What's the Future of PE in Accounting? [Plus Closing Remarks]

The relationship between private equity and accounting has evolved significantly even in the relatively short time it has existed, and it's sure to evolve even more as more players enter the field, and more of the pioneers approach their first "turn." This panel will explore the changing landscape, and offer thoughts on the short- and long-term impact of PE on accounting — and vice versa.


Transcription:

Dan Hood (00:00:14):

All right. Welcome everybody to our third session. I hope you all made it back from the attendee lobby. We appreciate your sticking with us. It's a lot to talk about. We've discussed many aspects of private equity's intersection with accounting. There's a lot more we could have talked about with all of our great panelists, all of whom I know could have spoken a lot more if we had more time, but we're trying to crush 75 days worth of information into three hours. This, our final session of the day, is talking about what's the future of private equity and accounting. We've hinted at some of it. We've talked about some cases and alluded to it over the previous sessions, but we're trying to get a sense of where private equity is going, given how much the course of its interactions with accounting have changed over the past three, four, or five years.

(00:01:00):

It's almost impossible. We make no promises about any predictions or prognostications we may come up with in this session because this is just a field that changes so rapidly. But we're trying to get a picture of it from our panelists. For that, we've assembled a group of folks we're pretty proud of. I'm going to briefly introduce them, but then I'm going to ask them to talk a little bit more about themselves and their organizations in some depth so you get a sense of where they're coming from. In no particular order, let's just start with Alan Koltin. He's the CEO of Koltin Consulting Group and one of the premier advisors on these kinds of deals to accounting firms. Alan, thanks for joining us.

Alan D Koltin (00:01:37):

Dan, thank you and thank you to you and your team for all you do to advance the profession, whether it's these virtual PE summits, the in-person one, which we should talk about, or all the other great things you do. I want you to know that I'm nominating you, and I'm calling out to all of our listeners to nominate Dan Hood as one of the 100 most influential for Accounting Today.

Dan Hood (00:02:01):

I know the people who make that list. I could probably put in a good word for myself. Thank you.

Alan D Koltin (00:02:04):

Thanks.

Dan Hood (00:02:05):

Tell us a little bit more about you and Koltin Consulting Group and your role in the profession.

Alan D Koltin (00:02:12):

Yeah. We started out as an advisory firm doing everything from strategy to compensation to partner retreats to profit improvement. And lo and behold, about 2012, this thing called M&A showed up, and it went crazy. It was an M&A frenzy from 2012 to 2020. Then something insane happened. Private equity decided to come into our profession. It's four and a half years, to be exact, and I think we've now advised on over—we just today went over the 100 mark of deals that have taken place in the industry, and to call it the Wild West would be understating the dramatic effect of everything that's gone on. I was on a call last week with Eli and Alan, and I think it hit us for the first time. I'm not sure we ever stopped the clock, any of us, to think about how much change and transformation has gone on, but the next person you're going to introduce, which I think is Lisa, can absolutely talk about that.

Dan Hood (00:03:18):

Before they do that, I just want to tell the audience, if you're having trouble seeing us or any issues like that, try refreshing your browser. That should pop us all up directly for you so you can hear all we're going to talk about. I had been going to go to single-L Alan, but since you've introduced Lisa, let's bring her forward. We're psyched to have her with us today. She's vice president, sorry, Lisa Simpson, who is Vice President of Firm Services at the AICPA, and we're psyched to have you. You may be familiar with her from the weekly AICPA town hall that literally around nine to 10,000 people attend every week. She's got a great viewpoint on the profession and a sort of overarching view of what's happening from sort of outside with no skin in the game, per se, in the sense that she's not with a PE firm, she's not making deals. She's just seeing where the profession is going. Lisa, thanks for joining us.

Lisa Simpson (00:04:03):

Thank you for having me. I'm really excited about it. I do have to fact-check you. AICPA town hall, we had 18,000 people on our Monday show. We had about 15,000 or 13,000 or so on last Thursday's show, so I think our average is ticking up. So just some quick fact-checking since we're a bunch of skeptics on the call. Fair enough. As Dan mentioned, I am Vice President Firm Services. I get to talk to firm leaders across the profession, firms of all sizes, talking about what their challenges are, what the concerns are, and I tell you that when I talk to firms these days, it's always about PE and technology, which is kind of intertwined. So I'm looking forward to the conversation.

