In looking at our newswire coverage during the past several weeks, I noticed a trend. The urge to merge has hit CPA firms across the country. Whether it's about getting bigger to better compete, strengthening a niche, finding qualified staff, solving succession issues, expanding their geographic footprint, or a combination of any of the above factors, CPA firms of all sizes are joining forces.
We've reported on a half-dozen mergers since the start of December. The unions involve firms of varying sizes and geographies, but the bottom line is that all are aimed at better competing in the fast-changing environment in which firms are operating.
For example, Midwestern super-regional firm Virchow, Krause & Co. kicked off the New Year by expanding its Detroit area presence with the merger of Zalenko & Associates PC, a $6 million firm based in Southfield, Mich. VK picked up one office and 35 employees, including eight partners.
The deal, Virchow Krause's fourth since July 2004, is part of an "aggressive growth strategy" planned for the Detroit market, according to VK chief executive Tim Christen, who said that the firm's goal is to have more than 200 employees in Detroit by 2007.
Meanwhile, The Rehmann Group, based in Saginaw, Mich., which ranks among the 45 largest firms in the nation, also set its sights on expanding in Detroit. To that end, the firm added Perrin, Fordree & Co., a $5 million, 38-employee firm based in Troy, to its fold.
Another top-ranked regional firm, Horne LLP, bolstered its staff, expanded its Tennessee presence and strengthened its health care niche by merging in Jackson, Tenn.-based Crain & Co., a $2.5 million, 30-employee firm that also specializes in health care services. Horne executive partner Hugh Parker told WebCPA that the main driver in that deal was "the quality of the people."
For like-sized Reinsel & Co. LLP, a $10 million, 18-partner firm, and Kuntz Lesher LLP, an $8 million, 10-partner firm, getting bigger, finding staff and strengthening their local footprint were all factors in their decision to unite.
The two Southeastern Pa.-based firms "were having a lot of the same frustrations," according to J. Andrew Weidman, who serves as chairman and CEO of the combined firm, Reinsel Kuntz Lesher LLP. As many large national firms were deciding that they wouldn't provide some services for certain clients or were conflicted out, Weidman said, "We didn't feel that we were getting a fair shake at those opportunities because we were a little too small."
The firms both primarily served closely held businesses and had clients in the construction, manufacturing, retail, wholesale, real estate, governmental and not-for-profit industries. Via their membership in the RSM McGladrey Network, they also had operational similarities that made merging easier. For example, they used the same audit methodologies and workpapers, and the same tax software.
Weidman said that the union will also help the firm recruit new talent: "There's a perception that a bigger firm has the ability to give better experience and more opportunity." He may be on to something -- the firm has already hired five new employees since merging on Jan. 1.
For Providence, R.I.-based Kahn, Litwin, Renza & Co., merging in Casten, Victor & Co. gave it entrée into Newport and strengthened KLR's not-for-profit and distribution niches. The move also expanded its services by bringing the firm expertise in hospitality and retail.
"This gives us a physical location in a market that we wanted to be in. Also, their industry niches help to expand our services. We can expand our service lines into their client base in Newport and grow our business here in Providence," said KLR managing director Alan Litwin.
For CPA Richard E. Thibodeau, a sole practitioner and founder of Thibodeau Financial Advisors LLC, administrative and succession issues were the driving forces that led him to look at merging his $500,000 fee-only planning practice into a larger CPA firm.
"I was starting to get concerned about the amount of time I was spending to administer and manage my practice. As a sole practitioner, I didn't have the infrastructure to support the growth of my business," said Thibodeau. He also realized that he didn't want to face another busy season on his own. Thibodeau, who got his start as a tax partner at Coopers & Lybrand, searched for a CPA firm that would be a good fit for his practice and found West Hartford, Conn.-based Filomeno & Co., an eight-partner CPA firm where he now serves as director of personal financial services.
"I had no interest in merging into a very large firm," said Thibodeau. "I wanted somewhere that I felt I could be a good-sized fish and have a sense of my own destiny, and also make a major contribution to organization. I also needed a firm that was well-managed to relieve me of my administrative burdens."
Thibodeau said that the change allows him to spend "hundreds less hours" on administrative duties and more time serving clients and developing and mentoring staff.
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