Opening Remarks & What PE Wants Now (and What They'll Want Next)

Just when you think you understand what private equity firms are looking for from accounting firms, it changes in terms of everything from deal structures and multiples, to terms and conditions, and much more. This panel will examine the current state of what PE is looking for from accountants, and what accounting firms can expect from PE.


Transcription:


Dan Hood (00:00:14):

Good morning or good afternoon, I think everyone everywhere. It's still good morning, and welcome to Accounting Today's first-ever PE update. We're doing a PE update in part because last November we did a big in-person gathering in Chicago of everyone who was interested in private equity and its impact and intersection with accounting. That included a lot of folks firm leaders, people from private equity firms, dealmakers and advisors, and accounting firms that were just interested in figuring out what PE means for them and whether it might be right for them. We're having that meeting again in November in Chicago. But we also realized that the world of private equity and its intersection with accounting is changing extraordinarily quickly. The shape of deals is changing, the types of deals that are being made, and the players that are coming in droves are changing a lot.

(00:01:04):

We're also seeing non-PE firms following in and making deals of their own, expanding the universe of options available to accounting firms looking for partners of whatever kind. This could be to clear out succession planning or about finding funding for taking your firm into the future with a strong growth strategy. All of these options and changes are rapidly mutating in fascinating and exciting ways. And so we wanted to have this event to be in between those two live events in November in Chicago to keep you up to date on what's going on. So, the point of today's sessions is to give you a sense of what's happening in the world of PE and accounting, how things are changing, and where we think they might go. We've also got a session on staying independent because some of the options there are changing.

(00:01:58):

That's going to be our second session. Overall, we're just looking at how these deals are changing, how accounting firms are interacting differently, and how the players are changing, just to keep you up to date on what's happening in the world of private equity and accounting. Again, this is not the first, and it probably won't be the last of our pitches for our November event. I'm probably going to mention that a lot. It was a tremendous event last year; we expect it to be as good, if not better, this year because this is such a fascinating topic and it has so many ramifications in different areas of accounting. It's worth pointing out—I'm going to have some data in a couple of minutes to walk you through this—but the basic premise is, lots and lots of firms think, "Well, I'm never going to get a private equity deal."

(00:02:36):

To be fair, of the 44,000 accounting firms roughly that are out there, most of them probably will never make a direct deal with a private equity firm. They may never get acquired by a firm that's dealing with a private equity firm or any of the other options we'll talk about during this session. But the impact this is having on the accounting profession is going to affect everybody. Every firm will feel the impact of this in terms of new forms of governance, salary changes, changes in the valuations of firms and what they're worth when you go to retire, and a half-dozen other things. Impacts on how firms approach technology and their investments there, how they approach their investments in staffing, how they approach their strategic planning and their plans for the future.

(00:03:19):

Private equity is having an enormous impact on that, for firms of any size and kind, and even the ones that expect never ever to be directly touched by private equity. There will be changes and ramifications that will affect everyone in the profession. So, we think it's a topic that's worth paying a lot of attention to, and we're glad you're all joining us today. I'm going to introduce our speakers for our first session in just a minute, but first, I want to go over a couple of quick housekeeping items. There are three separate sessions. In between sessions, you're going to leave the current session and go back to the attendee hub, the attendee lobby, if you will. From there, you'll go into the next session. I think we usually have about 10 minutes or so between sessions to give you a little bit of a break.

(00:04:00):

Some of our sessions may run a little long; there's a lot to talk about. But either way, the time of the next session will be in the attendee hub when you go back out there, and that's where you're going to get your link to go to the next session. So when we're finished with our first session, you're going to leave this room, go to the attendee lobby, and from there, you'll get into the second session. Similarly, after the second session, go back to the attendee lobby to go into the third session. I also want to talk about CPE. We're offering CPE—I should say NASBA CPE—for each of these sessions. To get that, you need to stay for the entire session, answer all the polling questions that we'll ask in each session, and then you need to complete and submit a CPE evaluation form by, I think it's July 18th, is the date.

(00:04:39):

That form is in the attendee hub. You can find it there. Once you've submitted it, you'll get a certificate from our parent company, Horizon, usually within about two weeks. So I'm hoping no one's here to get immediate CPE because it does take us a little bit of time to process them, but that's the general take on it. You're going to stay for the entire session, answer all the questions, and then complete the form from the attendee hub and send it to us. I think that's all of our housekeeping items. And with that, I want to take us into our first session, where we're talking pretty much; we want to get you a sense of what's new, what's the new state of PE and accounting, and we're calling this What PE Wants Now and What They'll Want Next.

(00:05:29):

It's really to give us a sense of how things have changed in the past year or so, or since the last time any of you checked, and what's going on there. But we also want to talk a little bit about what's coming up as well, and I've got a great panel for this. We're super excited. I'm going to mostly have them introduce themselves, but I'll call them out just to get them started. First off, in no particular order, we've got Phil Whitman. He's, among other things, the co-chair of our PE summit in Chicago. Phil, thanks for joining us, and tell us a little about yourself and your organization.

Philip J Whitman (00:05:59):

Well, thank you so much, Dan. It's a pleasure to be here together with you, Michael, and David. So, I'm Phil Whitman, the CEO of Whitman Transition Advisors. Like many of you listeners, I am a CPA. I've been in the profession, I can't believe it, for 42 years now. I've been blessed; Accounting Today has named me one of the top 100 most influential people in accounting for the past three years. I ran professional service firms for about 18 years, and in 2008, I started Whitman Business Advisors, now Whitman Transition Advisors. I spent six years as a solo, and then I decided I wanted to build a real business. Today, we're the single largest advisory firm for CPA firms in the nation with a total of 52 people. We are helping firms get educated in what's going on right now. We're all about education and helping CPA firms in as many different ways as we possibly can. Thank you again, Dan. It's a pleasure to be here with you.

Dan Hood (00:07:14):

Thank you, Phil, for joining us. Phil is also the keeper of the official number of private equity firms that are interested in accounting, as he keeps a list of the number of PE firms he's talked to, and it ticks up on a regular basis to its current astronomical high. So thanks again for joining us, Phil. Next up is David, and just going around my screen, there's just no particular order, is David Wurtzbacher from Ascend. David.

David Wurtzbacher (00:07:38):

Thanks, Dan. Excited that we're doing this. My name's David, I'm the founder and CEO of Ascend. Some of you may not have heard of us. We only got started in January of 2023. Just some background so you understand the context that I bring. I'm not a CPA, I have a finance background and an MBA, but the big observation we had in coming up with the Ascend idea was back in 2022. We were studying public accounting, and the world is changing quickly. I always say there is this cocktail of challenges and imperatives that were very well covered by Accounting Today. They made it really easy for us to understand what needed to be done, but we just understood that forever in public accounting you had to choose between your independence or having resources. If you decided to be independent, you could maybe augment that with an association or an alliance or something, but ultimately, if you wanted access to resources, you would have to merge up, which would require you to sacrifice your independence, which is precious to so many firms, and for good reason.