Dan Hood (00:04:43):

There you go. I must've been taking my numbers for your attendance based on the few that I've been on, and so obviously I'm driving down attendance, so that tells you not to invite me back on until, at least until I get the numbers right. But let's move on to Alan Badey. He's the CEO of Citrin Cooperman, a firm you would've been familiar with no matter what because they're a big Top 100 firm and very, very active, but also because they played a major role in a pioneering role in PE and accounting and is the first firm to make a turn, if we want to put it that way. Alan, thanks for joining us.

Alan Badey (00:05:17):

Dan, I really appreciate being here. Nice to be with this esteemed panel here today. I would second Alan Koltin's remark in terms of being the top 100 most influential people in this profession, for sure. So you got my vote. Just tell me where to submit it if I get there. I got to tell you, Citrin Cooperman is celebrating its 46th year in practice, so we've been going at this a long time. We are a middle-market, lower middle-market, high-net-worth firm, a very traditional type of approach to accounting, and have been growing for a long period of time. Personally, I actually merged my practice into Citrin in 2001, and it has been quite a journey. So I'm excited to share what I've learned over all these years, in particular, what I've learned over the last four years in being part of New Mountain and now partnering with Eli and Blackstone.

Dan Hood (00:06:16):

Excellent. Well, we're looking forward to hearing all about that. That brings us to Eli Nagler. He's rounding out our panel. He's the Senior Managing Director of the Private Equity Group at Blackstone. Eli, thanks for joining us.

Eli Nagler (00:06:25):

Thank you for having me. A pleasure to be here. Eli, partner in the flagship private equity fund at Blackstone, responsible for leading our investment activity across technology, which I think we'll come to, as well as financial services. I'm from New York originally, still in New York. So one of several ways. I guess I haven't come very far in life, maybe 30, 40 blocks, depending upon how you want to measure it, but very happy to be here and privileged to be partnering with Alan and the Citrin Cooperman team.

Dan Hood (00:06:53):

Well, I think just from listening to our panelists, you get a sense that this is a powerhouse panel. We're very psyched to have you all here to be able to talk about how it's been impacting the profession and how it's going to impact the profession going forward. Before we jump in, though, we got to get these polling questions in. So let's call up our first one. In this case, we want to ask how interested you are in pursuing a deal with PE. We're not going to be giving the individual results of this, so don't worry about it. Be honest with us. Let us know: are you very interested? Are you somewhat interested? Are you not very interested? Are you not at all interested, or are you currently pursuing or have completed a deal? I know we've got people in attendance here who have signed deals with private equity firms, partnered up with them, and I'm sure there's some that are talking to them.

(00:07:33):

We know that firms are out there being very active, proactive, talking about this, meeting with PE firms, and so on. So we just want to know how interested you are in pursuing a deal with private equity. Click the answer that works for you, and then hit submit to make sure it gets registered for credit. We will take questions from you all. You can put them in at any point in the session. We'll try to get to as many as we can, though we have a lot to talk about just with our panelists alone, so we'll see what we can get to. Put them in whenever you want. In the meantime, though, we're asking the questions, and we want to know how interested you are in pursuing a deal with private equity: very interested, somewhat interested, not very interested, or not at all interested, or you're currently pursuing or have completed a deal.

(00:08:13):

Obviously, the real thing to do here would've been to follow this question up at the end of the session with a question of how interested you are to see if we'd changed any minds either way in either direction. But we're going to keep the polling questions, excuse me, CPE, questions to just a few so we don't take up too much time. Hopefully, a fair number of people have had a chance to answer. I think we've got a few more still to trickle in, and you do need to answer all the polling questions to qualify for CPE. So we're going to leave it up for just a little bit more to make sure that you have a chance. We just want to know how interested you are in pursuing a deal with private equity. I guess for the purposes of this question, let's assume when we say private equity, we're talking about any kind of outside investor.

