Day Two Opening Remarks & Life Before PE

The path to taking on private equity can take many forms; in this session, accounting firm leaders and industry experts share the main milestones on that path, including the sort of discussions firms should be having internally, the critical questions they need to ask themselves, how to bring together a partner group on a final decision, the due diligence they should be doing on their PE partners.

Transcription: 
Transcripts are generated using a combination of speech recognition software and human transcribers, and may contain errors. Please check the corresponding audio for the authoritative record. 

Daniel Hood (00:09):
Good morning, good morning. Thank you all for joining us again. Great session. I think yesterday's speaker did a great job teeing up what's going on—the changes that are happening in the profession. There was a lot of great data, and many things that some of us learned about in the morning sessions. I think that did a great job of setting up what we're doing today, which is getting very personal in a sense. We've got a lot of firm leaders and PE firm leaders here to talk about their experience with working together. We'll discuss the impact, how to build a deal, what it looks like from the inside, and then how everything in the M&A is really only the beginning—what happens after that is really what matters. So, we've got a lot today and I don't want to spend much time talking this morning. We will go over a couple of quick things: again, for CPE towards the end of the day, we'll make the form available in the app and on the website. You need to fill that in and get it back to us by Monday, November 24th. There is a coat check around to the left of the registration desk over by the restaurant. You can always put questions in the app. You can go in and add questions and we'll try to get to as many as we can. I think that's about all I have. I'm calling a great set of panelist leaders to the stage.

Danielle Lee (02:15):
Good morning everyone. Welcome to the first panel to kick off the day. Before we begin, I'd like to welcome my panelists to the stage. As they get situated, these industry experts and firm leaders are going to discuss the path to PE, including the main milestones along that path. This includes everything from the discussions they should be having internally, the critical questions to ask themselves, how to bring the partner group together, and all the due diligence they do for their PE partners. I'd like to thank our panelists for being here. Let's begin.

(02:59):
All right, let's start.

Jeffrey Taraboulos (02:59):
My name is Jeffrey Taraboulos. I'm the managing partner of KSDT Advisors. We started off as a very small firm in Miami, Florida in 2005. We grew from five people to approximately $47 million per year in revenue. We now have 265 people and 30 partners. We have offices in Miami, Coral Gables, and Charlotte, North Carolina. Some of the work we do is NASCAR-related. We also have offices in the Philippines and India. I've been very lucky as a managing partner to not really be working in the business, but working on the business all these years, being able to look around the corner and see what's coming in our industry. That's what led us to joining Ascend.

Danielle Lee (03:55):
Michelle.

Michelle Thompson (03:55):
Hi, I'm Michelle Thompson. I'm the CEO of Cherry Bekaert Advisory. We're about $850 million this year. Our firm has about 2,800 people, 45 offices, and we're in India, the Philippines, and Canada. We're super excited about the path we've been on and I'm glad to be able to share that with you today.

Danielle Lee (04:21):
Alright, Jason.

Jason Yetter (04:21):
I'm Jason Yetter, the CEO of Richey May. Prior to being backed by private equity, we were a Denver-based firm. We are currently a $200-plus million national firm. We partner with three fantastic experienced partners and it's been a great journey for us.

Philip J. Whitman (04:45):
I am Philip Whitman, CEO of Whitman Advisory. As you know from yesterday, we've been involved in approximately 45 transactions with multiple strategics.

Danielle Lee (05:15):
And you'll notice I'll go to Phil at the end of these questions just to give us the "zoom" perspective. I want to ask: what were your main priorities in this process, what problems were you looking to solve, and what opportunities were you looking to pursue? Michelle, starting with you.

Michelle Thompson (05:34):
Yeah, so when we started the process back in 2022, we had just had a leadership transition in 2018. We were stepping back and rethinking our strategy. I followed somebody who had been in the role for 27 years and the firm was 77 years old. When PE started being part of the equation, we realized this would help us accelerate our strategy. We also thought for our people that it would be an interesting way for them to continue their career. We knew the spend we were going to need on technology was going to be more than we felt our partners would be willing to do in our current structure. We also felt that the model of deferred talent was not sustainable. For our younger partners, it was an opportunity to attract talent because waiting until age 65 to monetize your career did not feel attractive. This ability to have liquidation events along your career was appealing.

