CP Deals and our Professional Services team recently brought together Managing Partners, CEOs and senior leaders from top professional services firms to discuss the fast-changing landscape, current opportunities and challenges, and the complexities of executing deals.
As our guests joined us at Ember Yard in Soho, we spoke about the technological advances, economic shifts, regulatory changes and workplace dynamics shaping professional services and how firms approach growth, operations and client service.
The sector nuggets and insights came thick and fast. We’ve picked through them, summarising all the key topics and best bits below.
THE RISE OF AI: OPPORTUNITIES & CHALLENGES
The adoption of artificial intelligence (AI) in professional services was one of the roundtable’s most prominent topics. Its potential to revolutionise how businesses operate is unquestionable, but the adoption of AI doesn’t come without challenges.
The general sentiment across the group was to avoid building AI systems from scratch, and instead, take ‘off the shelf’ solutions and adapt them to your needs.
The implementation of these solutions requires significant investment, which, as the group agreed, needs to be recouped from clients, but value needs to be demonstrated in a different way rather than time spent. A shift to value-based billing is likely but at the same time there were concerns in the room that AI could fundamentally disrupt the operating and economic model of many firms. The challenge is that different businesses will employ different approaches to achieve it.
Another key challenge in the adoption of AI is getting the various tools to “talk to each other” effectively, and despite all the advancements in AI over the last few years, the continued need for human oversight remains clear. AI is not yet at a point where it can replace professionals and indeed for quality control and regulatory reasons, human review of AI-generated work is still essential.
Concerns remain as to how we will develop future talent if AI takes over many tasks historically undertaken by junior staff – avoiding the risk of them missing out on that essential development and valuable experience particularly in the early years.
Overall, it was felt AI could hold the key to narrowing the gap between large firms with substantial resources and mid-tier firms, providing the latter with a stronger “virtual backbench”, enhancing their capacity to deliver more complex and challenging work which is clearly an exciting prospect.
GROWTH & CONSOLIDATION
Amongst the attendees at our roundtable, there was a mixture of PE-backed businesses, owner-managed businesses and partnerships.
All attendees expected further consolidation within the professional services industry to continue over the next 12 months. There was general acceptance that to remain competitive, firms have to have the capacity to invest heavily in technology and attract and retain top-tier talent.
Another key driver for this consolidation is the looming issue of succession. Many firms face challenges in managing generational changes in leadership, with younger professionals keen to receive shorter term rewards in salaries and bonuses rather than longer term capital/earnings growth. This has led to a desire for external capital to fund growth and navigate the challenges of modernisation, whilst enabling senior leaders to have a clearer approach to retirement from businesses they’ve founded and led, creating great value along the way.
CHANGES TO EMPLOYERS’ NIC: THE IMPACT
Another key theme was the impact of the changes to Employers’ National Insurance contributions (NIC) announced in the Autumn Budget. These will increase by 1.2% to 15% from April 2025 as well as lowering thresholds, and the roundtable discussed the potential impact on future earnings.
Could these increased costs be passed onto clients through fee hikes? While opinions varied, it was clear that this shift would have significant implications for profitability, particularly for professional services firms.
The group acknowledged that many firms are still grappling with how to manage these changes. They could increase the pressure to raise fees, but they could also fuel further consolidation within the sector, as firms that are unable to absorb these additional costs will struggle to remain competitive, and larger firms could take advantage by acquiring smaller players thus leveraging scale.
MINIMUM WAGE CHANGES & TALENT RETENTION
The impending increase in the minimum wage to around £26k for employees with a lack of experience is unlikely to push salary expectations up across the board, the group discussed, particularly for qualified professionals.
Everyone agreed that it feels like there continues to be a shift in workplace expectations occurring, and professional services firms need to remain agile in developing their talent strategies to ensure they stay ahead of the competition by attracting and retaining the best people.
While competitive salaries are important, it’s a focus on employee wellbeing and work-life balance which is critical, particularly in high-stress environments and industries.
THE CASH FLOW CRUNCH
The roundtable felt a “cash crunch” could hit smaller professional services firms following the changes in National Insurance and minimum wage announced on 30 October in the Budget.
This situation could lead to some firms having to call on partners for additional capital, and firms in precarious financial positions could also face a flight of talent as employees and partners seek more attractive opportunities elsewhere.
Again, these trends could lead to further consolidation in the industry. Smaller firms might be forced to merge in order to survive, which could present opportunities for larger, more established firms to grow through acquisitions.
LEADERSHIP MODELS: PARTNERSHIP VS. CORPORATE
As they look to scale and grow, more and more firms are recognising the need to create more scalable corporate structures. Firms are increasingly looking to build scalable infrastructure as well as shifting leadership from a traditional partnership approach to a more nimble corporate style of leadership.
Private Equity is playing a major role in this shift, with many opting for more scalable platforms that allow for greater agility, better access to capital and a more streamlined approach to operations.
CULTURAL ALIGNMENT POST-INTEGRATION
Our roundtable also discussed the complexities of post-deal integration. Retaining culture is challenging but it’s a key differentiator in attracting and retaining talent.
Managing culture through deals is a delicate process. It requires a clear strategy to align teams, processes, and values, and it can take 12-24 months to see the benefits.
Successful integration requires a strong communication strategy, and many firms are turning to culture surveys and feedback from employees to ensure the transition is smooth and any detractors are managed effectively.
LET DOWN BY LABOUR?
There was a strong sense among our guests that business owners had been “let down” by the Labour Party’s Budget and policy shifts.
While the changes to Capital Gains Tax (CGT) were not seen as an immediate concern, there was a nervousness that this might signal further tax hikes to come over the current parliament.
THE PROFESSIONAL SERVICES OUTLOOK
In what was a fast-moving, discussion-packed roundtable, the general consensus on professional services remained clear.
There are significant opportunities for firms that can innovate, adapt and invest in the right areas – be it through technology, culture, or leadership. And as we look ahead, consolidation and collaboration are likely to define the sector, with firms that can navigate changes including AI, tax rules and labour market dynamics being well-positioned for long-term success.