(00:08:53):

In most cases, we're talking about private equity, but in some cases, we might be talking about wealth management or an RIA firm or a venture capital as opposed to specifically private equity, or just how interested you are in entertaining a strategic investor from outside, from outside the profession. I think we've got just about everybody in. If you haven't had a chance to answer, please do so now because we want to close this poll up and get to our conversation. We've got a lot to talk about, a lot of questions to ask these folks, and I know they've got a lot of answers for us. Again, we're not promising any accurate prognostications; we're just doing the best we can. Don't come back in a year and say, "Hey, you said," because we'll deny ever having said it, and this is—well, it is being recorded, but we won't give you the recording if you're going to be that way about it.

(00:09:35):

All right, let's go ahead and close the polls up. I'll count you down. If you haven't had a chance to answer yet, we'll count you down 5, 4, 3, 2, 1, and we'll close that poll up. We'll get the answers in a second, but I want to set us up for sort of the first topic we're going to be talking about, which is how the profession is responding to PE. We were talking a little bit in the pre-conference session here. Alan was talking about this is a topic that brings up a lot of emotions. It brings up a lot of, in some cases, knee-jerk reactions. In some cases, more considered reactions, but all across the map, it is very much a little bit of a political or religious question. What are the three things you shouldn't be talking about in accounting firms is PE, religion, or politics. But when we're talking about how the profession is responding to private equity, just quickly, I want to give you the results here.

(00:10:29):

Somewhat interested about 25%, not very interested similarly around a quarter, not at all interested close to a third, and then a mix of very interested and currently pursuing. That's about 23% of those two. So it's a mix, but some skeptics, some people that maybe one way or another we need to convince one way or the other. But let's start with getting a sort of a viewpoint of how the profession is responding to private equity. Lisa, I want to send this one to you first just because you have such a great viewpoint across the profession. You say you talk to firms all the time, you talk to experts who talk to firms all the time. You're sort of at the hub of this web of information. Tell us how you see the profession responding.

Lisa Simpson (00:11:09):

I'm going to focus on how the AICPA is responding from a Code of Professional Conduct, from our ethics committees, and things like that, because I know that the other panelists are going to talk more specifically about the skills that private equity can bring, the access to capital, the other benefits of PE. But from an AICPA standpoint, I think it's important to start with the fact that, first of all, alternative practice structures (APS) have been around for decades. They've been in our Code of Professional Conduct since 2000, so we've been recognizing this structure in our standard setting for quite some time. But because of all of the PE investment and the wealth management investment, other types of investors coming in, we're getting so many questions from regulators, standard setters, other CPAs. The public interest is something that we're always thinking about, so we're looking at all of this with a fresh eye.

(00:12:07):

Our focus is always on ensuring that the integrity of that attest function of the profession is not compromised. That's so important to protecting the public interest. That's where we're always going to be looking. As we're talking to leaders of firms in the attest and the non-attest side and the private equity investor side, we're talking about things like the importance of independence, not the independence of ownership, but independence in relationship to the client relationship, talking about transparency, making sure that ethics integrity are always at the root of the relationships and the need for robust governance because this is such a complicated relationship between the attest and the non-attest entity. Those are the things we're looking at. Specifically in 2023, we launched a task force through our independence and ethics team that is focused on those concerns. So we're developing guidance, both authoritative and non-authoritative.

(00:13:11):

We're making sure that we're trying to focus on raising awareness of the ethics component of all of this. We're talking with the other regulator stakeholders, including international, because we're now seeing firms moving to creating these large international entities. I think, really importantly, we're meeting with folks who are in these APS structures to talk to them about what their concerns are, what their challenges are, and creating a group that lets us all think about how to resolve some of the challenges, address some of the concerns, identify tools and resources that are needed, and I think that's been a really important component. We launched an exposure comment memorandum, and it recently closed. We got great feedback, some pros, some things to consider. We are going to take that to our PEEC committee, and that's going to be happening in August. We aim to have another exposure draft late in 2025.

