What were the deals?

Gravita’s acquisition of Carter Backer Winter (CBW) and Davis Grant (DG), completed in quick succession in the spring this year. These were Gravita’s third and fourth acquisitions since Tenzing invested in 2021. The strategy is to create a leading SME-focused, full-service accounting firm, using technology, innovation and M&A. The three acquisitions were fully integrated and brought together under the Gravita brand in November 2022.

How were you introduced to the deal?

Our private equity team was introduced to Gravita through Tenzing; we have worked with Gravita since Tenzing’s first investment. It is looking for businesses to complement or bring a new dimension to the service offering, so is targeting different parts of the market. We have worked closely on deals and getting an understanding of the approach with Laura Meaden, acquisition director at Tenzing, and the Gravita senior management team.

What were the timescales?

We were first engaged in October 2022 for the CBW transaction. We looked at the working capital and cash requirements of the business, before kicking off the full due diligence process. The business was trading strongly and, as the winter holidays approached, it was decided that the process would be extended, so our report had to be updated to reflect the latest position of the business. 

DG was a much quicker process – heads were signed in January 2023 –and both deals were announced in May. In the current climate those timescales were not too protracted.

Who were the advisers?

We carried out the financial and tax due diligence, and negotiated the working capital and equity value-to-earnings value bridge. Osborne Clarke provided buyside legal advice. Deloitte provided tax transaction structuring advice. KPMG provided corporate finance advice. The teams worked well together, led by the Tenzing acquisition team. Neither of the targets used external financial advisers. Wedlake Bell provided legal advice to CBW and Patersons Commercial Law to DG.

What were the challenges?

Financial advisers advising accountants on the acquisition of other accountancy firms sounds like a challenge in itself. The sell-side principals hold a large amount of knowledge, but aren’t usually exposed to an M&A process, so more technical items need to be explained clearly. The nuances of each deal had to be hashed out; we had to ensure that no one was assuming knowledge – which could mean important items were overlooked – and understood that the cash conversion and generation of professional advisory service businesses goes straight to value. In previous deals, not being able to obtain clear, reliable data points on this led to aborted transactions.

Small and medium accounting firms rely very much on their partners. Understanding who owns the relationships and the risks a change in control could bring was key. There is increasing consolidation within the accounting market and a general move away from traditional partnerships, but businesses are still heavily driven by the adviser-client relationships. Making sure the new ownership retains these relationships was key to the deal.

Were there lessons learned?

Communication is key. To prevent any misunderstandings that can snowball into problems, it’s important to be available to smooth over any contentious items and ensure that the ‘why’ of a stance is explained, before the ‘what’ is properly digested.