When I first started writing for Accounting Today in 1996, the buzzword at the time was "consolidation."
American Express took the lead with a strategy to purchase mid-sized accounting firms, roll them up into a separate business unit, and then leverage ownership of the firms to cross-sell its services.
At first blush, this seemed like a good strategy for both American Express and many accounting firms. American Express would create new markets for their products, with the accountants opening the door. Accountants, starting to feel the pinch of their traditional services becoming commoditized, were promised they would retain control of their clients (although they’d lose their name), the older partners got their retirements funded, and younger partners and associates envisioned new opportunities within a larger corporation.
When Amex nabbed venerable New York firm Goldstein, Golub and Kessler, it placed a certain imprimatur on the enterprise. Partner Stuart Kessler was the outgoing chairman of the American Institute of CPAs at the time, and while many angry letters to the editor condemned the wave of consolidations as selling out to the enemy, with GGK the final stab in the back, it was an important moment. Once the GGK deal was done, many others around the country followed.
And Amex was not alone. Cleveland-based Century Business Services was created by Blockbuster entrepreneur Wayne Huizenga and his longtime business partner, Michael DeGroote. The first "business services" acquisition was a mid-sized Cleveland firm, Skoda, Minotta & Reeves. And by the end of 1997, the company had acquired 23 companies in 25 states – many of them accounting firms.
Not to be outdone, H&R Block came late to the party, and pulled off an incredible coup in 1999 by convincing second-tier firm McGladrey & Pullen to join forces with the tax prep giant, catapulting it to the top of the accounting consolidator heap.
Sometime later, Bob Basten – who originally headed up Amex’s consolidation group, left the firm and started his own rollup called Centerprise Advisors.
At the height of the consolidation frenzy, Accounting Today’s Top 100 firms issue asked independent firms: "Are you fish food?"
But in the last couple of years, the frenzy has fizzled and I don’t think I’ve seen a press release from CBIZ, Amex or H&R Block’s HRB Business Services in more than a year.
Now there are a few reasons why this may be.
- The big consolidators have already acquired all the firms they need to make this new business model work, and are happily going about their business and doing just fine.
- They’re not done buying firms, but are spending this time integrating the separate businesses into the larger corporate framework.
- The consolidation model is not working as well as they’d hoped or planned, and they’re trying to figure out what to do next.
The answers may be different for different consolidators, and there’s at least some rumors circulating that some accounting firms are disenchanted with Amex and CBIZ and are quietly buying their firms back. And that Amex and CBIZ are also finding that owning an accountant doesn’t mean you can get their clients to buy your products.But one thing seems clear – consolidation has not gobbled up the entire profession, nor does it seem likely to in the near future. Independent firms with solid business models and happy clients have grown and thrived on their own, and don’t appear in imminent danger of extinction.
So to answer Accounting Today’s query – no, independent firms are not fish food. They may or may not end up with consolidators, but it won’t be out of desperation. And with Big Five firms buckling under scandals, who knows? They may one day end up ruling the sea.