Danielle Lee (07:54):
Great. And Jason, what were your priorities?

Jason Yetter (07:58):
We grew to approximately $60 million all organically. We realized that to continue the vision we had, we needed additional processes and specialties. The debate was: can we do that independently at the pace we wanted? To scale those practices nationally, it was obvious that we had to pursue private equity to get that capital to further build out our sales and marketing engine and talent solutions.

Jeffrey Taraboulos (08:50):
I think our issues were very similar to the issues everyone in this room currently faces staying independent. We wanted to solve for these issues before they became actual problems. One particular issue was that with our growth trajectory, it became harder for younger people to buy in. They had other priorities—the cost of real estate, private school, or personal investments. Also, even though we were doing the right things with HR and development, the rapid change with AI made us realize that our budget couldn't compare to what others were spending. We needed to do something before this became a real problem.

Danielle Lee (10:21):
Phil, what are you seeing in terms of the problems and opportunities firms are starting the process with?

Philip J. Whitman (10:28):
Sure. One of the things you'll notice is every one of the firms up here is quite large. Frequently we're meeting with firms that aspire to grow to this size. Number one is taking chips off the table. Hearing about all these transactions, the traditional "wait 10 years to get paid out" model is being challenged. Number second is having a capital partner. As a CPA firm owner, every dollar you spend comes out of your pocket. Having that ability to invest without it directly hitting your take-home is huge. For smaller firms, succession is also a really big challenge.

Danielle Lee (12:41):
I'm curious about what kind of alternatives you considered besides PE, if any. Jason?

Jason Yetter (12:51):
The alternatives we looked at were to stay independent or seek out a larger firm to merge up. Those are the traditional ways. When PE came into the space, it changed the narrative. Part of that journey was myth-busting—addressing the perception of what that might mean for our younger partners. It became pretty clear that staying independent wasn't going to provide the capital needed to go as fast as we wanted.

Jeffrey Taraboulos (13:58):
Absolutely. We come from a market in Miami where some deals went down that just didn't go very well. Our partners had a lot of PTSD from that. Independence was a major consideration because we didn't want to lose our culture. We explored merging multiple firms together in different regions, but that became very complicated. We even considered bank debt to continue aggressive acquisitions, but it seemed too risky and wasn't in the best interest of the young people in the firm.

Michelle Thompson (15:26):
We really didn't consider anything else. At the time, we were never entertaining merging up with anyone. When we educated ourselves on the PE model, we didn't look at other alternatives.

Philip J. Whitman (15:51):
There's a myriad of opportunities out there—not only private equity, but family offices, wealth management funds, and pension funds. So many folks are looking to invest in our profession. I think if you look at it as a partner making an investment in you, as opposed to someone acquiring you and taking you over, the mindset changes.

Danielle Lee (16:31):
And how long did the process take?

Jeffrey Taraboulos (16:43):
In 2022, Alpine came to us, and frankly, we just didn't know if it was the right choice. Last year I came here to the PE Summit and got a chance to really understand the different models. I left here thinking, "Okay, I'm going to go on a spy mission." I met with 20 other different people and investment bankers. I realized you have to know who you want to be five years down the road. Once we determined Ascend was the right partner, we started talking in February and closed in September. A six-month process—very fast.

Michelle Thompson (20:03):
We spent the fall of 2021 educating ourselves. We hired an investment banker in December and launched a process in January. We saw 26 PE firms, eliminated down to six by February, went down to two in March, signed an LOI in April, and closed in June. Once we decided we were going to do it, we dedicated ourselves to getting it done so it wouldn't be a distraction.

Jason Yetter (21:13):
Once the group was unanimous in our vision to grow, I was tasked with doing the upfront diligence. That started in June. We picked a partner in early fall and closed in February. The first half of that was really helping my partners understand what this was going to mean to them. I spent a great deal of time on a "road show" with individual partners. We did not disclose it to anyone other than the equity holders until later in the process.

