by Seth Fineberg

Columbia, Md. -- The recent purchase of two bookkeeping and tax preparation services from accounting consolidator CBiz Services Inc. by Fiducial is a tale of two businesses moving in different directions -- one aggressively trying to expand, the other streamlining.

Still, neither business is exactly where they would really like to be.

In December, Fiducial, a global provider of professional business outsourcing and financial services to small businesses and professionals, signed a definitive agreement to acquire two business units from CBiz — one in Arvada, Colo., the other in Houston.

Terms of the agreement were not disclosed, but the acquisition adds 350 business clients and 300 individual clients. It also allows Fiducial to expand its operations into two potentially high-growth markets for the company.

Fiducial was able to take advantage of the fact that CBiz has been looking to offload its tax preparation and bookkeeping businesses, which fit into Fiducial’s ongoing efforts to build a national network of offices in key market areas throughout the U.S. These targeted markets also include Portland, Ore., Seattle, southern California, Baltimore, and northern Virginia.

“These businesses are a significantly good fit with us as they came from the original, core accounting and financial management system,” said Bill Mor­ice, Fiducial’s director of field operations. “As for location, they mark the anchors of two new districts for us, that being Denver and Houston, where we are actively pursuing other acquisitions.”

Fiducial is keeping the original staff from the two locations, eight in the Arvada office and 11 in Houston. They have also added sales and telemarketing support to help those businesses grow, and are recruiting financial service representatives for both locations.

Morice also noted that Fiducial is looking into acquisition opportunities in Florida, Chicago and Wisconsin, which could happen in the next few months.

In November 2000, CBiz sold off its Mission Viejo, Calif.-based Century Small Business Solutions — the franchiser that had owned the tax and bookkeeping businesses — to Fiducial for approximately $5.4 million.

In June of that year, the company also sold its risk-bearing insurance division for $31 million to ProFinance Holdings Corp., the Columbus, Ohio-based holding company for the Century Insurance Group.

The latest purchases are the last two remaining units that were under the CSBS umbrella. They bring Fiducial’s franchise network to 26, though Morice believes that Fiducial is on track to achieving its goal of establishing a network of from 100 to 150 franchise offices throughout the country by 2005.

Morice said that he had been aware of the recently purchas­ed units since the original CSBS acquisition in 2000, but Fiducial did not buy them until now because they were not quite ready to expand into those markets. Morice served as vice president of CSBS before it was acquired by Fiducial.

“Now that we have our core established, we can buy firms that specialize in any one of these areas,” Morice said. “We can add tax prep or others, as we now have core write-up work established and we will be looking for other firms in all of those product lines.”

CBiz, meanwhile, began a major reorganization back in 2000 in a move to streamline its business to focus primarily on insurance and accounting. This recent sale marks the last of its tax and bookkeeping units, which had been making money but were not considered part of CBiz’s “core strategy,” according to Len Miller, vice president of accounting, tax and advisory services at CBiz.

“We have totally turned around the company in the last three years and put together a national attest practice [Mayer Hoffman McCann],” Miller said. “We now have a company focused on insurance, business valuation, technology consulting and accounting. These are all things that can leverage off each other.”

Miller also said that CBiz is not actively looking for acquisitions in insurance and accounting unless they “find a firm in cities where we want to be or have a need to complement those businesses.”

Analysts believe that both CBiz and Fiducial are on a good path, but still have much work to do. CBiz has been able to write down some of its debt and recently posted positive revenue numbers.

Its debt at the end of its third quarter was $23 million, compared with $25 million for the third quarter a year ago. For the nine-month period ended Sept. 30, 2003, CBiz reported revenue of $390.1 million, an increase of roughly 3 percent over the year-earlier figures.

“Their numbers are looking better, but they still have to try and get the company to act as one,” said Jim MacDonald, a securities analyst with First Analysis Corp. of Chicago. “They really need to beef up their national practice. They’re not doing much at all with payroll, and other areas like accounting and technology consulting could do better.”

“Up to now it’s just been ‘tuck-ins’ in cities they have been in, but they haven’t really been in expansion mode,” MacDonald said. “They’ve been fixing troubled situations and could do more financially.”

As for Fiducial and other roll-up firms like them — including Centerprise, H&R Block and American Express Tax and Business Services — some believe that their strategy may have to change in the near future. “The consolidator concept model has proven it doesn’t work and, because of that, you may see a lot of companies buy themselves back from their parent,” said Allan Koltin, president of practice management consultant PDI Global Inc.

As to the most recent deal, Koltin believes there are both positives and negatives. “Fiducial would ar­gue that they do have a business model that has been proven in France, but whether it works here remains to be seen,” he said. “On the positive side, CBiz has done a great job of eliminating fat and overhead, and brought down a tremendous amount of debt. I would keep an eye on their organic growth, though.”

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