(00:14:17):

We'll give that out for public comment, and then we hope to have a revised standard early in 2026 to address, again, independence and ethics. We're also talking about business model concerns. We talked a little bit about bringing folks together from these alternative practice structure entities to talk about what their concerns are, identifying best practices. I've had firms reach out to me and volunteer to help put together best practices so that a large firm who's got access to great attorneys and great consultants may not need these best practice resources. But what about a smaller $10 to $25 million firm? Are they asking the right questions? So educating both the public and our practitioners and, of course, quality and peer review concerns. Quality, ethics, integrity, core of the profession. So we have a PE task force in our peer review committee, and they are going to be focusing on the risks and making recommendations for how we adapt our peer review program. We've already had a peer review checklist around alternative practice structures, so we'll be updating that, and we're going to be making sure that our peer reviewers are aware of the additional steps they need to be thinking about as they're looking at attest firms that are tied to a non-attest entity that's in an APS. That was a long answer, but hopefully it was good.

Dan Hood (00:15:45):

No, it was great. And I think one of the things that it clearly does serve at the broad level is it gives a sense of how much impact this is having in how many different areas of the profession and how many different areas of a practice and all the things that firms may not be thinking about when they think about private equity and what it means for their peer review, what it means for all the different aspects of their independence and conflicts of interest questions and all the other things you talked about, the ethics issues, the profession-wide issue. So it's worth going through that because it really gives a sense of the huge impact this is having on every aspect of—we can look at every other aspect of an accounting firm and accounting practice and find the ways it's impacting there. But I think that gave us a great start there. Alan, the single-L Alan from Citrin, I want to ask you sort of the same question: how you think the profession is responding to private equity?

Alan Badey (00:16:33):

So I want to pick up on something Lisa said because I think it's really important, and as the CEO of a private equity-invested firm, I think it's important to understand from our perspective how we look at the world. I would tell you that I think that quality and the regulatory compliance with the regulations has gotten even more important, if I could even say it that way, because it's now, it's all about the partners and the staff, and add the investors on top of it. The value of any investment—the underlying premise is that we're going to comply with the laws and we're going to produce quality work as we go along. So I will tell you from my standpoint, whether it was with partnering with New Mountain Capital, which was our first sponsor, and now Blackstone and Eli, everybody's really, really focused on making sure that the firm produces high-quality work, that the firm is in line with all regulations, independence, and everything else under the sun.

(00:17:43):

A number of our people work directly with Lisa and on all these task forces because we want to protect the profession. This isn't about creating a Wild West. This is about making sure that everybody knows the rules. So that's number one. Number two, I actually think private equity is bringing a lot of other great attributes into the profession. I can tell you from my standpoint at Citrin Cooperman, one of the challenges that we had as being just a CPA firm was that we couldn't get others who were attorneys and engineers and other professions that we're working really closely with to be partners at Citrin Cooperman. But now under the alternative practice structure, we're actually bringing lots of different expertise together to service our clients in different ways that we couldn't service them before. That's a huge benefit to our clients, and it's a huge benefit to the firm.

(00:18:42):

The other thing which we've done at Citrin Cooperman, which I just think is phenomenal, is we've actually allowed or gotten the employees to participate in the growth of the organization from a financial perspective. We would've never had that as a CPA firm, having them participate in the accretive growth of the organization. Now our employees are participating, and quite frankly, I think it makes the profession a lot more attractive to people to come back into because there's further reward. I think if I'm a young partner, I can kind of see where this is all going. I'm getting rewarded monetarily as there's transactions moving forward instead of what Alan Koltin fondly calls the unfunded chain letter that lasts until you're 80 years old. I think there's so many benefits from that perspective. Then from a discipline perspective, I think we're running the business better than we ever did before. I think from a financial discipline and rigor standpoint, we're running the business better. I think we're making much better investment decisions inside the business, and we have the capital to make those investment decisions. I think what that's doing is it's benefiting everybody at Citrin Cooperman.

(00:20:03):

You're on mute, Dan.

Dan Hood (00:20:05):

You knew that was going to happen. Glad it was me. Mr. Koltin, I know you have a lot of thoughts on how the profession is responding to PE. I want to tap into some of those.