(00:08:44):

But choosing independence right now for the sake of it and kind of putting yourself on an island is a tough proposition as well. So the basic idea of Ascend was, hey, could we do something new and bring the best of both worlds together? Independence plus resources. We have raised close to a billion dollars from investors, built out resources like tech, AI, offshore recruiting, CAS, L&D, back office, stuff like that. And we've struck partnerships with entrepreneurial firms all around the country. Today, we have 19 firms. We're over 2,000 employees, over $500 million of revenue. We've done a few dozen acquisitions actually because we help our firms go on and do their own M&A. So I will do my best to kind of represent the private equity perspective as Dan's asking questions, but also know that some of what I know is really just limited to what we see inside of Ascend, but excited to be here and to help everybody get their arms around this.

Dan Hood (00:09:46):

Excellent. Thank you for joining us. I should say, if you say you started, as we know, you started at the beginning of 2023, that actually makes you a veteran of this set of changes. This is all very, very, very recent. Our final panelist is Michael O'Donnell from Sorin. Sorin is a name that many people may not be familiar with; it's relatively new. Michael, tell us about yourself and about Sorin.

Michael O'Donnell (00:10:08):

Sure. So first, I just love competition. So I just want to say to Phil, 47 years is nothing. I started 48 years ago in accounting. Unfortunately, I'm the newest kid on the block, not January 2024 like David, but Sorin started in January, January 12th, 2024. I think David started in 2023, so youngest and oldest in both of those categories. I am the CEO of Sorin. Sorin's 18 months old right now, currently the accumulation of 14 firms. We've recently rebranded as Sorin, taking away the 14 individual names. We're a consolidator. I would say we're in the band of what David and Ascend do, but we both come at it from a little bit different angles as we're out there. As I listened talking to Phil and David and others, and I think it's Alan Colton who gets on a lot of these presentations and said, "There's something for everybody."

(00:11:13):

I'm a big believer in that. There's something for everybody on the buy side. There's something for everybody on the sell side, and so it's unique. So there are no right and wrong models. Everybody's got a model, and as long as you're strategic about it and trying to fit that in on both sides, it makes sense. Just a little bit personally, the investor in Sorin is DFW Capital Partners. I've been an operating partner with them since the year 2000, so 25 years. If anybody knows anything about operating partners, that's where the firm doesn't pay you, and you only get paid if you work for one of the portfolio companies. I'm lucky enough that Sorin is the fifth portfolio company that I've been involved in, and most of them have been in consolidation plays. In fact, David, I overlapped a little bit in dental a couple of years back in a similar type of timeframe. And then just personally, I always like everybody to know a little bit good, bad or indifferent. I'm a Jersey boy, born and raised, and still living here. I've been married for 47 years to the same woman, which is an accomplishment that I'm patting myself on the back for, or actually, I should be patting her on the back.

Dan Hood (00:12:32):

We don't know who's responsible for that.

Michael O'Donnell (00:12:33):

And four kids and 10 grandkids. So that's me.

Dan Hood (00:12:38):

Excellent, very cool. Alright, I said some of this is going to be about just giving you a sense of where the lay of the land is. Obviously, from listening to our panelists, you get a strong sense they know what's going on, and they're going to be helpful with that. Before we do that, I want to share a little bit of data that we gathered just to help you get a sense of this. I can tell you that we call up that first slide there if we can, but I can tell you these slides—this is how fast things are moving—literally in the 20 minutes before this session happened, we discovered that some of it's out of date already. So this is mostly directionally to give you a sense of the direction of where things are going, but this first chart is showing the total number of PE deals and the number of Top 100 firms that are involved in deals.

(00:13:25):

This includes Top 100 firms that were acquired by other Top 100 firms that have taken PE money. So some of them weren't direct deals, for instance, Barden merging into Ciran or Seiler going into Baker Tilly, things like that. So we had a fair number of Top 100 firms; it ends up being about 26 firms. That is not an accurate number because, as I said, we've already discovered some ways in which these numbers are outdated. It's probably closer to 30, maybe as high as 35. You see a lot of estimates, people saying that they expect as much as 50% of the Top 100 firms to have taken deals by the end of this year. I think that might be a little premature, but on the other hand, firms in the Top 100 keep changing enormously because they keep getting acquired by either private equity firms or by other accounting firms with private equity backing.

(00:14:08):

But this gives you a strong sense of the number of deals we're talking about. I think this totals about 133 since 2021. We had our first three or four big ones with EisnerAmper, Shellman, and a few others, Citrin Cooperman, the pioneers of major firms taking on PE money. It's about, say, 133 is what we counted up. Probably you could add 20 or 30 more that we didn't get, that weren't reported to us, or that we simply missed. But that still gives you a sense of, like I said, there are roughly 44,000 accounting firms out there. So when you think about that, given all the headlines and all the talk about it, direct deals with private equity are relatively few and far between for accounting firms, but their impact is much, much broader than that. As we'll discuss a little bit, we're going to discover that the firms that are of interest to private equity firms and other investors that are pursuing similar strategies, which more and more we're seeing that come into the profession, the number of direct deals isn't as high as you might expect, but the impact of them is much broader than you might expect.

(00:15:16):

So that gives you a sense of deals, the total number of deals, and Top 100 firms that are involved in deals. Our next slide breaks this down a little bit, and like I said, this is already a little out of date. Part of it, I made a mistake in my calculations, but you can see what we got here is the three different types of deals we're talking about when we think about private equity and accounting. They're straight-up private equity deals where a private equity firm buys an accounting firm directly and usually provides them with funding to go on and often to pursue an M&A strategy. That's why you'll see those are those follow-on deals. That's often the biggest bar in any of these, which is accounting firms that have been acquired by a private equity firm and then had their M&A strategies turbo-charged.

(00:16:03):

So you'll see just in 2025, there are 15 of those deals. Now, the number next to it of roll-ups, and that's firms like David's that have gone out and they go out and acquire individual accounting firms, but those firms operate with a varying degree of independence depending on the platform type firm we're talking about. In some cases, they're straight on brought into a firm. In some cases, they operate so they maintain their independence but interact with the other firms; it varies. But the basic premise is you're buying individual accounting firms as a platform, not as an accounting firm yourself. There are a lot of those. We've seen a lot of those deals. This is missing probably a number of those deals because many of those platform firms operated under the radar when they first started out, and so definitely there's a little low on that front, but it's still directionally correct, I think, particularly for 2025, where that number four should actually be 11.

(00:16:55):

I transposed two cells, and that should also be noticed that 2025 is only the first half of 2025. It's the first half at half a month from 2025. I finished it yesterday. But if you think about that, you extrapolate from that. We're looking at far more deals in 2025 than we had in 2024, which is up from 2023, which is up from 2022, all of which you would expect this continued growth. I think a couple of things we'll see going forward is more deals that aren't specifically strictly private equity. We'll see more wealth management firms coming in and buying accounting firms. We'll see more outside investors taking minority stakes in accounting firms. We'll see more venture capital coming in and working with accounting firms as opposed to pure PE. But the basic trend is just lots and lots of deals, and there's going to be more and more, and this is having all kinds of impact on things like valuations and so on.

