What’s behind Johnston Carmichael’s ‘record’ year in corporate finance?

Johnston Carmichael hailed a strong year in corporate finance in 2021, despite issues caused by Covid-19. We learn what they did differently to outperform the market.

“We saw a good breadth of transactions across a range of industries, we have a good mix of sectors given the size of our business and no overreliance in any particular industry.” This is the short version of how Johnston Carmichael had a bumper year, according to Graham Alexander, partner and head of corporate finance at the firm. 

As Scotland’s largest independent accountancy and business advisory firm, Johnston Carmichael as a whole recorded a 6.2% turnover increase to £54.6m for the financial year ending 31 May 2021 after demand for its services increased. The firm also assisted the completion of deals worth in excess of £300m across the UK and overseas in 2021 as global mergers and acquisitions “hit new highs” last year, with technology businesses playing their part in the surge.

“Across our business there is such a focus, and such a volume, of entrepreneurs developing technology. It’s natural for that to have become quite a big part of our business and our client base,” Alexander notes. There is a “rapid pace of technological development” across the UK and the rest of the world, he says, and a key way in which the firm has implemented technology is by adopting IT and software to modernise its business advisory team – mainly in order to digitalise accounting for clients.

The firm’s auditing department has moved much more online through the adoption of cloud systems and Alexander believes that, ultimately, the ability to communicate and work remotely is the” biggest part” of why performance throughout the pandemic was “relatively strong”.

The historical foundation  

“We have a history of working in the tech sector and we have always had a very strong oil and gas presence. If you bring the two together, we are now seeing an awful lot of technology being delivered into the net zero agenda,” says Alexander. As such, the firm is currently working with businesses looking to develop the technologies that can accelerate the adoption of net zero, from planting trees right to the other end in terms of carbon capture and storage, and the engineering design and planning that goes alongside that.

All in all, the number of announced deals exceeded 62,000 across the world last year, up by an unprecedented 24% from 2020, but how did Johnston Carmichael carve out its slice of the increased activity? The firm focuses on four key sectors in particular: Energy, Infrastructure and Sustainability (EIS), Technology, Food and Drink, and Financial Services. “Our sector focus, the size of the firm, the firm’s brand, and also the strength and depth of the corporate finance team has allowed us to benefit from what was a pretty active deals market last year,” Alexander reveals. The market picked up last year specifically as there was a brief pause once the pandemic struck, he says, but from June 2020, there was a significant uptick in transaction activity as restrictions eased throughout the UK.

“You’ve got companies sitting on cash and private equity investors looking to invest. With the pause in the world economy, there has been a pent-up demand unwinding itself thereafter.” Additionally, the economic outlook is “changing” as the market is being increasingly driven by both rising inflation levels as well as the ongoing crisis in Ukraine. With this in mind, there have inevitably been elements of the business that were less busy than Johnston Carmichael had expected. 

“Across the UK,” Alexander says, “our restructuring insolvency team weren’t as busy as people may have expected, largely due to the variety of government support measures, such as the furlough scheme, the Coronavirus Business Interruption Loan Scheme (CBILS), soft banking loans, and various smaller grant support, all put in place to help businesses trade through Covid.”

According to the Insolvency Service, the total number of company insolvencies registered in 2021 was 14,048, remaining below pre-pandemic levels despite being higher than the 12,634 company insolvencies recorded in 2020. All other types of company insolvencies were also lower than both 2020 and pre-pandemic levels, and the annual number of compulsory liquidations last year was the lowest since the start of the series in 1960. “Perversely,” Alexander notes, “you might have thought there would be an awful lot more business failures, redundancies and unemployment going into Covid, but we’ve seen the reverse.”

But what exactly did the firm do differently last year? Johnston Carmichael added further specialties to the business, as well as expanding the firm’s London office, to further contribute to the firm’s success; for example, it invested “more deeply” into its financial services department. Despite having always been a part of the business, Johnston Carmichael has grown and developed the focus of its financial services to expand its presence in London and be “at the heart of that sector”. 

“People are ever more important, and the last two or three years has underlined that,” Alexander adds. Focusing on the growth and development of the firm’s existing people, alongside recruitment and retention, has also been key for the wider business because “part of the uptick in activity in the last couple of years has meant it has been hard to find the right people”, which has been witnessed across all industries. “Therefore, doubling down on training, development and recruitment has been a big part of our success,” Alexander imparts.

Currently, inflation is the “biggest threat” to both Johnston Carmichael as well as its clients’ businesses as rising energy costs mean people’s pockets will be tightened. Ultimately, Alexander forecasts that this will slow down the economy, presenting the “biggest potential drag” on activity within the next year and beyond. “If you look towards the tail end of this year, it will begin to have more of an impact depending on how long it persists,” Alexander explains. “The situation in Ukraine has created a nervousness about investing in anything that has Russian ties. We have not seen a huge amount of the effect of this just yet, but the longer the issue persists, the ripple effect and the impact will be easier to see tangibly, and that’s going to have an effect on our business.”

With this in mind, Alexander recommends that in order to adapt to the changing economic landscape, businesses must “begin to plan as early as possible and have a regular refresh”. He says this should include conducting a SWOT analysis by scrutinising the strengths and weaknesses of the business and identifying potential opportunities in the market.

“It’s never a one-off exercise. The last two or three years have shown that it’s a very unpredictable world out there, so early engagement and having a broad team with a range of skills and experience helps businesses to run more effectively and prepare for uncertainty.”

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