Alan D Koltin (00:20:15):

Yeah, so I think there are two things. There's how the profession is responding, and I think Lisa has addressed what our leadership is doing, and Alan has addressed more when you sort of drill it down to a firm level, what's going on. I think what's gotten lost in this, and maybe I read too many blogs or ask too many questions of people, but I've heard too much verse independent, good verse, bad, right verse, wrong, good verse, evil. The dialogue goes a little bit like, "Boy, you saw how PE messed up the hospitals or the healthcare industry. They're going to do that in the accounting profession." To which someone will give a counterpunch and say, "Well, just if you did the work, you'd know for 20 years private equity's been in professional services, in insurance brokerage, wealth management, valuation consulting, et cetera, and they're on their third or fourth flip, and they've created a lot of wealthy people."

(00:21:18):

I've seen recently independent firms taking out banner ads saying, "We're fiercely independent and we're damn proud." I'd like to sort of bring us all back to reality. And reality is three things: built for success, built to be sustainable, and built to be relevant. How you get there doesn't matter, but you do need to have a plan to get there. So I think it's really an individual firm choice, and a hard no to do something in private equity two years ago could be a yes today. So I would say let it breathe. Lisa brought up some great concerns that have been going on now for 25 years, dating back all the way to the time of the alternative practice structure. I think we were one of the first firms in 1998 to do a deal with a public company called H&R Block.

(00:22:14):

Last I looked, it's been 27 years, and the alternative practice structure has yet to have an audit go bad because of impaired independence, because of someone at the private equity fund whispering to someone at the accounting firm, "Look the other way on this." As a matter of fact, you'll be hearing from Eli shortly. I would guess that if someone in a private equity group went to the CEO of the audit company, of the accounting firm, and asked them to look the other way, it would be a reportable act, and the whole investment would blow up. So I would just ask everybody to chill a little bit, and let's keep thinking about what will make us the most successful, what will make our people the most successful, what will help make our clients successful, and know that there's not any one way to do it. There are many different renditions, and as we sit on this call today, what the history books have told us, we're four and a half years into private equity. We can't even begin to predict what the next four and a half years is going to be like. So let's just breathe, take a deep breath, and think about what will continue to make us successful.

Dan Hood (00:23:31):

To be fair, that is the point of this session is to try to predict what the next four and a half years will bring, but it doesn't change your point, which is the next one. I will say, I've actually talked to a couple of those firms that talk about being fiercely independent, and one of them was very open and said, "We're fiercely independent, and we're going to revisit that decision every six months." The point was that things change, and circumstances change, and the deals change, and the role of private equity changes, and the circumstances of the firm. His point was for now, this is absolutely our—we're committed to this, but we have to pay attention to it just from a pure due diligence point of view, which I thought was—I think is the kind of attitude that you might be talking about: remain open.

Alan D Koltin (00:24:09):

Yeah, Dan, my guess is if you asked Alan Badey if he's an independent firm, I think he'd say yes. He'd say he's an independent firm with a financial sponsor.

Dan Hood (00:24:20):

I wish we had Alan Badey here to ask that question.

Alan Badey (00:24:25):

He's right here. Look who I have right here. That's exactly right. We are an independent firm. Eli will tell you, Blackstone, New Mountain, they don't operate our business. Our firm, our leadership, and our partners operate our business. They're our sponsor. They're here to provide capital, strategic input, and advice and help us to attain our goals as a firm. They're not running the firm.

Dan Hood (00:24:50):

Eli, I want you to feel free to answer that. If you're being coerced, just blink. We'll know.

Eli Nagler (00:24:56):

Appreciated. No, I would say, look, that's exactly right. To answer the question, there are really two threads to pick up on in terms of how the profession's responding. I think for those who understand—and I realize it takes time, as it should, because it's an education process to understand how PE operates—what they realize is we are not managers. We have not managed a business; we don't manage it ourselves. We're strategic resource providers. We operate at the board level. We partner with management. We partner with the partners and the partnership of the firms in which we invest, and we are solely incentivized with full alignment to basically do what we can to, frankly, enhance the equity value to the partnership as well as the value proposition to the customers. If something's not furthering that goal, then there's no point to it. It's not a good use of time, and everyone has enough other things to do with their day, so we move on from it.