(00:17:48):

We're going to talk about all that with our panel in just a second, but first, I think it's time to get to our first polling question. So if we can call that up, you need to answer all these to qualify for CPE. I know you'd rather be interested in PE than CPE, but we do want to make sure that those who want it get it. So let's go ahead and call that poll up. On the first one, we're asking about whether you are currently considering working with PE and your possibilities here. You're already working with PE. You're open to it, but you haven't had any discussions. You have contacted or been contacted by private equity firms but haven't had any discussions. You're meeting with PE firms currently, or you've considered private equity and have rejected the idea. I think that's a pretty exhaustive list. We might have missed some variations on it, but for now, go ahead and pick one of those, click on that, and then click the button to submit to make sure it gets registered for credit.

(00:18:39):

You need to answer all of our polling questions to qualify for CPE. So in this case, we just want to figure out whether you're considering working with PE. A lot of firms are certainly thinking about it, whether they've actually taken any action or been talked to by private equity firms. We hear from accounting firms that they're fielding a lot of calls, but we're just curious to see what our audience today is thinking about this or what their experience of it is. I should mention you can put questions in the Q&A panel there throughout the session. We'll try to get to as many as we can at the end of the session, but we may not have time. There's a lot of ground to cover, and I know our panelists have a lot of fascinating insights to share on this topic, so we'll try to get to as many as we can.

(00:19:21):

But for now, we're asking the questions. We want to know if your firm is considering working with PE or already working with PE. You're open to it, but you haven't had any discussions. You've been contacted; you have contacted or been contacted by PE firms but haven't had any discussions. You're meeting with PE firms currently, or you've considered PE and rejected the idea. I should say when I say PE firms, that's mostly what we expect firms are being contacted by. You may have been contacted by other outside investors; include those under the rubric of PE for the purposes of this question. We do know, as I said, Phil keeps track of that. Was it 219, Phil, was the last number?

Philip J Whitman (00:19:58):

19 to date? Well, that's just who I have met with.

Dan Hood (00:20:02):

And it was not long ago that that was in the fifties, if I recall. I think the last time, middle of last year, we were looking at, I think you talked to 50 or so firms, and it just keeps...

Philip J Whitman (00:20:12):

I think since Blackstone validated the model by having their first turn and taking New Mountain out as part of the Citrin Cooperman, I think groups are saying, "Hey, if Blackstone's in it, I got to get in it." And they're really coming out of the woodwork.

Dan Hood (00:20:30):

You know what, we had a question from the audience that makes sense for us to answer at the beginning. It's a little bit of a definitional question. Somebody's asking, when we talk about being bought by PE, how are we defining that? They're asking, is it greater than 50% ownership? And that's what I've been sort of treating it is. If you're getting more than 50% ownership, you're buying it; you have some control. Smaller than that would be a minority investment. Is that a fair sort of floor for buying, Phil?

Philip J Whitman (00:21:04):

Well, what I'll share with you, because it is a very emotional process, I always use the term private equity is making an investment in your firm. They may buy 60% of your equity, but there certainly are some minority investors out there as well. But I would say being bought, if someone has greater than 50% of the equity of the firm, I think that would be a fine definition.

Dan Hood (00:21:33):

Gotcha. For press release purposes, we'll say making an investment. For our discussion purposes today, we'll call greater than 50% ownership. Excellent. Alright, I think everyone's in for the polling question, so let's go ahead and close that up. If you haven't had a chance to answer it, please do so now, and I'll count you down 5, 4, 3, 2, 1, and we'll see what these responses are. And they're a pretty broad mix. About a quarter say they're already working with PE; just over a quarter say they're open to it but haven't had discussions. Only about 13% say they've been contacted but haven't had any discussions. 7% are meeting with PE firms currently. And then again, just over a quarter, about 28%, say they've considered PE and rejected the idea. Alright, that's an interesting mix. A little different from what I expected, but definitely interesting. With all that in our minds, let's move to our panel and start talking about what's going on with private equity. I want to start by talking a little bit about what private equity firms want from accounting firms. I think a lot of accounting firms are interested in what private equity can do for them, but I think it's always worth bearing in mind if you are buying or making an investment in an accounting firm, you must be doing it for a reason. You must want something out of it. There's a bunch of possible answers, but let's talk a little bit about that. David, I'll ask you this first. What do you think private equity firms are looking for from accounting?

David Wurtzbacher (00:23:07):

There are so many things about the accounting profession that make it interesting from an investment perspective, and any CPA that's been in the profession for a long time understands intuitively what those characteristics are. But I think it's just important to name that private equity as a business model is that they raise money from insurance companies, pension plans, endowments, foundations with the promise of generating a return that ultimately flows to those stakeholders cops, firefighters, teachers, students, hospitals, these kinds of causes that are actually pretty easy to get behind. And so private equity is in the business of generating returns. I think that return generation in private equity is totally different than in the partnership model, where it's very income-based and your buyouts when you retire and everything. I hear a lot of noise about, "Oh, private equity is coming in to cut costs and whatever," and that's just not happening.

(00:24:07):

The way they want to make a return is they want to make the businesses better. And so what generates those returns is revenue growth, operating leverage, collaboration, business development, innovation, doing M&A. I think what we're seeing is that the private equity community understands that they need to share their returns with the CPAs, which is a very good thing. That hasn't always been true in other industries that have had private equity come in. So I think at a minimum, you've got this common denominator of private equity needs to make a good return. For some private equity firms, they're very focused on that, and that is sort of it. I think everyone that's considering should really try to get to the bottom of that so that you can line it up with what you care about. But there are going to be others, and I'd put Alpine, who's our private equity backer, in this camp, where the ambition is far greater than returns. In my mind, it would not be a success if we generated a great return but didn't leave a mark on the profession and leave everybody better off in public accounting. So I think you'll also find that there are a lot of people who, in addition to returns, want to transform the profession and make it better for everybody, really so that people all around the country can have the trusted advisors they need. It's a little bit in question over a multi-decade time period. So yeah, I'll let you pass it off to someone else, Dan.

Dan Hood (00:25:27):

Alright, well that's a lot. That's great. Michael, how about you? When you think about what private equity is seeing in accounting firms, what makes them want to come into this profession and get involved?

Michael O'Donnell (00:25:38):

I'd probably give you the specific example of DFW and what we looked at coming in after doing a lot of due diligence. Nothing's going to be surprising, the parameters of what you hear. Private equity is not interested in investing in a partnership. They want a true CEO-led organization. They're interested in those that are getting behind the technology movement that needs to be advanced and can bring to bear investment dollars to help that. And an acknowledgment of the workforce issues. A lot less accountants coming out of school and in the marketplace, and those that are here are probably working less hours than Phil did when he started in busy season and the like like that, right? So it's a changing marketplace and the changing dynamics. I think they're not looking to just retire people. They're looking for young entrepreneurial partners. That's a much better acquisition profile.

