It would be hard to envision a more active climate for mergers and acquisitions among CPA firms than 2010, a year highlighted by such marquee unions as RSM-Caturano, Eisner-Amper, Marcum-Stonefield Josephson and LarsonAllen-LeMaster Daniels.
However, both industry watchers and CPA firm executives opined that last year could serve as just a mild preview for 2011, which is expected to witness an accelerated flurry of firm mergers.
"The number of mergers over the last four years has increased each year, despite the economic conditions," explained Allan Koltin, chief executive of Chicago-based consultancy PDI Global and one of the most active brokers of CPA firm M&A. "It's safe to say that mergers and acquisitions have now become an accepted growth engine, similar to that of organic growth and development of additional products and services."
"We've seen a significant uptick in the number of transactions involving accounting practices, whether in the form of mergers, acquisitions or consolidations," echoed Steven Berger, a shareholder with New York law firm Vedder Price and architect of a number of firm mergers. "The consolidation market is likely to continue at a healthy pace, although look for the deals to be structured more conservatively, with both sides having a stake in assuring the success of the transaction."
WHAT FIRMS SEE
Milwaukee-based Clifton Gunderson has been one of the more active firms in terms of M&A over 2010, closing five mergers since May 1, including, most recently, Humes & Barrington of St. Louis.
"There's a lot of opportunity out there," said Clifton chief executive Krista McMasters. "The economy was so strong for so long that a lot of firms delayed critical decisions such as succession and resources. Strategically, we look at markets we're currently in, get a lot of research and analyze it. Then we narrow it down to firms that we're interested in and then look for the good culture fit and try to bring in the people that match ours and are willing to abide by our infrastructure. We're now leveraging our [regional] managing partners to get involved in the M&A process."
In November, cbiz - one of the original players among the accounting consolidators of the 1990s - and its affiliated accounting firm Mayer Hoffman McCann acquired Kirkland, Russ, Murphy & Tapp, of Clearwater, Fla., expanding the firm's presence in the state. cbiz, a publicly traded company, acquired KRMT's non-attest practice, while MHM acquired the attest practice.
Earlier in the year, the firm acquired South Winds, a Baltimore-based retirement consulting firm, which does business under the name Benexx and provides 401(k) and other qualified retirement plan services to over 400 small and midsized companies nationally.
"In 2005 and 2006, when things were going so well, I believe that people deluded themselves into thinking that it was going to go on forever," said Dave Sibits, president of cbiz Financial Services. "But when the tide goes out, you see what's at the bottom of the harbor, and now you're forced to look at alternatives like mergers. Adding to that is that the Big Four firms have returned to the upper end of the middle market, and now pricing and competition for services becomes an even bigger issue. Some firms just are not able to compete."
Sibits said that cbiz scours for both specific locations and services in potential merger partners. "If we want to be a national firm, we need to be in specific locations, and whether that partner has a service that can be leveraged across our company. Let's say we're looking at a firm with a strong not-for-profit practice, we can use that presence to grow our NFP [practice] in our other units. International tax practice would be another example. We want to make sure the people in the locker room want to be there. We just don't want to acquire revenue, we want the best of the best. We want that national recognition."
New York-based Citrin Cooperman has also been lighting up the M&A scorecard, engineering a total of four mergers since November 1, most recently with Wlodinguer, Erk & Chanzis in New York, and Rose, Dratch & Gilbert in Springfield, N.J. "We have been very active over the past 10 years because we saw how mergers could benefit all sides, including the clients, and we felt that a large number of practitioners would be looking for exit strategies given their ages, the complexity of the industry and the cost of infrastructure," said managing partner Joel Cooperman. "We intend to continue to be active in 2011."
At Troy, Mich.-based Doeren Mayhew, managing partner Mark Crawford revealed that traditionally, the firm's mergers had been small local shops and sole practitioners that had outgrown their available resources, until the firm made the decision to expand its Texas footprint - which had consisted of a truncated two-person Houston office - by merging in T.R. Moore of Houston.
"Our strategy has always been the single office, as we're one of the biggest single-office firms in the country," Crawford explained. "If we were to grow outside our core market, it had to be something bigger, like Moore. The idea is not to grow just to grow. Good firms like Moore keep us relevant with our clients. Eventually, we'd like to have a 200-person Houston office like we have in Troy."
STORM WARNINGS
Like others, Crawford views 2011 as a heavy year for mergers: "I think it's the perfect storm. All the statistics show that the Baby Boomer partners are getting to their mid-50s and 60s and have to start thinking about succession. A lack of succession planning combined with a lack of qualified candidates coming through the ranks will have a lot of firms looking at mergers. For example, the practices with 20 to 40 people are in a tough world today in terms of resources needed to compete. I don't know how they do it."
Even a firm like Grant Thornton, which for years had eschewed M&A in favor of organic growth, closed on a merger deal in 2010. The Chicago-based global firm acquired the disputes and investigations practice of Huron Consulting, adding 60 professionals to its economic and advisory services units in Boston, Chicago, New York and San Francisco.
"We won't do M&A just for M&A's sake," said GT CEO Stephen Chipman. "Our merger partners truly have to believe that they will be more successful as part of our organization than they would be on their own."
"The reality is that many firms, whether local, regional or mega-regional, have figured out how to dissect what firms would be successful in their organization, and have done an equally great job of integrating them into the practice," said Koltin of PDI. "Some firms are getting so good at M&A that the timeframe has dropped dramatically. It used to be a one-to-two-year discussion for a transaction to take place. In 2010, I witnessed deals that were accomplished with a three-to-four-month window, and one actually took place in less than 90 days."
