Now that McGladrey & Pullen has completed its acquisition of RSM McGladrey from H&R Block, the reunified firm no longer needs to say that it operates in an alternative practice structure.

Joe Adams

The firm announced in August that its board of directors had reached an agreement with Block to purchase back RSM McGladrey for $610 million (see Block Sells RSM to McGladrey & Pullen). The acquisition was completed Wednesday. The combined firm has a little over 600 partners and a total of approximately 7,000 employees, with annual revenues of about $1.3 billion.

Managing partner and CEO Joe Adams talked with Accounting Today on Friday about his plans for the firm now that it is back together again for the first time since 1999, when Block acquired the non-attest side of M&P. Adams has been leading the firm since May, but has been with McGladrey since 1979.

So RSM and McGladrey & Pullen are reunited now, right?

Yes, that’s correct. McGladrey & Pullen’s attest practice repurchased the consulting and tax practice from H&R Block. That transaction was closed and consummated on Wednesday, November 30. So we’re one firm and working together now in an integrated way to better serve clients.

What’s the transition going to be like now that you’ve been reunited? How do things change?

We’ll have one team. Strategically it will be a lot easier to get aligned. We had kind of drifted to where we had started to do more strategy by tax, by consulting, and by audit, and now we will take a holistic client view and really work better together so that it’s really about what’s best for the client and let’s not really worry about whether it’s a tax, a consulting or an audit opportunity. Let’s just look at things as a client opportunity and just make sure we put the best people on the client and that we provide the client with the best service. It will reflect right back to the people side. We can now take a better look at our training programs and the development of our people, and really be able to more effectively provide training. I think it allows us to be more efficient. Instead of having multiple divisions, we have one group who is working with all three of our major service lines.

What’s going to happen in terms of offices and people moving from one department to another? Are people going to be relocating or will you be consolidating offices?

We really operated in the same locations even though we were separate businesses. We don’t really see any changes there. There may be people moving around more and people transferring, but that’s more from a business point of view, not an efficiency point of view. It’s really more about where do we need the resources. Let’s say we might need a financial services person in New York or whatever. Hopefully, it will be easier to move people from one location to another to make sure we’re serving clients, but as far as closing of offices and things like that, we really have no plans. In fact, our plans are to grow the business and to add locations.

Is RSM McGladrey going to just cease to exist at this point and it’s going to be just McGladrey & Pullen? Will there still be an RSM network that you’re part of?

Yes, we will own the network so that will be part of McGladrey. RSM legally will continue at least till the end of the year because it’s much easier from an employee payroll point of view, but then it will merge into McGladrey & Pullen as of January 1, and then the network and the alliance and RSM McGladrey will merge into McGladrey & Pullen. We’ve already started to brand ourselves as McGladrey, so it’s a lot easier to do.

Didn’t you also have an international network with RSM?

Yes, we’re still part of the RSM Network and we’re working through that transition as far as the name is concerned.

What’s it going to be like operating more as an accounting firm now rather than as part of H&R Block? How do things change there?

We’re completely owned by the partners now. The partners have put capital into the transaction as well as bank financing. So our hope is that the partners step up more now to really do the things that we need to do to be successful.

So you’re completely separate from Block now? There’s no longer any relationship?

Right, totally partner owned, so there’s really no legal connection at this point. One of the restrictions we had, being partly owned by a public company, is it created independence issues for us. We couldn’t do audits for certain business lines if they owned H&R Block stock. So this really allows us to enhance our financial services industry line, because we no longer have that restriction on the one-share rule, as it’s called. The independence rules around stock ownership precluded us from going after some businesses that owned H&R Block stock, like mutual funds and hedge funds and benefit plans. If they owned Block stock, we couldn’t do the audits, and now that restriction is gone. It opens up the door for us to go after clients that we were precluded from serving before.

Does it also open the door for you to expand your tax practice?

Well, tax is not really governed by independence [rules], so the tax opportunities are the same under the old and the new.

You guys have had some problems with Block over the years and they’ve had their own issues internally. What’s it going to be like to be free of them?

Obviously we had an issue with them a few years ago [Block and RSM McGladrey sued McGladrey & Pullen in 2009 after M&P terminated their administrative services agreement, but they eventually renegotiated the deal]. But we got to where we are now because of the investments that Block has made on our behalf. I’m still a shareholder of Block and will continue to be a shareholder, so I wish them well. From their point of view, this was key to their strategy to focus on their core business, and I think they’re better positioned to be successful in the future. So like I said, I’m still a shareholder and I expect them to do well. I think it was certainly a situation where we both strategically felt this was the time. Even though they’ve done a lot of good things for us, we felt like the time was [right] for both of us to separate, and it worked out well.

They will have some financial benefits as well from the decoupling?

They certainly got paid some cash, so I’m sure they’ll use that to invest in their business.

What was the purchase price?

I’m trying to think of what they disclosed in their 8K. Depending on how you account for it, there are different ways to look at it, but I think they disclosed it was somewhere around $600 million as the total purchase [price], somewhere in that range.

What are your plans now for McGladrey? Where do you see yourselves growing, in particular service lines or internationally?

Yes, I think the big three for us probably are international, private equity firms and their portfolios, and moving up in the SEC world. Then specialty consulting, especially in the transactions area and technology and risk advisory. We just opened an India offshoring office that helps us be more competitive in the risk advisory area, but consulting is where we expect our greatest growth. We’re up over 20 percent in a number of service lines this year in consulting.

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