(00:26:49):

Again, very specific to a strategy that we got behind in our first acquisition with Harris, it had a lot of those parameters—not perfected, none—but had bought into all of those pieces. It started down the road, but really the culture was one of the things, and you hear that a lot, and that gets defined differently. But the first 110 people that were there when we bought in, we really backed that idea that you really got to care about the clients, you really got to care about the employees, and you really got to care about the community. So we're in that smaller firm, mid-size firm marketplace that a lot of other people are in. So we took that to heart, and then as we wanted to expand, it was really a one-firm concept. Again, I'm not saying this is right or wrong, but our strategy was not to leave the names on the door too long. If you wanted in, you bought into the complete strategy. We picked the tech stack, and it might not be yours, and you wanted to be part of something bigger, part of continuing to grow something. You might've grown a firm to 10 or 20 million; now you're going to be part of growing it to something like 300 million.

(00:28:04):

We're just under 200 now. We will be at 500 in a couple of years like a number of the other firms on this call. So I think that's what we are looking for. Now, what's the essence? I go back to what David said is, "Hey, listen, they're investors, buy low, sell high and affect the strategy along the way and give any kind of support that you can." And so, find people with good strategies and move that along and invest in what they're doing.

Dan Hood (00:28:34):

Excellent. I don't think we can emphasize enough how much private equity is an investor. I've seen a fair amount in regular, sort of traditional accounting firm M&A of accounting firms buying other accounting firms. There tends to be an attitude on the part of some accounting firms that the person coming in is there to help them. They're bringing money to help them fund their retirement, to help them fund their strategy, as opposed to realizing the person who's buying your firm, whether it's an investment, a stake, or fully buying it. They have goals of their own. They have investment goals and things that they want to achieve. They're not just there to help you figure out your retirement, not just there to help you turbo-charge your strategy. They're there for their own goals. So it's always worth remembering that the other side of the table has some reasons for what they're doing beyond just helping you solve your capital access problems. So always worth re-emphasizing that. Phil, how about you? When you look at the 219 private equity firms coming in and talking to you, what do you think they're looking for from accountants?

Philip J Whitman (00:29:37):

So first and foremost, everything that David and Michael suggested is absolutely valid. I think everyone is looking at the accounting profession as a cottage industry 44,000 firms, 35,000 sole owners, sole practitioners, 10,000 or so firms with two or more partners. I think private equity and other strategic investors are looking for great partners, passionate partners, firms that are growth-oriented, either having had significant organic growth, but also firms that have demonstrated strength in doing merger and acquisition on their own and integrating firms successfully. I think one of the reasons why we can safely say that many firms will not qualify, or private equity may not be interested in many firms. Again, if you're making an investment, it's about profitability. I think there are firms out there that are very, very, very profitable, dropping more than 50% to the bottom line before partner compensation. Obviously, there's a new way of valuing CPA firms.

(00:31:11):

The old one times gross revenue, a $10 million firm would be a $10 million firm. If I were doing a deal with a firm, a top 100 firm, many of them would probably say, "All right, you're going to come in, we're going to give you 10 million of equity, no cash exchange. You'll get a retirement benefit on the back end, or you'll fall into our formulaic salary-based back-end buyout." Today, that game has totally changed. I mean, for those out there that don't have experience, folks like David come in and Michael comes in and they create EBITDA. They look at the amount of money you are taking out as a partner, and they say, "You may view that as compensation, but the reality is, if I could go out and I can find a partner to do your work, I might have to pay them 300,000."

(00:32:10):

So if you're making a million bucks a year, that extra 700,000, that's the profits of the firm, and that's what we're interested in having a discussion with you about. How much of that are you willing to leave behind because that's what we're going to buy a percentage of. So I really think it's great partners, partners that demonstrate during the process that they're going to be great partners. I can't tell you how many times I'm chasing CPA firms when someone like David or Michael says, "Can you send me the following seven or eight things?" and they haven't closed their books from the prior year, and they're giving 2023 numbers, not 2024 numbers. You got to act like you're excited and you want to be partners with them and demonstrate passion because what they're going to ultimately look for is alignment and people that have self-accountability. If you're not willing to, I guess during the dating process, demonstrate that you're going to be a great partner, then I don't think there are going to be very many folks that'll be interested in you. But I will tell you this, and I've been speaking about this across the country, there has never, ever, ever been a better time to be a CPA firm than today.

Dan Hood (00:33:41):

We've said that about a number of this. This is only one aspect of that. There are a lot of other reasons why it's a great time to work in accounting. Casual Fridays is one of them, but we can go on. There's a million different ways it gets better and better as a place to work. We've just got to get people to know about it.

Philip J Whitman (00:33:58):

But can I wear jeans, Dan? Can I wear jeans?

Dan Hood (00:34:00):

No, listen, the change that made for so many people is enormous. There's never been a better time, as you say, to be an accountant. This is a little bit more epic in scale, but I think it all comes together. I don't know why people aren't flocking to the profession in droves. Phil, you talked a little bit about what makes a firm attractive, right? Strong, passionate partners, strong growth strategy, a forward-looking sort of thing. What are things that would make an accounting firm unattractive to a private equity firm? What would make them go? "No, we'll leave you to some of the later entrants."

Philip J Whitman (00:34:33):

Well, I have to be honest with you, Dan. Sometimes I scratch my head because we've done transactions where managing partners of Top 100 firms that are not private equity-backed have met with some of these smaller firms and have come back to me and said, "This is an end-of-life firm." They have no future partners in the ranks. They waited too long, managing partners in his seventies with 60-year-old partners—not that 60 is old—but no next generation. Without that bench strength, unless they have a really, really strong niche that would add some depth or breadth to the firm, you would think that private equity would not be interested.

(00:35:36):

I think there's like Baskin-Robbins; there's a flavor out there for everyone, and we've done transactions with those end-of-life firms where, take a $5 million firm, and the managing partner of the large firm was, "I'll give them 60 cents on the dollar, and we'll do a collections-based transaction." And lo and behold, private equity comes in and they get $3.5 million upfront for their $5 million firm and a projected $8.9 million payout over five years. But that's because private equity is able to tuck them in, bring exhaustive and tremendously successful recruitment efforts. You know what? There's a fallacy out there. Firms will tell me, "I've tried everything. I can't hire a tax manager. I can't hire an audit senior. There's just nobody out there." The reality is they're out there. They're passive candidates; they're sitting in their seats, and firms hire one or two recruiters, and the recruiters are blasting them to everyone else, and they're not getting their application, and they say, "Nobody's out there."

