A few years ago, it seemed that owners of both CPA and technology consulting firms were going to find riches by selling their businesses to aggregators. Two recent events underline the fact that that did not happen for many of them.
The first event was the sale of American Express Tax and Business Services to H&R Block at a fire-sale price. The second was the departure of CEO Dan Duffy at ePartners, the national accounting software reseller.
What happened? Putting together many different firms turned out to be very hard. UHY Advisors, whose public offering as Centerprise Advisors was withdrawn in 1998, is just now beginning to standardize its practices as one firm. At the beginning of the year, its offices still had several different email systems. AmEx TBS took years to come up with a single Web page for different offices. The pace was slow, indeed.
ePartners, originally known as TexSys RD, got clobbered by the downturn in the technology market. But there were also reports that the company struggled to come up with a single, reliable financial reporting system. Meanwhile, as it shed staff and received venture funding, the VARs who had sold for equity saw their holdings diluted by two thirty-to-one reverse stock splits.
CBiz, which recently changed its name from Century Business Services, is still out there. But with its accounting and tax business showing 3.2 percent revenue growth for 2004 and a company-wide net margin in the same range, it's hard to view it as a smash hit. That low growth came as many regional CPA firms were experiencing a boom from Sarbanes-Oxley spillover.
Another factor was that as these organizations got going, the economy went south in the post-Y2K bust. It also was harder for the CPA-based firms to cross-sell services than many anticipated. CPAs have not became the force in financial planning that was expected, one key to cross-selling financial and tax and accounting services. The overhead that these businesses accumulated as they were assembled was also hurt. It clearly took a while to squeeze out duplicate costs.
In many ways, aggregation was a creature of the dot-com era. The goals reflected the same get-rich-quick mentality: Roll up a lot of similar organizations and go public fast. That approach didn't work.
There remains one strong player in the CPA market: Block's RSM McGladrey. Instead of putting together many small firms, Block folded its acquisitions into McGladrey, which had an infrastructure and an established way of doing things.
On the software side, Tectura has exploded internationally, snapping up resellers and developers. But on its way to a predicted $300 million run rate by December 31, it has become something else, not just a value-added reseller. It is more a vertically integrated distributor with many VAR activities anda highly focused strategy that was lacking in the roll-up proposals that did not materialize.
No, aggregation isn't for everybody.
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