Everyone, grab your partners
BY BILL CARLINO
With more than two dozen unions lighting
up the M&A scorecard in the span between
October and the holidays, and scores of others scattered liberally throughout the year,
CPA firm mergers may have hit a high water
mark in 2011.
Though blockbuster combinations such as
Clifton Gunderson-LarsonAllen (which created a $550 million firm with 80 offices and
3,600 employees), Dixon Hughes-Goodman
(a near-$300 million firm with 1,700 people),
Burr Pilger Mayer-Windes McClaughry and
Grant Thornton-CCR dominated the headlines, smaller deals involving firms such as
WithumSmith+Brown, Moss Adams, CBIZ,
Henry & Horne, Lewis & Knopf, Friedman,
and even Canada-based MNP — which swallowed up a series of small practices throughout the provinces — contributed to the frenetic pace of firm consolidations in 2011.
But if you thought that last year kept M&A
watchers busy, experts predict that 2012 will
be even more frenetic in the M&A space for
CPA firms.
“We not only expect it to continue, it will
probably escalate substantially,” predicted
Dave Sibits, president of CBIZ Financial
Services, which in July signed a deal to ac-
quire the non-attest business of Thompson
Dunavant, expanding the firm’s presence to
Memphis, Tenn. “If you look at the reasons
so many firms are dancing with each other,
it’s that people are beginning to recognize
that being a mile wide and an inch deep is a
tough way to grow.”
Allan Koltin, chief executive of Chicago-
based Koltin Consulting Group — who was
involved in more than 30 merger discussions
throughout 2011, one third of which came to
fruition — said that M&A activity over the past
five years has increased each year, despite the
past recession and still-uncertain economy.
“It would have seemed logical that buyers
would have been more internally focused
and sellers would have put selling on hold
until their numbers improved, but, surpris-
ingly, both groups continued to engage even
during some of the most difficult financial
times,” he said.
“CPA firms find themselves with shrinking
margins and realization rates and significant
downward rate pressure,” explained Steven
Berger, a shareholder with the law firm of Vedder Price and a veteran of helping structure
Firm M&A is expected to boom even more in 2012
CPA firm mergers. “To remain competitive,
firms are forced to adopt new technologies
which come with sizable price tags. Manag-
ing partners find themselves with a distinct
lack of capable successors. Retiring partners
are losing confidence in the ability of their
firms to survive in longevity, which, in turn,
casts doubt on the viability of their retirement
packages. And with the adoption of mobility
statutes in 47 states, it’s easier for out-of-town
firms to establish local beachheads by acquir-
ing offices and practice groups. By the end of
2012, there are likely to be more consolida-
tions, geographic expansions and absorption
of smaller firms than there have been in the
last several years.”
Sibits of CBIZ revealed that his firm would
be aggressively pursuing deals in 2012.
“We start with identifying the best of the
best and which firms would we like to talk to.
We did that with Tofias [which CBIZ acquired
in 2008]. We also look for firms who may not
have a reason to sell other than they perhaps
want to be part of something larger. But we’re
doing acquisitions as opposed to mergers.
We’re actually writing a check.”
“If you just talk to the [M&A] brokers, 2012
is going to be very active,” echoed Lou Fuo-
co, managing director of CPA and business
advisory firm Fuoco Group, with offices in
New York and Florida. “One of the keys is the
Baby Boomers are getting ready to retire and
are thinking, ‘I built this value and need to
find a way to maximize this value and retire.’
So there’s either internal or external succes-
sion and internal succession could take up
to three-to-five years. When you’re talking to
small and medium-sized firms, many times
there’s no second tier of labor behind them to
take over, so sometimes their only exit strat-
egy is a merger.”
Fuoco, who explained that he receives up
to six e-mails a day from prospective sellers,
looks seriously at roughly four or five deals
a month.
