kouame asserts that the margins attracting PE companies are shrinking due to increased competition and tax pressure.
In South America and the Middle East, inflation and other economic challenges have created an uncertain environment for M&A. However, M&A continues to be discussed as a possible path forward.
M&A as a competitive advantage
In conclusion, while M&A offers a significant competitive advantage in developed markets, several obstacles hinder its effectiveness in developing regions. Experts from Kreston Global, including Rich Howard, Alexandre Kouame, and George Itotia, contribute to a more nuanced understanding of this global trend and its various implications. Kreston Global Chief Executive, Liza Robbins, recently wrote a blog on private equity investments in accounting firms. Read her full blog here.
