Life With PE

Once the ink on a private equity deal dries, accounting firms enter a new phase of their existence — one that requires fresh thinking, different reporting structures and new approaches. This session looks at how firms can balance accountability and autonomy, leverage the new resources that are available to them, develop new strategies, and turbocharge their growth with PE at their side.

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. 

Danielle Lee (00:00:08):
Earlier today, we're talking about once that private equity deal closes, accounting firms enter a new phase where fresh thinking, different reporting structures and new approaches are required. So we're going to talk about how firms manage accountability, leverage new resources that are available to them, and develop strategies for growth. We have a great panel of speakers today. Go down and tell us about your organization.

Charles Weinstein (00:00:52):
My name is Charles Weinstein.

Danielle Lee (00:00:56):
You're different.

Charles Weinstein (00:00:59):
Allan, great to be with you and thank you everybody. For those of you that are here for the second year in a row, let Accounting Today know your thoughts on this year as they begin to plan for next year.

Phuong Mayer (00:01:14):
Good afternoon everyone. I'm going to introduce myself. My name is Phuong and I'm the CEO of our firm in California with about 100 employees. We have 30 million in revenue. We're part of Ascend, and as many of you know, Ascend is a national platform of independently managed firms. We joined Ascend because of that model; it was important for us to have access to resources and a national community while retaining our local brand and a pathway to serve our market.

Josh Beck (00:02:02):
Afternoon everybody. Lots of friendly faces, so good to see everybody. My name is Josh, I'm a managing partner of Kansas City-based MarksNelson Advisory. We're a SpringLine company. SpringLine is backed by Dallas-based Trinity Hunt Partners. We love the Chiefs in Kansas City, and that is the ownership of the Hunt family. We were drawn to them because of their reputation; we knew their history and also hoped to maybe get some playoff tickets out of it if something else happened.

(00:02:34):
We did—I got some playoff tickets, so it was worth it. Among the members of SpringLine, we have a commonality in that we value quality organic growth. I think you've heard a lot today and for the last number of years about the need to push to pursue organic growth in general. We have to focus on offshoring, talent recruitment and development, and leveraging technology. Our groups and our firms tend to really focus on how we pursue that quality organic growth in our targeted sectors. How do we win the right to compete for clients that maybe we wouldn't win on our own? Normally, we find those clients that really look to us as advisors and not just compliance providers, so they look to be part of something bigger in order to win that right to compete for upscale organic growth.

(00:03:31):
They also want to increase their ability to win quality inorganic growth, and we all have an ability to potentially purchase those tuck-ins and acquisitions. Some firms buy poor-performing firms or very small firms, but I think most of the firms that join SpringLine want to make sure we're going after the best of the best—the ones that are really profitable and growing. That takes a lot of capital and we probably couldn't do that on our own. They also are folks that understand what it takes to win in a people-based business. They know that we have to be a great place to work and that the folks who work for us can't have their career trajectory stymied by the fact that our firm is not growing fast enough. So oftentimes we're driven by that belief that they want to be people we want to do business with. When we met them, we said these are just people that we want to be in business with. I believe those things about the tag: how do we scale with everybody?

Sean Taylor (00:04:54):
I'm Sean, the Chief Executive Officer of Smith and Howard. Smith and Howard is an Atlanta-headquartered firm. I started my career there in January of 2004 when we had 24 people, and now I lead the firm approaching about 600 across nine different cities in the United States. We have a little under 100 employees in our office in Bangalore, India. In October of 2022, we received investment from Broad Sky Partners to apply towards our M&A function. We developed a 10-year vision, Vision 2030, which was to exponentially grow in all we do and transform ourselves into a recognized brand while continuing our history of top performance, all to have a positive impact on the next generation.

(00:05:44):
The details of that included an M&A strategy. My good buddy over to my left announced in the summer of 2021 that they had taken on private equity. I knew the entire ecosystem was changing. If we wanted to execute on our M&A strategy, we needed an investment partner. So we went into the market, educated ourselves, and ended up ultimately deciding to work with Broad Sky Partners. I'm excited to be with you to talk a little bit about what life is like after PE.

Danielle Lee (00:06:14):
That's a perfect segue.

Charles Weinstein (00:06:17):
Thank you. Charlie Weinstein, CEO of Eisner Advisory Group. Our brand name is EisnerAmper. We go to market with that brand name. We are about 1.3 billion plus in revenues at this point. Four years ago, when we accessed private equity capital, we had about 450 million of revenues. The important thing for us was that we had many years built into the foundation.

(00:06:51):
It's been a very entrepreneurial firm over the years. I joined the firm in 1989 and over the years we bought and sold many businesses. We accessed private equity capital for the wealth management business, which we eventually sold for 350 million. We had been around private equity and building businesses, doing things that are very entrepreneurial. It seemed to us that if we were able to access capital with the right partner, we could greatly accelerate our strategy. It's been a lot of fun, and I must say it's been a lot of work, but I'm happy to be here to speak with you about our experience in life after PE.

