Price Kong & Co. is a firm on the move - but not literally.

In fact, the Phoenix-based firm isn't physically going anywhere, because it owns the building where its offices are. Instead, it's pursuing an expansion strategy that will bring other firms to it, such as Bernard & Stallman, the two-partner outfit it merged in at the beginning of August.

"We have an ongoing process where we seek out other accounting firms that we think will fit with Price Kong," said managing partner Sam Winheim.

While Price Kong is also promoting internal growth, a number of factors make expansion through mergers and acquisitions particularly appropriate. To start, there's that building it owns, which isn't full yet. "We have adequate space available to expand our firm significantly without incurring higher overhead," Winheim noted.

More important, the firm has already had some experience, and success, in mergers. "We've done mergers twice before, in 1997 and 2002," he said. "We have found it a viable and profitable way to grow, in addition to the organic growth we promote from within."

Perhaps the most important factor, though, is that it has established processes, clear formulas and a strong system, all of which are clearly on display in the story of how it merged in Bernard & Stallman.



B&S was founded in 1989 by Gerald Bernard and Gary Stallman - who had worked together as revenue agents at the Internal Revenue Service - and offered tax compliance and small-business services to over 600 clients. Stallman is a QuickBooks certified professional advisor, while Bernard is the co-author of four books, including a guide to surviving IRS audits for bars and restaurants.

By any measure, it was an attractive M&A candidate. Still, B&S was not specifically looking to sell - "although we were considering various exit strategies," Bernard said - when the idea of a tie-up arose from a conversation between Bernard and long-time acquaintance Tony Kong, a senior partner at PK.

Negotiations began shortly afterward, in March of this year.

For Winheim, the main issues going in were "the quality of staff and the work they do, and the client transition to Price Kong." To address those concerns, "We reviewed several of their files of prior work, knew of their good reputation, and left it at that," he said.

For B&S, the main issues were "the retention of staff and clients, and options for the partners to continue working until their retirement." For their part, "We had discussions with former PK employees and common vendors," Bernard said.

With concerns on both sides satisfied - among other things, all of B&S's professional staff would come over to Price Kong - the two firms were able to complete a set of negotiations that Bernard described as "mutually agreeable."

All in all, Winheim called the process "fairly straightforward. We prepared our standard letter of understanding; executed non-disclosure, non-compete agreements; went through the due diligence process; negotiated some of the details; finalized the contracts and closed on August 1; and immediately moved Bernard & Stallman staff into Price Kong's offices."

Bernard did note that one part of the process was different from what he expected: "Some of the details were more difficult to work out, primarily the integration of the different benefits packages."

For Winheim, the only bump in the road came after the merger was completed: "Given the time of the year, we left B&S on their tax prep software to complete the 2010 extended tax filing season," he explained. "Additionally, we did not integrate them into our computer systems, since we are weeks away from a major upgrade across the entire company and chose not to spend the time to integrate them only to have to do part of it again only weeks later. This has made them something of an island and has made assigning them new work difficult. All of this will go away within the next few weeks once we are all on the same system firm-wide."

Despite the hiccup, he said, "I am not sure I would do anything different if we were to do it again."



And Winheim definitely plans to do it again: "We are currently talking with two other firms, and hope to add one to two firms per year for the next several years," he said.

Those future acquisitions will go smoothly, no doubt, in part thanks to the firm's discipline. "We have a set economic formula that we don't stray too far from," Winheim explained, "and a due diligence process and information that we gather for analysis."

That discipline, and its pricing formula, allows the firm some latitude: "We are not hyper-critical in selecting or analyzing acquired firms, because 90 percent of the purchase price is based on retention, which is only paid on profitable engagements," Winheim said. "Our strong management team, review processes and systems prevent us from incurring any unforeseen problems."

In addition, the firm has ways of boosting revenue from acquired businesses, starting with its financial planning affiliate, Price Kong Financial Services. "We have a very strong financial services division with great penetration into our accounting client base, and we don't pay the selling partners for any new business that comes on the financial services side unless they get licensed and participate in the process," Winheim said. "Historically, the acquired partners are paid in excess of one times annual income for their practices, and Price Kong still makes money because the acquired business expands, since we are able to do so much more for the clients that we ultimately end up with higher billings."

Furthermore, Price Kong pursues economies of scale by minimizing administrative staff and eliminating duplicate software and IT costs.

All of which should help with its goals, which are ambitious: "The strategy is to grow the firm 20 percent per year for the next five years," said Winheim. "This will assure growth opportunities for all of our staff, and keep us independent."

Remember, they own their own building - and they've still got space to fill.

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