Why CPA firms are on a shopping spree
There are times when a steady drumbeat morphs into an unyielding and raucous roar from the percussion section. In my role at Sage Intacct, a cloud-based financial management software provider, I have a front row seat to a concert similar to the latter, happening right now in the accounting industry.
CPA firms are looking to find growth by expanding into non-traditional practice areas. By and large, firms are coming to the conclusion that software as a service (SaaS) channels are prime avenues for getting to these business goals. Rather than building distribution channels and starting from scratch to offer these services, CPA firms are acquiring entire value-added resellers (VARs) – or accounting software consulting firms – that sell, implement and support software solutions. From the front row seat which I occupy, I hear from multiple CPA firms each week looking for VARs they can approach about potential acquisition.
The idea that CPA firms are getting into the software game is not new. In the 1990s and 2000s, we saw many enter the tech space, but the business of installing and supporting on-premises IT solutions, not to mention investing in marketing to sell those services, was far different from core CPA business. However, roadblocks that held these firms back in prior years have either gone away or turned into positives. For example, in business today, a strong digital presence is table stakes – CPA firms have attractive, vibrant and educational websites needed to support sales, where at one time that could have been disjointed. In addition, a strong digital presence with scalable distribution channels via the cloud means that supporting customers is also more simple than it once was.
Cloud technologies and the internet in general have changed the way most industries do business and many CPA firms are wise to realize that these “changes” represent growth. Just as firms will outsource work to ensure they aren’t left behind by the competition, they are now finding ways to offer cloud-based SaaS to make their services available to a broader audience. One firm that accomplished this successfully was RKL eSolutions. The firm wanted to get in this market, but knew it did not want to start from scratch. In late 2017, RKL announced the acquisition of Arxis Technology. RKL eSolutions president Joe Noll explained, “The addition of the collective experience from Arxis will accelerate our ability to help organizations transform accounting and finance in the cloud.”
From the perspective of the VARs an acquisition now is both timely and good business. The VAR channel is generally made up of individuals who have owned and operated their organizations for 20-30 years. They have a solid portfolio of customers and a book of growing business that often represents their legacy and retirement fund. While many VARs are continuing to scale their channels, they’re open to acquisition offers from buyers that are financially sound, can offer cash for the transaction, will support existing customers and help them land soft if there are any changes to the operation, and potentially even fold employees into the new organization. This was the case when Wipfli acquired Brittenford Systems – bringing on about 30 Brittenford professionals, including CEO Shereen Mahoney. Since then, Wipfli has gone on to acquire another VAR, Joseph Eves, a more specialized practice.
I believe we’ve only seen the tip of the iceberg. In 2018, and possibly longer, we’ll continue to see CPA firms find profitable growth by launching or expanding strong VAR practices through acquisitions. Because digital business has matured and the cloud offers unmatched and scalable distribution channels linking clients to services, this acquisition spree has been win-win to date. CPA firms win because they can accelerate growth by executing on the vision they had in the 1990s and 2000s when they first attempted to offer tech solutions. VAR owners win because they’re able to sell the businesses they’ve spent careers perfecting to suitors that continue to add value to clients. Given the number of calls coming into my office on a weekly basis on the topic – I’m not sure I see this trend slowing anytime soon.