New York accounting firm O’Connor Davies has launched a new Risk Advisory Group with the help of two veteran accountants formerly with Rothstein Kass, which is now part of KPMG.
Joseph D. Zarkowski will serve as partner-in-charge of O’Connor Davies LLP’s Risk Advisory Group, and Mark Bednarz will serve as a partner in the group. This is the latest in a series of hires and acquisitions for O’Connor Davies, further deepening the firm’s specialized expertise and growth. Last month the firm announced its expansion into the Washington, D.C., area with the acquisition of Grubman Anand, P.C., a firm in Bethesda, Md., that specializes in auditing and tax services for affordable housing properties (see M&A Roundup: Nov. 21, 2014). In October, it added Perl & Asch CPAs in Purchase, N.Y. (see O'Connor Davies Merges in Perl & Asch)
“Every acquisition we’ve done always has some underlying reason for growing one of our specialty practice areas or developing a new specialty practice area,” said O’Connor Davies managing partner Kevin J. Keane. “We wanted to be a Northeast firm, from Washington to Boston, and to me Stew Grubman is one of the leaders in the affordable housing arena. It’s really a great addition to our affordable housing group. By plugging Stew and his team in down there, and another woman who is joining us in that marketplace, it really makes us a formidable player in the affordable housing group, which is ever growing.”
He sees the demand for affordable housing continuing to increase in urban metropolitan centers in the future, along with the need for accounting firms that can provide related services. O’Connor Davies has been working for over three decades to help clients with Low-Income Housing Tax Credit partnerships, Housing and Urban Development-assisted properties, and other government-subsidized and supported housing entities.
O’Connor Davies has been bulking up in other areas as well. “We’re hiring on two fronts,” said Keane. “One is to bring in additional personnel and professional staff to bolster our groups. As we’ve grown, we need to bring in professionals, managers, seniors and staff. We’ve also seen the need for us to bolster our infrastructure, our support group and our management team.”
Within the past six months, the firm has hired a new marketing director, chief business development officer and chief information officer.
“I think we’ve got people with great background, great experience and expertise, and they really hit the ground running in bringing us to the next level,” said Keane.
He is also planning to do further mergers and acquisitions. “We are working on two or three now that will probably close by year end or the first quarter of next year,” said Keane. “We think there are two ways of growing. One is organic and the other is acquisition. We want to continue our organic growth. That’s one of the reasons why we brought in the marketing director and the business development person. But also acquisition is a key part of that, and the ability to bring in clients and talent at the same time is the key driver for the mergers and acquisitions. Culture is probably number one when it comes to our mergers and acquisitions. Sometimes we talk to firms for two or three years to make sure we have the right cultural fit and personalities within the group that will not disrupt O’Connor Davies’ culture and will be an additive, not a subtraction, to the overall firm.”
Keane has been involved with 10 to 15 mergers over the past 10 years, and he has never seen any combinations unravel. “We’ve never had a de-merger,” he said. “We’ve never had anybody leave us, and I think that’s a great testament to our team, our partners here, of inclusion.”
The largest deals were with three $10 million firms, but there have also been a number of deals with firms in the $1 million to $2 million range. That has led to organic growth as well, as O’Connor Davies attracted additional talent to join the firm.
The hiring of Zarkowski, Bednarz and their staff will help O’Connor Davies grow its advisory practice.
“Part of the overall strategy of our firm is to grow our advisory practice,” said Keane. “I think a lot of the future in the accounting industry will be on the advisory side. People are asking for it and demanding it. Clients and non-clients alike are looking for advice. They’re looking for how to grow their business and become more profitable.”
Zarkowski and Bednarz are effectively bringing with them the corporate risk and governance group from Rothstein Kass to O’Connor Davies. “It’s a classic example of 1 plus 1 is 3 in that they brought certain business with them,” said Keane. “They’ve been wonderful in the services they provide, from internal audit to COSO reviews to the whole spectrum of corporate risk and governance.”
Keane hopes to grow the consulting side of the firm from its current level of about 10 percent to between 20 to 25 percent.
Zarkowski, Bednarz and their team joined O’Connor Davies over the summer and hit the ground running, according to Keane. Zarkowski and Bednarz will be working from offices in New Jersey, while their staff will be in Manhattan.
“They are a national practice,” Keane added. “Although their offices are in the Tri-state area, they’re doing jobs in California, the Boston area and Florida. They are guys who get on the plane and travel and bring our firm to a different level of clients.”
Keane also hopes to grow the firm organically through lateral partner and staff additions to build a complete advisory group. Besides corporate risk and governance, he wants to provide more expertise in business valuation and litigation support.
The firm held a partner retreat two weeks ago and asked the partners by a show of hands how they felt about growth. “It was unanimous among all our partners to continue our growth in a strategic manner and at the same time look at the things that we think we need to add to our specialty practice groups, like our advisory groups, to grow the firm,” said Keane.
By this time next year, his goal is to reach $125 million in revenue. Currently the firm is earning about $100 million to $105 million in revenue. O’Connor Davies has about 550 employees and 70 partners in eight locations right now, and Keane anticipates increasing the numbers to approximately 600 employees and 90 partners.
Last Friday, the firm held a business development and strategic planning meeting to help determine how to reach those goals.
“As we’ve grown, we’ve had to take a look back and see what we’ve done well and what we haven’t done well, and then take those things and project forward the things we want to correct and do better,” said Keane. “That will be the firm that we are in the future.”
Finding Merger Partners
O’Connor Davies currently only has locations on the East Coast. Last year, it nearly struck a deal to expand to San Francisco. Ultimately that didn’t happen, but Keane would like to set up an office in San Francisco as a long-term goal.
He hopes to achieve 8 percent organic growth next year, but anticipates the firm will need to do one or two mergers next year to achieve the revenue goal of $125 million. Keane finds potential merger partners for O’Connor Davies in a variety of ways.
“What’s happening to us now is that people, especially in the Northeast, realize that we have a different culture than a lot of other firms,” he said. “We’ve become a very attractive firm to talk to about potential mergers.”
Keane said his firm typically spends a year or two assessing the other firm to make sure the culture is a good fit. “We have a great firm and we don’t want to do anything to disrupt our firm,” he said. “We’re not in any rush to grow. We don’t have any mandates that we have to be a certain size by the end of the year. It’s a nice situation to be in. If we see something that works and they come to us, that’s fine. We’ve used consulting firms also. We did a merger this year referred to by a consulting firm. If they bring us something good, we’ll look at it. That’s something that we’ll always do.”
The firm’s ability to attract new talent is paramount, though. “I think that’s probably our number one goal as a firm,” said Keane. “We have an HR department of 11 people now. Some of them are full-time recruiters just to make sure that we have the right talent to service our clients and fulfill the needs that they have, and to make sure that our culture stays the same from year to year as we grow. As you grow, it’s difficult to keep the same culture. We were a $5 million practice not too long ago. To go from $5 million to $100 million and keep that culture has been a real challenge for us, but I think we’ve been very successful at doing it.”
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