(00:36:59):

I don't know. I think later if we ask David how many folks Ascend has hired since they began and what their recruitment team looks like, I believe the people are out there. I believe obviously not as many enrolled, although this year enrollment, I believe in accounting programs is up at universities. I don't know that they're teaching them the right things because the way we taught them when Michael and I went to school, it should be very different. But I think they're still using Kieso and Gans' Intermediate Accounting book. But in any event, I think profitability, strong niches, that history of organic growth, a cohesive partner group—if you can't check those boxes, it'll be more challenging for you. But I truly believe, as you've said, there's something for everyone out there. There really is.

Dan Hood (00:38:02):

David, how about you? When you look at a firm, what makes you go, "Ooh, no, no, no, no." What's unattractive to that accounting firm?

David Wurtzbacher (00:38:09):

I think what makes a firm attractive or unattractive to private equity totally depends on the strategy. If I am a mothership-type buyer, I'm looking for someone who's going to cooperate and do everything my way. If I'm on the independence end of the spectrum, you're looking for something different. So it just totally depends on who the buyer is. For us, we're looking for middle-market firms that have strong cultures, young, energized partner groups that are aligned around a big vision of what they're capable of but have enough humility to say, "Hey, in this moment in the profession, we could use some help. We could go further, faster, or do it better if we had help and resources and talent all around us and collaboration." And we're looking for people who care a lot about their independence. If all those things are true and you're in the $15 million to $50 million revenue range, like I said, in the middle market, we're really excited about that. If the opposite of those things are true, then it's probably not a great fit for us.

Dan Hood (00:39:14):

Gotcha. Michael, how about you? When you look at firms, what do you think would rule the firm out?

Michael O'Donnell (00:39:20):

Well, I think first is, I hope I'm not looking at the same ones as David because we have very similar criteria, but right away, competition price goes up—good for the firms. Ours is, I think really the things I ticked off before. People sometimes say they get caught up from a firm standpoint, everybody's talking to PE and let's talk to PE, but they're really not that interested. What they're really interested in is monetizing. The ones you've figured out pretty quickly are the ones that are looking to monetize but keep on doing what they're doing and don't have anybody tell them what else, right? So those are the ones that just kind of don't go anywhere. The excitement for us, the excitement has to be in our strategy. We spend a lot of time upfront articulating who we want to be, who we are, how we want to get there, what it means to come on board, and you got to buy in. I don't want to say it's kind of like a fraternity or something, but you got to get past the secret oath and all that swearing blood, and it's like, let's go.

(00:40:29):

And then we're all on the same team. So listen, we've turned away a bunch. Not that we don't want—listen, I'd like to buy everybody, but I only want them if they want to buy into the strategy and be part of what we're doing. I go back to, just like David's probably seen this and Phil, I'm sure he's seen it from a distance, but every time we buy somebody, we're buying significant talent. I think about it, I said, I think David did more, but we did 14 acquisitions in 18 months. That's 14 CEOs that we brought in, and that's on the client production side of running a business. Then we're supplementing that with equally talented people, a lot of chiefs, CIOs, and CHROs and CFOs, and all that type of stuff. I just think it comes back to what David said is you got to buy into the strategy if somebody has to have a strategy.

(00:41:29):

I will say that one of the things we were very cautious about, private equity is still new, and all of the cocktail parties and fears that everybody has about private equity, in some cases, are true. I've been on the private equity side for a long time, so people worry about somebody heavy-handed, cutting costs, taking control, all of that. So if I'm a firm, I want to be very careful. It's a two-way street here. I know what we're looking for when we go in and we're pitching it, but I would encourage every firm to really do a deep dive on how they're willing to take on an investor, and I'll just put it in an investor category. I think that's pretty critical. By the way, there's somebody for you no matter what you want to do.

Dan Hood (00:42:22):

Right. Well, again, to both Phil and David's point, not just understanding that, but understanding their specific needs. If everyone's coming with a different case and a different theory and a different approach to what they want and what they're going to do, you need to know what they want and what they're willing to do. So it's important for firms to do their homework. There's a lot to talk about, but we're going to forget to our first, our second polling question, so I want to call that one up because we do need to get this information. Everyone gets their CPE. The second question we're asking is what do you think are the most important things that private equity can bring to an accounting firm? The sort of biggest benefits. Is it access to capital? Is it business expertise? And you can choose all that you think apply. Is it technology expertise? Is it help with staffing? Or is it something else? We deliberately left out "help with our retirements" on the assumption that you could fit that under access to capital if you absolutely needed to. But as I think we've mentioned a couple of times, private equity is not coming into accounting solely for the purpose of helping you figure out your unfunded retirement plan.

(00:43:27):

They have their own goals and things they're willing to supply you as an accounting firm in the hopes of making you stronger and better going forward. So again, what do you think of the things that are most important for private equity to bring to an accounting firm? It doesn't need to be your firm; it can be just accounting firms in general. Is it access to capital? Is it business expertise, technology expertise, help with staffing? We mentioned, I know Ascend does. I know a lot of firms, a lot of firms are bringing in help with finding the staff that are out there and new approaches to finding that staff or something else entirely. Something else that we've missed on this list. So go ahead and click through a button that works for the answers. Using this one, you can choose all that apply, and then hit submit to make sure it gets registered for credit.

(00:44:12):

We'll leave that up for a little bit to make sure everyone has a chance to answer just to make sure everyone gets a CPE. We got a number of good questions, and one of them I want to just really quickly just sort of go around the horn and get a sense from all of you if you're interested in this question because it's an interesting one from a bunch of different perspectives. Someone is asking, how close are we to the point where there will be no or very few accounting firms left that are worth buying? Anybody want to jump in? I would throw in a thing that seems like every time we reach that point or come close to that point, private equity firms come in and say, "Well, we're willing to look at a different universe of firms. We're willing to look at firms that maybe are smaller than the ones you thought were exhausted." But I don't know if any of you have any thoughts on, have we stripped the shelves bare as it? I think Alan Colton sometimes describes it as the supermarket shelves on the day after Thanksgiving. Everything's empty, and there's nothing left. Michael, you were shaking your head there. Do you have thoughts you want to share on that?

Michael O'Donnell (00:45:11):

Yeah, I mean, I think we're a long, long way, if ever, from having that problem. I think you said it appropriately, the industry will adapt as we move. You may see as bigger ones or size, if you're left with 30,000 on the bottom that are $1 million to $2 million in revenue, you're probably back at some point to where they're being taken out for retirement at one times, one times revenue, and you're bringing in the client base at that point. So I think there's a long way to go. I think it's more going to be dictated by the digestion periods. I don't want to say there's a little slowdown right now, but there's been a feeding frenzy in the last 12 months, and those that are still talking but kind of want to sit tight, I think we got to get through another tax busy season, and I think the spring is spring eternal. We're going to see a lot of people saying, "I've thought about it. I've seen what's happened or not happened with other friends in other firms. I'm ready to go." And I think you'll see another real big push.