Danielle Lee (00:07:42):
We're happy to have you all here. I'm curious what your relationship is like with your PE partner in terms of operations and strategic planning.

Phuong Mayer (00:07:55):
I'm guessing at the heart of this question is some curiosity around partnering with PE.

(00:08:08):
Happy to talk about my perspective on that. I think how much you are likely to be impacted by having a PE partner is going to be heavily influenced by how you manage the firm in three key areas: Strategic management, business intelligence and systems (how much visibility and insight you have into how your firm is doing), and organizational clarity. I wanted to touch really on the impacts of day one. One of the first things that we did when we joined was we created our five-year plan. That's super critical because right off the bat it creates alignment between you and your partner. It takes care of two questions my team asks a lot: Is PE going to have super high growth demands that are unreasonable, and are they going to keep moving the goalposts? Having that five-year plan creates the "guard rails," and that makes the day-to-day P&L management easy because I know the framework to operate within. Regarding business intelligence, you hear a lot about whether you will be reporting PE KPIs all the time. In our case, our firm was pretty strong in those areas. We had cloud systems and API access, so we were already in a position where we had visibility.

(00:09:49):
As PE came along, they had great sophisticated tools that tied to our tools, so I really don't have to create a single extra report. I have heard some of the smaller firms that don't have those systems in place benefit from the visibility they gain. The third thing I'll touch on is organizational clarity. This is the one that sneaks up on people because most firms are set up with teams—billable vs. non-billable, production vs. admin. Now you're layering in another level to an organization that is complex to begin with. Most firms find that the people whose responsibility it is to work on the business tend to get back-burnered, which creates friction.

(00:10:55):
Managing how well those two groups work together is really important. That's how we get resources from the firm without giving up operational control. With the right PE partner, they really become an accelerator for the things you're already good at.

Sean Taylor (00:11:46):
We are traditionally a very high-performing firm. We operate well and we serve our clients well; our clients stay for decades. We've been an Inside Public Accounting "Best of the Best" for two decades. The thesis our investors had was: let's back this team because they do really well, and how do we help them execute on their vision? They really don't worry about the day-to-day. They expect reporting, we formulated that reporting, and we give it to them timely. Because we're performing, there's not a lot of hand-wringing about the day-to-day.

(00:12:24):
There are no hiring and firing decisions made by them. What they do help us with is M&A execution and market intelligence. They help us with key growth strategies, like developing internal software. We had zero experience doing that, so we reached into their resources and operating partners to create steering committees. They're smart enough to know that reviewing what we already do well isn't where value is created.

(00:13:18):
Value is created in doing the things you're not yet doing. It's worked out really well for us.

Charles Weinstein (00:13:25):
I think you captured it. When you hit your numbers and you're exceeding plans, you get very little feedback. For four plus years, the relationship with our private equity partner has been very supportive. We've done 25 combinations in the last four years. We have an M&A committee, and when we bring an idea to them, it's instantly supported. We get good feedback on acquisition opportunities and input on the technology side.

(00:14:39):
They have a lot of trust in our track record. Today, we continue our organic growth and have interspersed a bunch of M&A with that. We had a five-year plan, and at the end of two years, we had to create a new one because we grew past it. That's nothing new for a firm like ours. I mentioned before that we're entrepreneurial; every five years we're a new firm doing something different. Our partners are comfortable with change and supportive of some of the "crazy" things we put in front of them.

(00:15:51):
More often than not, they work out. I like to think they're happy with their investment.

Josh Beck (00:16:07):
I agree with most of what's been said on the day-to-day. It's an important reminder to understand both the culture and the thesis of the private equity partner. If they focus on well-run, successful firms, they don't want to disrupt things that are running well. One addition at SpringLine is that we've focused on bringing in an experienced executive team that has seen this at scale, combined with an advisory council made up of the managing partners of the firms we have brought in.

(00:16:52):
Those groups come together once every two weeks. We spend half that meeting co-creating at the initiative level and half of it firing off each other, sharing what works well at our respective organizations. I think that works really well.

Allan D. Koltin (00:17:21):
It's interesting to sit with this group. On the question of PE micromanaging: Charlie, I remember sitting in your office talking to a firm about joining. One of the questions was about the relationship with TowerBrook. Someone asked if there were weekly meetings or board meetings—what was the accountability? You and Walter looked dumbfounded. Walter said, "We really don't have anything regularly scheduled. We talk when there's something to talk about."

