Private equity firm plots accountancy deal spree

A London-based private equity firm is planning to snap up smaller regional accountants and merge their operations amid a wave of takeovers of professional services firms.
Buyout firm Sovereign Capital Partners is set to launch a new professional services group, Affinia, which will combine seven regional accountants already owned by Sovereign. Affinia, which is understood to make around £35 million in sales cumulatively, hopes to double in size within five years by buying up accountants in the east and southeast of England. The company has drafted in Darren Redmayne, a former executive at insurance group Close Brothers, to spearhead its push into accountancy.
The new group is launched amid mounting private equity interest in the professional services sector. Last week, the Sunday Times revealed that Apax Partners bought the professional services arm of Evelyn Partners for £700 million. Another mid-market regional accountant, Cooper Parry, has also appointed investment bankers from Houlihan Lokey to explore a possible £600 million sale.
Redmayne said that Affinia would seek to capitalise on the flurry of deals. “I like building businesses in areas of financial services going through transformational change. And accounting services, with the support of private equity, is going through a period of quite transformational change”.
He said the firm hopes to merge the support functions of accountancy practices, such as IT systems, to cut costs. He also said private equity had the financial firepower to help smaller accountancy firms invest in technology.
“There’s around 40,000 accounting firms across the UK. And a number of the smaller firms are the local firms, they’re facing similar challenges.” Redmayne believes one day that regional “roll-up” firms, such as Affinia, could themselves merge operations.
However, private equity’s burgeoning interest in the sector has caught the attention of the accounting regulator, The Financial Reporting Council (FRC). The FRC has previously warned that private equity ownership could risk compromising audit standards, as buyout firms may lack sufficient audit knowledge and may be incentivised to pursue short term growth. Redmayne said Affinia will work with regulators to boost standards.
Affinia will be in the top 40 of largest accounting firms in the UK and will combine firms with offices in Colchester, Chelmsford, Halstead, Harlow, Ipswich, Orpington, Sidcup, Stratford and Sutton.