Ally Scott admits that until recently, Big Four accountancy firm EY did not have a great reputation for dealmaking.
That was something he was determined to change when he joined as head of transaction advisory services nearly three-and-a-half years ago.
“From a personal contribution point of view it’s been the main thrust of what I’ve been doing up until recently and that was very deliberate,” he says.
“EY would have been famous for having, and thankfully still has, a fantastic financial services business, a really strong audit client base, a super oil and gas business focusing on multinational corporates and big tax clients in the North Sea.
“We wouldn’t have been famous for being dealmakers in the market. Most market commentators would recognise that statement.
“That should never have been the case for EY given the strength of its brand and given that we were one of the biggest financial services employers in Scotland. So we wanted to set about changing that.
Change that, they did – fast forward to August last year and Scott was on stage at Insider’s Deals and Dealmakers Awards, picking up the award for Deal Team of the Year. Our independent judging panel gave the award because Scott and his team had been involved in almost all of the significant deals in the previous 12 months of the judging period.
Scott says that the goal to change EY Scotland’s performance in dealmaking has been achieved but he goes on: “No complacency at all here, we continue to drive our position, we’ve made early steps. It was nice to have the strategy validated by the Deal Team of the Year Award.”
On the back of that performance, Scott was made managing partner of EY in Scotland in July in addition to continuing his role as head of transaction services. He explains that he “wears three hats”.
“There is the managing partner responsibility, head of transactions – a leadership role across our transactions business – and then corporate finance partner leading on CF engagements, which could be everything from fundraising to helping companies to buy other companies or helping shareholders to sell business. That’s more the day job.”
He now has responsibility for driving the continued growth of EY’s business in Scotland. He says: “The principal focus is to look outwardly to the Scottish market rather than inwardly to EY.
“It’s pretty obvious but it’s often something that’s lost – the answer to improving your market position is out in the market, it’s not internally looking at a screen or looking at a spreadsheet.
“So developing a lot more relationships in the market, demonstrating that commitment to dealmaking has been really important to us.
“Clearly we have been attempting to and it started with me bringing in individuals who could enhance our relationships within the market, those who have had long-term relationships, trusted relationships with corporates, investors, shareholders, management teams within the market and then collaboration within EY.
“When you have this eclectic mix of businesses within an professional services organisation, it’s tempting to stay in a silo and not talk to each other. We don’t think that is beneficial for us or for clients. We want to take clients everything we have to offer in EY.”
EY’s wider growth drive in Scotland seems to be working, with the firm reporting fee income up to £2.45billion from £2.41billion in the year to June 30.
It grew its revenues in its transaction advisory services and tax businesses by nine per cent and eight per cent respectively. But its advisory revenues declined by three per cent and its assurance revenues by five per cent in what has been a challenging business environment.
Scott says the firm was happy with the UK results. “We made some investments in the business in FY 19, which is important to the business for long-term sustainability, so that impacted slightly, but overall growth was good and continued growth in our assets and pipeline is really strong.
“At a Scotland level, we continued out of differential growth from the UK, which has been pretty consistent for the last seven years. Again we’re investing in a responsible way but in a material way in our Scottish business to continue to grow.”
He explains the strategy that has achieved the results. “A lot of what we’ve achieved has been on the back of advanced focus on collaboration internally and taking ideas to each other’s clients and creating conversations in the market, making connections, trying to make investment happen, trying to make deals happen.
“We’ve created now a momentum which is exciting. We’re close to two or three other major completions at the moment, which would close off our half-year really well in the transaction space. Again we’re really encouraged by our pipeline.”
The approach and particularly the decision to invest is interesting given the fact that many have predicted a rocky time ahead.
“That’s a judgement on the market,” Scott says. “Clearly it takes a bit of time to attract talent in the market, it takes a while to build technology assets, it takes a while to reposition your proposition in the market.
“You can’t keep waiting for things to happen and waiting for the economy to dictate the extent to which you invest. We have a real conviction about our brand at EY and our proposition and that helps create the confidence to continue to invest on a sustainable basis.
“When there are geopolitical events, and Brexit in this case dominating the headlines, we take a really good read from our client base on what CEOs are thinking, what CFOs are thinking.
“We have an Attractiveness Survey, we look at foreign direct investment, we have a Capital Confidence Barometer where we look at propensity to invest in the market. All of that helps to inform our own decision-making around our investment thesis.
“In Scotland, we’re putting capital behind the economy in terms of job creation and in terms of helping to create and inform better decision-making across our client base.”
It is the breadth of the client base as well as the service offerings that give EY it’s strength, Scott says. “The beauty of having a portfolio business, which is essentially what we have, is that there is a bit of a hedge and more diversity in our revenues.
“What we’re hearing in our assurance business could be different from our tax business, our advisory business, our people advisory business and our transactions business.”
One area of activity has been in providing consultancy advice on the substitution of supply chains as client businesses do their Brexit contingency planning.
He says: “In transactions, we use the term portfolio transformation. That’s definitely become a theme with some of the larger corporates in Scotland. We’ve seen that in Weir Group – a major acquisition in the US which we supported, and diversification in the UK, which we supported.
“It is all about focusing on what they’re good at, what their core proposition is. Similarly, SSE’s disposal of a water utilities business, we supported them on that.