(00:18:02):
When Charlie has a big strategic spend, he calls, but they don't run a daycare center. They find great leadership and run with it. If you went to San Jose, Kansas City, or Atlanta and asked for best-in-class local firms, these are the firms. The "aha" moment for me was that these firms didn't have to do anything, but they all found a different pathway. For SpringLine and Ascend, going into a bigger "mothership" firm wasn't their thing; they love the autonomy.

(00:19:07):
Sean, Smith and Howard is like Fort Knox. You put a plan together to grow from 40 million to 100 million and people thought, "We can't compete with that." But then we found a pathway where you don't have to be a big firm to start; there's a different way to do it.

Danielle Lee (00:20:37):
It's a diverse camp. I'm curious what the staff reaction and experience has been, particularly for next-generation leaders. Sean?

Sean Taylor (00:20:50):
We were very transparent. We brought everybody together and explained what we were doing and why. It was not as traumatic as you might think because we have leaders who have been there their entire careers. There's a lot of established trust. They said, "If you think this is best for us, we certainly back it."

(00:21:22):
We emphasized that this provides more opportunities to serve clients better and develop people. Fast forward to this past summer: I brought a senior manager to a show in Atlanta. He asked how it was going with the PE backer. I said it was going great, and he replied, "Honestly, if you hadn't told me two years ago that we had a private equity backer, I wouldn't even know it today." That's exactly what I wanted to hear. It's all the good and none of the bad.

Charles Weinstein (00:22:39):
When we did the first private equity deal of scale, it was completely new to our partners and colleagues. I was quite surprised by the reactions. We got together in 2016 and talked about disrupting technology. We had CEOs of technology clients come in and talk about how they were disrupting industries. They told our partners, "It's coming to accounting."

(00:24:03):
It took us five years to find the right private equity partner who was willing to invest in the model we formulated. For our partners, they were primed and prepped. We still have a monthly call and distribute all financial information to them, so there were no surprises. For our staff, it was a complete non-event. They said, "If you think this is best for the business and creates opportunities, okay."

(00:25:40):
They care less about what you say and more about what you do. On the transaction, we gave every single person in the firm a bonus—not a retention bonus, but a "thank you" bonus. They felt appreciated. This October, we added 32 new equity owners to our business. They see the opportunity and they trust us.

Josh Beck (00:26:59):
In the three years since the transaction, we've been named among the best accounting firms to work for by Accounting Today and Great Places to Work. That was a great moment of relief for me as a leader. Another thing that surprised me is the eagerness amongst our next-generation leaders for ownership. They understand the value of equity. We have raced to create a program to push equity down below the partner level.

(00:27:51):
People want opportunity. I'll give an example: we had a very small forensic evaluation team. We just brought in an excellent firm out of Miami that does almost nothing but that. Our local team was able to plug into their processes and they felt their professional development was taken to the next level. That's what people want.

Danielle Lee (00:29:14):
I like that about collecting feedback. Phuong, what about your experience?

Phuong Mayer (00:29:23):
We joined in February 2023. I look at the team journey like having teenage kids—at first, everything you do is wrong and viewed with suspicion. You just have to weather through that and communicate, otherwise they will fill in the gaps with what they read on Reddit.

(00:29:59):
But the magic happens when you get to the "new norm." Private equity brings a certain amount of accountability. Being part of a platform with high performers has given us the courage to make transformative changes. For example, for the first time in 74 years, we moved away from the billable hour. We told the team, "Your time is finite, but the value you produce is not." Our revenue per employee increased, and high performers have told me they really like the changes.

(00:31:11):
Early on, we tried to make it seem like nothing would change, but that was the wrong approach. Two years later, the real story is that we joined because what got us to 20 million wouldn't get us to 50 million. That message lands well with forward-thinking members of the team.

Josh Beck (00:32:15):
Real quick—some of my friends do have challenges at the staff level when those staff members specifically wanted to be part of a small boutique and didn't want to be part of growth. You have to reconcile with that.

Allan D. Koltin (00:32:47):
These were all high-performing firms with no growth or profit problems. What made the PE transition a non-issue was the "index of trust." They trusted that leadership had their backs. Now, these firms have even more resources to grow in unique ways. Sean, you hadn't done a merger before this, right?

Sean Taylor (00:33:42):
Zero acquisitions until August 2023.

Allan D. Koltin (00:33:46):
And now you're doing them. This is transformation. The hard thing for us accountants is that nothing in business is forever, but we want to believe it is.

Danielle Lee (00:34:25):
I'm curious if you're all looking forward to your next liquidity event.

Charles Weinstein (00:34:33):
I get that question 20 times a week. That was one of the selling points. In the typical private equity model, every four to six years we're going to have a liquidity event that benefits our partners.

(00:35:26):
There are 31 flavors of private equity. For us, the thesis was that our partners don't have to wait until they are 65 to get an unfunded buyout over 10 years. Every few years, there is a substantial liquidity event if we execute. We're four years and four months into this, and the interest level from partners is very high.