Dan Hood (00:46:30):

There you go. Excellent. Alright, I think we're ready to close this poll up. If you haven't had a chance to tell us what you think the most important things PE can bring are, please do so now because I'm going to close this poll up in about five seconds. I will count you down 5, 4, 3, 2, 1, and we'll close that poll up. If you haven't had a chance to answer, I'm afraid we're closed, so we'll look at those results in a second. But I think that's an interesting question to think about. One of the things we see is that there's a fairly constant rate of new firm formation, and there are people who talk about that. Actually, the entry of PE may have sped that up a little bit in the sense of there are people leaving firms that have taken private equity money, not necessarily because they've experienced PE and didn't like it, but just because they deserved their immediate reaction was, "That's not the kind of firm I want to be a part of," which is legitimate. It doesn't say anything bad about PE; it just means that's their choice. I think we'll probably see that that'll speed up firm formation a little bit. Phil, does that make sense to you?

Philip J Whitman (00:47:34):

Absolutely. I'm in alignment with Michael. I think we're going to have a 10-year run at least of continued activity. When we think about it, right now we have only the Blackstone New Mountain transaction with Citrin, which was validation. I think as we have more successful turns, people that have been sitting on the sidelines are going to jump on the bandwagon, and you're always going to have a couple holdouts with the idea of, "Well, EisnerAmper got like a nine, and the most recent deal got a 15-plus. The longer I wait, there'll be less desirable firms, and maybe I'll get a bigger multiple." Don't wait too long. There is a point where age is a factor, but I think that there's a very long road to go, and we have seen multiple firms being formed, both out of people that get out because they don't want to have any part of it. Not that private equity has done anything wrong, but also on some of the larger firms, and I'll call it like the direct, the Citrins, the EisnerAmper, the Cherry Bekaert, we have seen them release some partners, whether they were non-productive or administratively handicapped. They've sort of showed them the pavement, and you see an amalgamation of them getting together and trying to make a go of it.

Dan Hood (00:49:28):

Cool. Let me just quickly get into these. The results here, the overwhelming—it's not the majority, but it's the plurality—Access to capital 40% was the biggest one. Business expertise, 19%; tech expertise, around 23%; help with staffing, at around 15%; and then other, around 3%. So capital being the top interest, but then business expertise and tech expertise following up pretty close. I want to talk a little bit about why accounting firms, the accounting firms that so far have made deals. What are the main reasons that you see them partnering with private equity? Mike, maybe you can kick us off here. What's making it attractive for them? Why did they decide to go the PE route?

Michael O'Donnell (00:50:11):

Why did the investor DFW Capital?

Dan Hood (00:50:14):

No, no. Why are you seeing accounting firms, whether it's the ones in Sorin or any others that you're aware of? Why are they saying, "Yeah, you know what, PE is right for us?"

Michael O'Donnell (00:50:24):

Yeah, I think the concept of monetizing is monetizing some of the value that you've built up in the firm that you've built as partners. I think that is very, very attractive. I think the idea that the market or the profession is changing dramatically, and you're back to size is going to matter because with size, you can make the investments from a technology, all the different things, the access to capital that you talked about, and the technology getting bigger, bringing in, being able to afford more expertise, being able to do more things yourself, being access for M&A so that you can do, instead of referring a lot of things out, start doing things internally with some of that expertise. So I think it's those that are really looking at where the industry is going, where they've been, and where it's going and trying to go. I'm not a hockey guy, but what's that, go where the puck's going, skate where it's not where it's been, skate there. So I think there's a lot of different reasons. I think you get figured out pretty fast. If I think Phil was describing the 70-year-old that's just looking to get out and looking for retirement money, that's not a real exciting purchase for anybody from an M&A standpoint at this point.

Dan Hood (00:51:55):

So Phil, what do you see when you see firms taking, working with PE? What's driving that for them? What's their main reasons for partnering up?

Philip J Whitman (00:52:04):

First, so obviously everything that Michael said, I think also, well, I think there's five main reasons, maybe six. Number one, it is that pot of gold at the end of the rainbow, that wheelbarrow full of cash because instead of me working another 15 years and then getting a retirement benefit where I'm going to be paid out over another 7, 8, 10 years, I take some chips off the table. That's very attractive to me. Number two, folks like Michael and David go to their prospective investees and they say, "Oh, and by the way, all that HR, IT, finance, marketing, all that, you don't have to worry about it anymore." If you are a small firm, typically, if David, Michael, and I and you had a firm, Dan, you'd be the HR partner, David would be focusing on technology. I'd be the guy that's behind there doing the books and putting together our personal financials.

(00:53:17):

Maybe I would, maybe I wouldn't. Maybe I still wouldn't have 2024 numbers at this point in time, and Michael would be the marketing guy. You know what? That's not the best value use of any of our time. Our expertise is servicing the clients, spending more time with the clients, adding additional service offerings for them. So I think it's getting out of the business of administration. I think it's also succession and transition. Let's face it, we're still a baby boomer-dominated profession, and everyone will say, "Yeah, that 71-year-old, I'll go another two or three years to transition." But the reality is it is a succession and transition play. I think talent is a big reason, that quest for talent. If I go and I join David's organization, I know he has offshoring services, and he's got a dozen or so recruiters, maybe more, and probably since he started, has hired 300 or 400 people for the firms that are under his umbrella. I think it's also, I as a smaller firm, even if I'm that firm that's 10 or 20 million, when I join an organization like Michael's or David's, some of the other private equity-backed firms out there, I have access to additional service offerings.

(00:54:45):

As Michael said, that expertise that's in-house, I don't have to send cost segregation out. We got an expert. I got R&D tax credits. Oh, we got a wealth management platform too. Now all of a sudden, all these revenues that we have in the past either not referred out or referred out and not monetized. Now we have the ability to monetize that. Obviously, as Michael said, bigger is better bigger firm, bigger clients, bigger clients, bigger fees, bigger fees, greater opportunities for your people, more exciting opportunities. It impacts retention; it impacts recruitment. So I really think those are the reasons that most firms are evaluating the private equity-backed investors.

Dan Hood (00:55:43):

David, how about you? What's the primary reason you see firms going the PE route?

David Wurtzbacher (00:55:49):

I do think it's helpful. It might be helpful to the audience just to understand that a lot of the conferences and podcasts and stuff, the on-ramp into this discussion is, "Alright, so do you want to do ESOP, private equity, or stay independent?" And it's just like, "Here's everything you need to know about those options." I think really these are just capital structure solutions that are downstream of choosing your strategy. Every firm in public accounting needs to be thinking about their strategy because the world is changing, competitive dynamics are changing. There are long-term trends that none of us can avoid.

(00:56:23):

Any firm that seriously thinks about their strategy and being relevant in the future is going to come to the conclusion that they need at a minimum to make some investments and maybe that they need some help making those investments in the best possible way. So that's just to sort of double-click on some things that Phil and Mike said, but maybe just to add something a little bit different, I really believe that a true catalyst for the momentum private equity has had in the profession is the talent shortage. If you're out in the market trying to recruit somebody into a regular old public accounting firm, you're not any different than most of the 40-some thousand firms.