Philip J. Whitman (23:19):
Once you make that decision, it can move very quickly. On average, it takes about six months from the time you say "let's get married." One thing I would recommend is don't just go with your regular corporate attorney if they're not familiar with private equity. You really need specialists.

Danielle Lee (25:22):
The three of you have different "flavors" of PE deals. Why did you choose yours?

Michelle Thompson (25:34):
Our structured deal is minority, but our governance is 40% us, 45% our primary team, and 15% to a third party. We are aligned—it's not "us versus them." We have a compensation and partnership committee that handles partner comp and admitting partners. Our PE partner does not get involved in those decisions. They approve a budget, but we still operate the business.

Jason Yetter (27:57):
I echo those comments. The key was finding a partner in every sense of the word—someone who understands our specialty practices and our go-to-market strategy.

Jeffrey Taraboulos (29:00):
For us, Ascend was very unique. The ability for us to remain independent and retain a "people-first" culture was vital. Graham Weaver at Alpine speaks about investing in people, and that was exactly what we were looking for.

Philip J. Whitman (29:49):
I truly believe you have to look at your DNA and decide what's right for you. The money is usually in the same ballpark regardless of who you do a transaction with. As Jason said, it's about: "Do they understand us? Are our visions aligned?" It starts with chemistry. It's about someone you wouldn't mind going to dinner with or taking a call from on the weekend.

Danielle Lee (33:16):
We talked a bit about how you get your partner group aligned. Jason?

Jason Yetter (33:21):
The big alignment piece was understanding what it meant for everybody below the partner level. We spent a lot of time talking about how this would impact the staff. I told the group that the only person whose job was really going to change was mine, because I'd be on the phone every day so they wouldn't have to. That has been true.

Michelle Thompson (35:18):
We had 70 equity partners. We had a group of 20 partners who knew about the deal early because the due diligence is a lot of work. When we signed the LOI, we had a call with the full partnership on a Saturday in May. We walked through the strategic reasons, set up office-by-office calls, and then calls with every department. It took about a week, and then we voted and got 100% approval.

Jeffrey Taraboulos (37:51):
The first step was educating my executive leadership team. I had to explain that PE in the accounting industry today is different than what our clients might have experienced years ago. We pulled in people from other firms that had already done it to demonstrate where the industry is headed. It took a lot of convincing at all levels, but having those hard conversations was necessary.

Philip J. Whitman (40:08):
You need to have a champion, typically the CEO or Managing Partner. The big question is always, "When do we tell the staff?" I've seen firms that say they are "fiercely independent" change their minds when the right offer comes along. If you are going on that journey and you're not sure, bring in an advisor to help.

Jeffrey Taraboulos (43:34):
I want to add to that. It was hard for me to walk back what I'd been telling my people: "We're going to be independent forever." But you have to be authentic. I told them, "I'm not going anywhere. I love what I do, and I want you to love what you do." It's okay to change your mind when you see an opportunity for something better.

Danielle Lee (47:04):
What advice would you give to those considering PE?

Jeffrey Taraboulos (47:16):
You have to know who you are and who you want to be five years down the road. Don't find a partner and then try to match your plan to them. Build your plan first, then find the partner that helps you get there. Also, don't wait until you have to do a deal. The time to do a deal is when you are strong.

Michelle Thompson (48:26):
You are the leader of your firm. You have to have a point of view and you have to lead. Your partners are expecting that. Also, I'd like to erase the word "scrape" from our vocabulary. If you are a partner at the moment you unlock this value, you will participate in a way that is exponential. You are building value for yourself and future generations.

Jason Yetter (51:05):
Hire the appropriate lawyer. Understand what you can and cannot do as a minority or majority shareholder. Don't get all the way to the end and have an "oops" moment because you didn't understand the governance.

Philip J. Whitman (52:02):
Be open-minded. There has never been a better time to be a CPA. Even if you don't go this route, you owe it to your partners to explore what's possible.

Danielle Lee (52:39):
Thank you.