Josh Beck (00:37:14):
I agree with Charlie on the economics. Regarding the process, Trinity Hunt focuses on people-based businesses and is very "founder friendly." I sit on our board, and we have discussions on timing and expectations—there are no surprises.

(00:37:47):
When the time comes to look for a new financial sponsor, we will go to market and the market will dictate the price. I don't anticipate it being a massive disruptive event, but it is one we take seriously.

Phuong Mayer (00:39:02):
Ascend is a bit different because it's a continuing entity. Every single partner has the same type of equity. What we're expecting is a "recapitalization" where the equity effectively transfers from one PE firm to another. On a day-to-day basis, I'm not managing for a "flip." What I'm looking forward to most is the day the employees we gave equity to receive their payout.

(00:40:44):
Being the first to see an employee put a down payment on a home because of this—that is a big change I'm looking forward to.

Sean Taylor (00:40:59):
We're starting our fourth year. We talk about the timing and "tone" of the exit at every board meeting because conditions in the marketplace and performance change. What excites me is that when we took PE, we were 40 million and one of the first to do it. There were a lot of naysayers. When the "return" happens, we'll have 60 to 80 people telling a very positive story based on their experience.

Allan D. Koltin (00:42:52):
I was at a conference recently and an investor asked if it was time to sell based on the revenue growth. I said that's not up to me. These processes don't have "forced sales." It depends on if the partners are ready. I think 2026 is going to be called "the year of the flip."

(00:43:55):
Will we ever see a world where these different models—the "roll-ups" and the "motherships"—cross paths and merge with each other?

Sean Taylor (00:45:07):
I think there are challenges with that. I don't know that you should go outside your original thesis. There is so much opportunity just doing what we are doing exceedingly well.

Phuong Mayer (00:46:06):
You never know what the future holds, but a combination like that might force you into a different market than you want to be in.

Charles Weinstein (00:46:27):
From my perspective, it's about how you take care of your clients and people. If a combination provides a better experience for them, someone will find a way to do it.

Josh Beck (00:47:05):
It depends on the mindset of leadership. Our leadership team didn't want a "roll-up" because they were proud of what they built. We wanted peer-sized firms to sharpen us and help us break into new markets. A different model might feel contrary to that, but leadership groups evolve.

Danielle Lee (00:47:58):
Is there anything you would have done differently?

Josh Beck (00:48:11):
I was surprised by the energy. All of a sudden, leaders started thinking very big. They were finding acquisition targets and new service ideas. I even had partners on the retirement path saying they caught a "second wind."

Phuong Mayer (00:49:04):
I optimistically envisioned having access to "plug and play" marketing systems. What we're finding is that we're creating a new kind of organization that didn't exist before, so those systems don't exist yet. It feels like "startup energy"—collaboration between firms to create systems for an industry not known for innovation.

Sean Taylor (00:50:28):
Honestly, I like my PE partners more than I thought I would. The relationship became transformational rather than just transactional. Our business is based on partner unity and depth of relationship. We don't have "artificial harmony," and that's been refreshing. Access to their investors has also been an unexpected plus.

Charles Weinstein (00:51:38):
The pace of change has been a surprise. Everyone today refers to us as the "accounting industry," but when I grew up, we were the "accounting profession." We must stay true to being a profession to keep our trusted advisor status. The most surprising thing has been the passion our people have for serving clients while marrying that with business discipline. It has enabled us to move so much faster than I thought possible.

Allan D. Koltin (00:53:51):
On the client side, I had a friend whose firm did a PE deal. He wanted to leave because he assumed they would raise his rates and that he wasn't important to a big firm anymore. I asked the CEO of the large firm why he hadn't called the client to welcome him. He said, "I offered, but the local partner said he had it covered." That's a risk of losing a client because of poor communication during a transition.

Danielle Lee (00:56:35):
What is one piece of advice you would give firms considering a PE deal?

Josh Beck (00:56:55):
PE is not a monolith. It is so important to get to know who your partner is. We are uniquely positioned to assess partners. Look at their strategy and culture and make sure it aligns with yours.

Phuong Mayer (00:57:52):
The decision is not just about the transaction. PE is not a strategy in and of itself. Be clear about where you are today and where you want to go.

Sean Taylor (00:58:20):
Have your vision and strategy drawn out. Present it to the PE groups and ask if they can support it. Don't wait until after the deal to create a strategy.

Charles Weinstein (00:58:47):
Strategy eats culture for breakfast—or is it the other way around? You have to be aligned. We had a strategy first and found a partner to help amplify it. Most importantly, find a culture that shares your focus on clients and being a destination for talent.

Allan D. Koltin (01:00:35):
The link here is great leadership. Leadership matters. Congratulations to you all.

Danielle Lee (01:00:35):
Great. Thank you.