(00:57:00):

The people that have joined Ascend, they said, "Hey, this partnership is going to allow us to offer something different to our employees." What are we offering? Well, we have growth capital now that provides opportunities to everyone that works at these firms. We're investing in leadership so we can run better firms. We have access to proprietary AI and captive offshore. This allows me to accelerate and elevate my career. By the way, I can get modernized economics because private equity changes the game on the currencies that are available that you can use to pay people. So now they don't have to wait till the end of their career to get these ordinary income payments in their seventies. They can start making money during their career, and that's pretty compelling. So I think that's probably the number one reason that sort of set off this whole string of momentum here was just firms saying, "Hey, we got to compete for talent, and this is a great way for us to do it."

Dan Hood (00:57:57):

Very cool. I've got more questions to ask. We've got some audience questions, so I'm going to say all of our questions are now, and have to be sort of lightning-round style, quick answers as quick as you can because, like I said, we could talk about this for days and days and days, but we've only got about 12 minutes. So I want to, again, lightning-round style. David, to start with you, talk a little bit about what private equity has learned from its experience thus far with accounting firms. We've said it is all relatively recent, but you've been in since 2023, and we're looking at it well before that. I know Phil, obviously you've been paying attention for a long time, and Michael, I know similarly as a fairly long time, given how short the period of time this whole era has been. Maybe David, you could start with us telling you what has private equity learned from its experience thus far with accounting firms? How has maybe the thesis changed?

David Wurtzbacher (00:58:45):

Two things we've learned, just to be quick we had four firms on Accounting Today's top 25 fastest-growing firms last year. What that tells me is opportunity is everywhere if you focus and you surround yourself with the resources to go get it. The second thing is, the most common question we get is, "How is this good for my young people?" Everyone's pretty dubious that there might be an actual answer to that question, but on the other side of this, young people are the ones who are most excited about private equity because it represents so much opportunity and career advancement potential for them.

Dan Hood (00:59:15):

Mike, how about you? How do you think private equity, or what's it learned since it entered the accounting space?

Michael O'Donnell (00:59:22):

Well, you might think this is funny, but one of the first thing we learned is that accountants are absolutely horrible at doing accrual accounting on their own books.

Dan Hood (00:59:33):

I wish I was surprised by that.

Michael O'Donnell (00:59:35):

No, I agree with you. I think the biggest thing we learned is if you're talking to the right people, the enthusiasm abounds for what could be. If we're in the right discussions, it makes diligence quick and easy. It makes the strategy and everything coming together. So for us, I think pleasantly surprised at the welcoming, and maybe we've just been lucky with the ones that we've been talking to, but it really has been great.

Philip J Whitman (01:00:11):

Okay. Phil? I think three things. I think they've learned they got to move more quickly because there's tremendous competition out there. I think they've also learned they need to be more selective. As David said, there are great firms out there and there are greater firms out there, and I think they've learned that chemistry and culture still trumps all that. It doesn't matter. I mean, you don't want to—I hope I can say this—there's that book that Bruce Madic of Friedman, former CEO of Friedman, and I'm sure Fred and Harriet, Fred Burke and Harry Greenberg followed his footsteps. But when one of the new partners came in, they would give out a book. It was called The No Asshole Rule. So I think...

Dan Hood (01:01:00):

You try to call that the "no jerk rule," but okay.

Philip J Whitman (01:01:03):

The no jerk rule. So I apologize for using an expletive there, but chemistry and culture.

Dan Hood (01:01:11):

We're going to get calls from the FCC. I didn't realize we needed to have a seven-second delay on you there. No.

Philip J Whitman (01:01:18):

Great. My rating just went way down.

Dan Hood (01:01:21):

Well, but with some people, I think it went way up, but no, that is, yeah.

David Wurtzbacher (01:01:26):

Phil, you're right. I think it's a relationship-based profession, and that's never going to change. So for the chemistry to work with private equity, they've got to understand that.

Dan Hood (01:01:36):

Yes. Yep. Alright, let's call in our third polling question. Let's get that going. We do need to get that in before the top of the hour. And in this case, like I said, it's our third one for those who are keeping track. And we just want to know what if any concerns you would have about working with PE. Again, you can choose all that apply. Is it a question of loss of control? Is it micromanagement? The fear that they're going to come in and tell you how to fill out tax returns, which I can assure you none of them are interested in doing, but that could be a concern. Is it pressures to lower quality? We've heard accounting firms feel concerned about, well, it doesn't mean that they'll be delivering less value to clients in an attempt to raise revenues. Is it about potential conflicts of interest, something else?

(01:02:18):

Or do you have no concerns at all? These are perfectly reasonable. You can choose all that apply. Obviously, if you choose, "I have no concerns," don't choose anything else. But otherwise, go ahead and click the radio button or buttons to the left of the answer or answers that work for you and then hit submit to make sure they get registered for credit. There are so many questions from the audience. I want to see if we can grab, get one of them into here real quick. Maybe David and Mike, if you can talk a little bit about this. When you bring on a new firm, when you bring a new firm into the fold, do you have a sense of roughly how long it takes to get them sort of onboarded? Is there a standard process for every firm, or does it vary depending on the firm, or do you have a regular timeline for them? I don't know who wants to jump in?

David Wurtzbacher (01:03:05):

I'd say for us, we're 80% integrated on the day that we close. You probably have another month to work out some of the kinks that you just can't do. Then in terms of being kind of integrated with our management system and getting you off to the races, that probably takes about six months to get everyone to set a new vision and get them resourced appropriately to go execute it. But in the world of private equity M&A, integration is happening much, much faster than it has happened over the decades of this profession where people said, "Oh, let's just integrate ourselves over a period of three years." That's an eternity.

Dan Hood (01:03:45):

Excellent. Mike, any sense of the onboarding timeline for you guys?

Michael O'Donnell (01:03:51):

So we start right away, and things like getting everybody in on Workday and up on Sage Intacct and the finance and accounting and HR stuff happens relatively quickly. I would say that we got kind of two times a year post busy seasons, both times for tech integration, and that's on the tax side. What we've really lagged a little bit, we've just picked our go-forward audit tech stack, and so we'll be integrating June 30th, ones after 12/31, and 12/31 audits after 6/30 going forward over the next 12 months. So for us, there's a conscious immediate effort as we're coming out of diligence to have the planning and get everybody to buy in, but we're not trying to disrupt any of the day-to-day work that needs to get done because integration is disruptive and first time through inefficient as you go into the next season. So we're trying to do it logically.