“With growth a little bit harder to come by, what we see is boardrooms, rather than putting off a decision on whether to invest or divest, much more focus on corporate strategy.
“Menzies is another example of that. Again, we supported on that. After years of thinking about it at every set of results, it finally decided to move on with the separation of aviation from distribution.”
Another area of the business which Scott describes as “a major growth engine of our results” is its people advisory business.
He says: “I’m really confident about continued growth. With millennials coming into the workplace, we need to attract, retain and develop the very best skills in the market.
“Our people consultancy business benefits tremendously from corporate demand for more insightful advice on how to reposition people strategies. People, skillsets, human resource, human capital are increasingly seen as a key driver of growth in a more challenging market.”
It is a market that has become more acute with the affects of an ageing population, a decline in the numbers of EU-origin nationals due to Brexit and demands caused by the new wave of disruptive technologies.
Scott says: “In any business where input costs increase, there is a concern about migrant labour and the reduction of migrant labour in certain sectors in the economy we support. So healthcare and hospitality & leisure would be two examples.
“We have really deep client bases in these sectors and they are impacted by migrant labour, increasing labour costs generally, demand for more flexible working, increased competition for labour, relatively low unemployment in Scotland – touch wood that continues – but it does mean there’s more demand for more efficiency in the workforce.”
Scott says that EY has itself done a lot of work on attracting, retaining and developing its own workforce and creating a much more welcoming environment for employees at every level.
“Something we’re very proud of at EY is our approach to diversity and inclusiveness – globally but certainly throughout the UK. In Scotland, we’ve made deep efforts on that, particularly but not exclusively around gender over several years.
“What I have achieved in my five months since taking on the managing partner role is that two-thirds of my Scotland board is female. We have females leading assurance, people advisory, advisory and tax
in Scotland.
“I lead transactions and Derek Leith leads our oil and gas business – that’s the make-up of our board. It’s female-dominated and highly efficient and effective, so it’s terrific.
“Sixty per cent of partners promoted in the last five years have been female and we’ve put a lot of effort and focus into our partner pipeline. Again there is really good diversity across our partner pipeline.”
Scott says that this has been a significant factor in the growth of EY Scotland’s people advisory business. “I think that’s what’s making our culture around the advisory support we give to colleagues so successful, because in some respects it mirrors the culture we’ve created in EY.”
Looking forward to what the rest of this year will bring, I ask Scott what he thinks about the prospects for mergers and acquisitions activity given a perceived pause before the turn of the year as businesses waited to see what would happen with Brexit and whether the wave of disruptive technologies would affect deal flow.
Scott says: “We’re really encouraged by what the Capital Confidence Barometer has told us about the future outlook from mergers and acquisitions.
“You’re right that there has been a little bit of a pause for breath. Usually what happens is that corporates build up cash on their balance sheet and investors like private equity houses have a lot of dry powder to
be invested.
“We do see this and, to the extent that there is any downturn, we would see that as a temporary pause through the election, question mark Brexit what’s next and then back in the new year we would expect renewed focus on deal activity.
“Technology has been and we think will continue to be the main driver for deal activity in 2020 and probably beyond. This is about portfolio transformation, corporates acquiring technology assets to enhance their core proposition – that’s a key driver of activity.
“We also see private equity working harder to get value for their partner investors and their funds.
“The days of being able to buy low and sell high, with bit of financial engineering in between, for private equity, that’s long gone.
“There’s a lot more professional hard work applied on the way during an investment to add value through operational management, through acquisitions, through technology and by transforming businesses and making them more valuable and sustainable. We’re seeing a lot of that.
“If you ask CFOs what’s on their agenda, and I’m contrasting this to even five years ago – they talk about roles like CTO [chief technology officer], roles like the CIO [chief information officer]. These are roles and responsibilities that traditionally might not have been thought about five years ago.
“Hiring talent to drive the agenda on technology, information and data is really high up on the agenda now and in terms of prioritising investment in a market where disruption – there’s a word that wouldn’t have been used five years ago – is part of the narrative now, to ensure you’re not left behind as a traditional corporate player.
“The way we see it is that capital is being prioritised towards these sorts of solutions.”
Scott’s previous role before he joined EY was leading Barclays’ activity in Scotland as managing director of corporate banking for Scotland and Northern Ireland. What was the move like from a high street bank to a Big Four accountancy firm?
“I was hoping to leave some of the regulation behind” he says wryly, “but that’s crept up on the accounting industry as well now.
“But there are some remarkable similarities. I was frontline banking for most of my career in corporate and in finance, lending rather than advising, but it’s not a lot different.
“I’ve shuffled round the deal table a couple of seats but we’re talking about the same deals. Again, relationships matter and the client-centric nature of what I did in my banking career is very similar to what I’m doing here. Most of my time is spent with clients, so that’s remarkably similar.
“Now, in a leadership sense, there are deep similarities. In fact, it’s more similar to the country head role that I was in in Barclays. That leadership role is essentially about getting a drumbeat in the business across a real eclectic mix of different services we provide clients with but to have that collaboration across the team.
“To make sure that we’re going to market in a collegiate way, to ensure that we are to the fullest extent possible delivering for clients with some of the technology assets we have and some of the services we have, looking after our people, attracting the best, preparing and developing our people, providing a place to work that enhances the experience that people have during their time at EY – that’s really important to us.”
