Wednesday 16 October 2019

Banks won't call all the shots during insolvency

Soft spoken accountant wants to break the grip of the bigger institutions. Smaller companies don't have the reputational baggage associated with the 'big four', writes Donal O'Donovan

Donal O'Donovan

Donal O'Donovan

Grant Thornton's managing partner Paul McCann comes across as laid back but the soft spoken accountant is a man with a mission.

As he unhurriedly talks through the firms' multi-faceted expansion strategy, the mission gradually reveals itself.

He wants to break the grip the 'big four' firms of Deloitte, Ernst & Young, KPMG and PWC have on winning the biggest and most interesting mandates.

A focus on developing niche expertise while growing the overall scale of the business is making that a reality, he says.

Not only should Grant Thornton be in the mix but when it comes to work for the regulatory authorities it should be first choice, he insists.

That's because the firm did not audit the accounts of any of the big banks in the run up to the bust, here or abroad.

"People see the history, KPMG was the auditor for Halifax Bank of Scotland in the UK, Ernst & Young was the auditor for Lehman Brothers and for Anglo Irish Bank here. KPMG was Irish Nationwide Building Society's auditor," he points out.

Smaller firms like Grant Thornton were never able to compete in those big audit jobs. Paul McCann says the fact that they weren't looking at banks' books in the boom should stand to them now.

"We have no reputational baggage," he points out.

"We can do large scale work. Maybe we couldn't in the past but we certainly can now.

We are the same size today that Ernst & Young was ten years ago. There are very few assignments we cannot do," the Dubliner points out.

The insolvency man took over as managing partner last year from Grant Thornton Ireland's long-standing boss Paul Raleigh.

McCann trained at KMPG. Both he and wife Donna Treleaven joined as trainees on the same day.

At Grant Thornton the strategy is to position the firm as a credible alternative for business managers across the full range of services, but also as the go-to provider for niche services including forensic accounting, restructuring and personal insolvency.

The firm has offices Dublin, Limerick, Galway and Newbridge, Co Kildare.

An office in Cork would boost claims to national status. Without it the claim would ring hollow.

A combination of mergers and organic growth has seen Grant Thornton expand from 30 staff in 1998 to 480 today.

"We want to grow, but grow clever," says McCann.

"Any expansion should deliver in terms of getting us into a new sector, growing the overall size of the business or bring in a new specialisation," he says.

McCann cites the forensic teams led by Paul Jacobs, a leader not only in Ireland but across the Grant Thornton affiliates worldwide.

The bust has seen a demand from the banks and the likes of the National Asset Management Agency (NAMA) for Jacob's teams' ability to trace assets such as yachts and overseas property owned by debtors, and crucially to actually recover those assets for secured lenders.

"We won't win by competing directly with the 'big four' but we do win where we go deep into segments and make them our own," says McCann.

In the same vein Denise O'Connell, one of the six Limerick partners at Grant Thornton has developed a specialism in advising credit unions.

Assignments

Core company assignments remain a huge focus. McCann sees the emergence of a raft of start up companies in the high tech and life sciences areas as an opportunity to develop long term business.

"The ideal is to develop a trusted advisor relationship with the business and its owners."

For McCann that starts with company secretarial, tax and audit services.

"We develop new touch points for every service we provide and that pays off for all sides in deeper and deeper knowledge of the clients business."

"Hopefully through the life cycle of a start up you build from there, advise on how to raise finance, acquisition due diligence if they are buying and selling businesses," he says.

If the start up succeeds and the principals sell up they might well become clients in their own right in terms of tax planning and future investments, he explains.

In the current market distress is at least as common a scenario as success.

Paul McCann's own background is as an insolvency practitioner.

He is gung-ho about the arrival of the new class of US private equity investors who are sometimes dismissed as "vultures" gorging on the remains of the boom.

"The fact that the big US guys are here is positive. Capital is coming in, but at the upper end of the market," he says.

That's a change from the initial phase of the bust when banks were seizing assets by appointing receivers, but transactional activity ground to a halt.

Concept

"I just don't understand this concept of people holding assets that are under water. The thing that has to be done is to get assets to young entrepreneurs," says McCann.

"Assets have to be worked and outside capital is now cleansing the system," he says.

Grant Thornton's big insolvency business means the firm works closely with many of the increasingly well known US names.

"The good thing about them is they are totally unemotional. They place no value on personal guarantees for example, from what we have seen they just don't pursue those debts and why would they if they bought in at 20 cent in the euro," says McCann.

Many of the outside investors have been hoovering up property deals but McCann names Gordon Brothers as a firm rehabilitating a "real" Irish company after buying Clerys last year.

"Clerys is a turnaround story. It is now trading well after being taken in hand with a combination of expertise and investment."

Distressed investors have bought relatively few such trading assets since the bust, however.

It's a matter of scale says McCann. Foreign capital is really only looking at deals where the earnings are greater than €10m a year.

Where that is missing there is an opportunity to manufacture scale he points out – for example by buying up individual pubs, pharmacies or motor outlets and putting them together to create scale, he points out.

At the other end of the scale entirely, Grant Thornton is planning a major push into the new work of Personal Insolvency Practitioner (PIP).

PIPs will act as mediator between banks and debtors using the new personal insolvency regime

Paul McCann is not expecting the floodgates to open when the new regime is launched.

"It will start slow. No one will file unless they have a friend who has been through it. It will be a snowball rather than a flood, "he says.

He rejects the idea that banks will effectively control the process for individual borrowers, by having a veto over final debt settlements.

PIP role

"The role of the PIP is to put manners on both sides, PIP will take their fee from the assets," he says.

"Banks will not have it all their own way. If I am acting as a personal insolvency practitioner I have a duty to act fairly. Under the rules banks cannot vote against a scheme if it is fair," he points out.

If they try, practitioners will be able to call them up on it, he says.

For individuals facing insolvency the decision whether to file here or go abroad for a relatively easier or shorter regime will come down to their own priorities.

"Insolvency of up to five years here is a long time but it has to be set against the difficulty of moving with kids and a family. There is a trade-off in terms of the sacrifices."

A new regime to cleans personal debt is needed he says.

"People need to see an end at some point. Companies can do it so why can't people."

Irish Independent

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