(00:25:47):

So that's the manner in which we operate, whether it's customer referrals that we think we can bring, data science or technology capabilities that we have just because we have some centralized resources in the case of Blackstone specifically that we're able to offer. That's what we're here to do. We're not here to interfere or really kind of even get involved, let alone interfere with anything on a day-to-day basis. The other thing I'd say, just picking up a little bit on the thread as it relates to reputational considerations and independence considerations, there's no shorter way to do something that would end poorly than to put, in my case, at least, Blackstone's name and reputation at risk. So I think we go to a far extreme, much further than where I think the regulations would imply or how we can operate, and frankly, operate at a standard that's well inside of that because that's easy. That's a one-question IQ test. That's not something you ever want to fail or run afoul of. So that's the approach we take in all facets of how we conduct ourselves, frankly, certainly the case here, but frankly just even in general, that applies to how we conduct ourselves and how we do business.

Dan Hood (00:26:54):

That makes sense. Makes a tremendous, and I think that particularly that approach would resonate with a lot of accountants: the notion that the reputation of our firm, the reputation of our profession is important for a million different reasons. We're not going to do anything to endanger that. It makes a ton of sense. I will say one of the reasons we're very excited to have Eli and Alan Badey with us is that in many ways, you guys represent the first glimpse we've had of the future. I keep talking about the turn—that point at which private equity firms that have invested in a firm move out of their stake, and then what happens to the firm after that? With Citrin's having originally worked with New Mountain Capital and now partnering with Blackstone, you guys represent the successful completion of a turn and the move.

(00:27:40):

I want to spend a little bit of time diving into that, some of the details of that, because I think people are going to find it fascinating, and will find it particularly useful and relevant, given as we look forward. Again, we're not trying to make predictions, but as they look forward, to give some sense of what they might expect or what we can expect across the profession as a whole. So I think to do that, maybe Alan Badey—I'm going to keep calling you Alan Badey just to keep the differentiation clear. Maybe we can go back to, well, what made...

Alan Badey (00:28:09):

My wife just says, "Hey, you could just call me, 'Hey, you.'"

Dan Hood (00:28:13):

See, that's what I usually answer to, so I'm afraid I'll just answer my own questions, and it'll be a mess. Or maybe, "Hey, you" Alan, what made the firm jump into explore private equity in the first place? Maybe

Alan Badey (00:28:27):

Go back a little bit. That's the place—that's the place to start because you got to take a step back, right, to where others are. Citrin Cooperman was actually approached by a private equity firm about four years ago, maybe four and a half years ago, to Alan Koltin's point. We were a very entrepreneurial thinking firm. So we said, "Okay, well let's explore it and find out what this is really all about." We knew as a firm, we had challenges in front of us. We wanted to ensure that the obligations from the first generation who had started and built the firm were fully satisfied, and that was really super important. We really wanted to invest in growth, both inorganically and organically. The world was changing. This whole trading of equity had started to change, and cash was important in a transaction.

(00:29:20):

We wanted to continue to invest in our people. If everybody will recall back, particularly four or five years ago, with the Great Resignation and the challenges that we've had—I know it's eased a little bit since then, but it was hard. It was hard to attract people. Even at the size of Citrin Cooperman, we knew that we needed to invest in technology. We knew that this was moving fast, and quite frankly, it's moving faster now than it's ever moved before in terms of technology and AI. We didn't have the resources to do all of this. We really needed capital. So we ended up partnering with New Mountain Capital in 2021. Our thesis, quite frankly, thank goodness, it actually worked out better than we thought it was going to work out. I would tell you at the beginning, I think that there was many months of discussion amongst the executive committee of the firm, with the leadership of the firm, with the partners.