Dan Hood (01:05:00):

Gotcha. Alright, we're going to close this poll up in a couple of seconds. Before we do that, though, I just want to get our panelists thinking about the final question. We only have a few more minutes left, so I want to ask you all to think about how the deals that PE firms are making are different from the ones they started making in 2021, 2022, or in some cases even in the past six months. We know that these deals have been changing on a regular basis. We'll get to that in a second, just to prep you. But for now, if you haven't had a chance to answer our polling question, please do so now because I'm going to close this poll up in a couple of seconds. Again, we just want to know what concerns you might have about working with PE. Again, you can choose all that apply unless you choose, "I have no concerns."

(01:05:40):

It's loss of control, micromanagement, pressure to lower quality, potential conflicts of interest, some other concerns you may have, or you're totally comfortable with it. If you haven't had a chance to answer it, please do so now because we're going to close that poll up in about five seconds, and I'll count you down 5, 4, 3, 2, 1, and we'll get some results from that in a second. We have limited time. I want to quickly start getting at least to that question I just posed, which is how are the deals changing? David, maybe you can kick us off on this. How do you see private equity deals changing, whether your own or the ones you're seeing out in the market?

David Wurtzbacher (01:06:15):

I think the big thing that's happened over the last few years is that those original deals were private equity firms making direct investments in very large public accounting firms. There's a lot about that that's still the same that structure of the deals, the alternative practice structure, rollover, all that kind of thing. I think the two big differences that I see are that there is now a much bigger market for Top 500 firms instead of just Top 100 firms. There's a market even beyond the Top 500, but that's a big difference. Second, I think the big difference is that there are a lot more options now where you can kind of access the benefits of private equity without being directly tied to private equity. Ascend's an example of that. Sorin's an example of that. There are many, many others, and I think that's a pretty big difference in terms of what these deals look like.

Dan Hood (01:07:07):

Excellent. Mike, how about you? How do you see these deals changing?

Michael O'Donnell (01:07:10):

Yeah, I agree with everything David just said. I would tell you that from a Sorin perspective, we like to look at our deals, our deal structure not changing because it's tied in with the strategy and who we want to bring on. We've kept a fairly simple, clean, what I would call clean structure. You get a bunch of cash, and we want skin in the game, and we want rollover. After that, we despise personally, and as an organization, any kind of earn-out. It's counter to anything we're trying to do from getting everybody on the same page on day one. So we've kind of stuck to it. The big change in a year is prices have ticked up for the firms, prices you have to pay, and the amount of money somebody gets.

Dan Hood (01:08:01):

We were talking about multiple on that before we started when we were getting just before the session, talking about multiples in some cases of deals that have gone on as high as 15, 15 and a half, which struck me as way higher than some of the multiples I've heard before. So it seems like those numbers are going up all the time. Phil, you get final.

Michael O'Donnell (01:08:16):

Can I just on that multiple?

Dan Hood (01:08:17):

Yeah, sure, sure.

Michael O'Donnell (01:08:18):

One thing I would caution, you've got a lot of people listening, right?

Dan Hood (01:08:20):

Sorry. Good point.

Michael O'Donnell (01:08:21):

Don't get fooled by market that somebody that runs a process at a high level, a Guggenheim or whatever, and they talk about somebody that just went out or an EisnerAmper is going to come in and get 15, 16, 17 times. You're not the same if you're a 10 million operation; that firm, that's not the multiple for you.

Dan Hood (01:08:42):

Right. Absolutely, 100%, and a great point to make. But the point being that when people are talking about multiples, that that's the new high-water market they're talking about. There's a sense that these multiples are rising. Yes, it is not for your firm. Probably most firms who are listening to this don't think your firm is going to get that because you're probably not. But that's where they're going, is the direction of it. Phil, you get last ups on this one.

Philip J Whitman (01:09:04):

Yeah, so I'd like to stick with the multiples because I was going to say what we've seen change most is the increase in multiples. So what used to be a four is a five, what used to be a seven and a half is an eight and a half. But again, don't lock in on a number because I could show you a deal where a six multiple is better than an eight multiple because it all depends how they're calculating your adjusted EBITDA. The other thing is, what's happening with your balance sheet? Do you get to keep your balance sheet? Do you have to give two months of working capital, three months of working capital? Do you get to keep your balance sheet? There are so many different flavors that you can't, and everyone usually comes out, and the first thing they ask is, "What do you think the multiple's going to be? Can you give me a range of what the multiple's going to be?" I don't like doing that because people tend to lock in. If you say, "Oh, between a four and a six," they hear a six. Then when someone comes along and they give them a five and a quarter, they're like, "Oh, I thought you said it was going to be a six." So I'll usually say, "Well, you know what? You're probably going to get a five."

David Wurtzbacher (01:10:14):

Well, and Phil, the other thing is also the ongoing piece of this too. There's the deal, and then there's how much money are you going to make in the future, either through your income or incentives, or the way the rollover equity is going to be treated. So it's a very complicated thing, and you two are right to warn against just using the multiple as the barometer of "is this a good deal or not?"

Philip J Whitman (01:10:35):

Yeah, because as you just said, David, you might get a multiple of a five upfront, but when there's a liquidity event, there's going to be significant arbitrage on your rollover equity because if the platform ends up getting a 12, a 13, or 14, depending upon who you're dealing with and what type and how much rollover equity you have, again, Baskin-Robbins 31 flavors, your rollover equity, the check size that you could get ultimately could be significantly greater than the check size that you got upfront for the 60 or 70 or 80% that you sold. No doubt. Great point.

Dan Hood (01:11:18):

Unfortunately, we could talk about this for another three to 400 hours. We'll instead, we'll just reconvene here every day and just talk for an hour. I think the main takeaway there is that I think Phil just promised everyone a multiple of 31 if I understood him correctly. So any deal you get, if it's not 31, ignore it. But I do want to thank Mike and Faith. That's totally not true. He did not promise you anything.

Philip J Whitman (01:11:39):

I'll make up the difference.

Dan Hood (01:11:41):

Yes, zoom pocket. Mike, Phil, and David, thank you so much for joining us. A lot of fantastic insights. We appreciate your, it was great. Thanks, Kevin.

Philip J Whitman (01:11:49):

Thank you again.

Dan Hood (01:11:50):

Cheers. Thank you all for joining us for this session. As I said for the second session, what you're going to do is you're going to leave this room. You can stay if you want, but there's nothing happening here. Our virtual janitors will be coming to clear away the virtual chairs. The next session is you got to go back out to the attendee hub and then come back there. It should be in about 10 minutes. We'll have a short break there. Then join us for the next panel, which is all about if you decided PE isn't right for you, how to remain independent and what you might do, who you might partner with to remain independent, what you need to do strategically to do that, and all the other issues related to that. But for now, we're going to close this one up. Like I said, go out to the attendee hub. That's also where you'll find your CPE form to make sure you get your CPE for this, and that's where you'll find your link to the next session. In the meantime, thank you all for joining us, and thanks again to Mike, Phil, and David. It's a great session. Alright,

Philip J Whitman (01:12:37):

Thank you, Dan, Mike, Dave.