by Bill Carlino
Madison, Wis. — After a two-year wait to put its foot in the door of the Chicago market, Midwest powerhouse Virchow Krause & Co. has finally gained a Windy City address, merging with KGN Financial Group, a 12-partner firm with annual revenues of roughly $11 million.
The merger, scheduled to be completed sometime in June, will swell the ranks of Virchow to 950 employees, with annual revenues of roughly $120 million, and would add Chicago to its Midwest-based roster of offices, which currently includes Milwaukee, Minneapolis and Detroit, among others.
Terms were not disclosed.
Upon the completion of the merger, KGN will operate under the brand of Virchow Krause, while KGN managing partner Steve Levin will oversee the Chicago office. He also will become a member of VK’s executive committee.
“We’d been actively targeting Chicago for about two years,” said Virchow Krause chief executive Tim Christen. “We had our first meeting with [KGN] in January 2003, which is an unusually long dating period. But the fit was so good we told ourselves we’d be as patient as necessary.”
Christen revealed that when VK did a market study of Chicago, the firm compiled a list of eight potential merger candidates. “KGN was the second firm we talked to. Culturally, it was a perfect fit. After that, we didn’t bother with the others.”
“Strategically, we weren’t planning on merging,” KGN’s Levin explained. “But we talked with them for 16 months. The first part of our discussions centered on just culture and if there was a fit before we got into the financials. We now have access to their expertise as well. There are 500 to 600 [VK] people within a 150-mile radius of Chicago.”
KGN Financial primarily serves the manufacturing, distribution, real estate and nonprofit segments.
Virchow ranked No. 18 on Accounting Today’s 2004 Top 100 Firms list, with 2003 revenues of $104.1 million.
The Chi phenomemon
The VK-KGN merger is the latest in a recent series of deals that have absorbed a number of local Chicago firms.
Most recently, Southfield, Mich.-based Plante & Moran absorbed Chicago-area Gleeson, Sklar, Sawyers & Cumpata.
“This is part of the Chicago phenomenon,” explained Allan Koltin, chief executive of Chicago-based PDI Global, who brokered the VK-KGN merger. “Half of the largest 25 firms in the city have been merged upstream. That, combined with the collapse of Andersen and the passage of Sarbanes-Oxley, has made large private companies and smaller public ones more willing to talk with firms other than the Big Four.”
Christen said that M&A activity and its subsequent fallout is not relegated to Chicago, but is reflective of what’s going on in the rest of the country — more regional firms are picking up business from the global firms as a result of regulatory restrictions and cost efficiencies.
“The Big Four are extremely well-run companies but they are also resource-constrained,” Christen said. “They may not have the resources to serve those companies of around $100 million.”
However, Christen opined that due to the size of the Windy City market, no one firm will be dominant. “There are 10 million people [in Chicago]. There’s plenty of business to go around. We have 300 people in Madison and don’t dominate the market.”