(00:30:25):

There was positivity, there was skepticism, and everything in between. There are a lot of people that, quite frankly, have had client bad experiences with private equity, and I think that that taints it. I did myself, by the way. I practiced in the healthcare area; that's where my practice was. Private equity, as you know, is deeply involved in the physician practice area and other areas of healthcare, and not always did it work out. But at the end of the day, after a lot of discussion, the firm decided to move forward. Quite frankly, we had a partner vote, and 100% of our partners voted yes to move forward with the private equity transaction. I think when you take an honest assessment of what the future holds for our profession, it has to remain an option. Private equity is a very good option. To Alan Koltin's point, it's not maybe right for everybody, but it's a very good option to be able to grow and to be able to attain your successes or have it as part of your strategy to grow and be successful inside your firm. So it's definitely working for Citrin Cooperman, without a doubt.

Dan Hood (00:31:48):

Let me talk a little bit about moving us. That gives us all the background. I think that's a solid understanding of how it came about. Maybe we can talk a little bit about as you approached, as you thought about your turn. I mean, was working with another PE firm one of your expectations, or what did you think about going into?

Alan Badey (00:32:09):

The short answer to your question, Dan, is yes. The short answer is yes. Now, having said that, I will tell you that as I spoke to all the partners, this was one of the main questions that they asked from day one. We did the transaction with New Mountain Capital. On day two, they were like, "Who's going to own us next?" I'm like, "Wait, wait, we just got here. Don't get rid of us yet." But we would talk a lot about what are the options in terms of that successor investor into Citrin Cooperman, and private equity was the one that, quite frankly, made the most sense. But there are others.

(00:32:49):

A public offering, an IPO, is certainly an option as you get larger and larger. We never really considered that. We just didn't think we were big enough, quite frankly, and sophisticated enough at that time. But there are others, there's the family office and other investors that maybe are more permanent capital or longer-term capital that you'll probably see come into the profession as we move down the road. But things worked out so well. It was just with New Mountain Capital, it was a natural fit for us to stay within private equity. Then we met Eli and Blackstone.

Dan Hood (00:33:27):

All right, with that Eli, I want to get your half, your perspective on this. How did that deal—how did this deal come about from your side?

Eli Nagler (00:33:36):

Yeah, sure. So a couple of different factors to it. I would say first and foremost, in any investment we make, as I alluded to, we look to partner with management and the employee base. That's certainly the case with Alan and the executive leadership of Citrin. That very much is a key tenet of our investment thesis in backing strong teams. I would say, this is probably the wrong group to ask the question, but I've recently begun asking at cocktail parties, "Who does their taxes?" As I said, probably not the right audience for that here. That being said, the answer I typically get is, "How long have you been with that individual?" And the answer I typically get is, "a very long time," which is the point. It's an industry that's based principally on relationships, strong personal relationships where the advice matters, the sensitivity of the information matters, there's a connectivity associated with it.

(00:34:24):

So if you translate that to a business model, that means you have a very sticky revenue stream, you have very strong retention. That's obviously a key characteristic that we like, that we like a lot. Then if you think about where the industry is going and how technology is evolving, it's one where I think we can do more to basically help Citrin, help the Citrin partnership offer more services and enhance the value proposition. Obviously commensurate really with the value associated with it, be able to charge for it and get greater efficiencies as time goes on, where again, that increases the overall profit pool and the overall profit potential. Those are things that appeal to us, and that sort of is what drew us to the space. So it was a combination of having a view on the sector and a thesis, but certainly the specifics matter and meeting Alan, the Citrin team.

Dan Hood (00:35:09):

Excellent. All right. You mentioned the thesis. I want to talk about the thesis and how long it's going to—not just your individual thesis, but the thesis of private equity's interest in accounting, and how that's going to play out over the long term. But first, we got to get to our second polling question, so let's call that up. In this case, if I can get my mouse to work, we're asking how long-term you think PE's involvement in accounting will be, and then our panel will answer afterwards. So they'll be influenced by your decision. So whatever you say, they're going to either echo or disagree violently with you. Don't try to guess what they're going to say. Just tell us how long-term you think private equity's involvement in accounting will be. Do you think it's going to be permanent? It's just going to be a field that private equity and other strategic investors are going to be interested in for a long time.

(00:35:58):

Do you think it's long-term but not necessarily permanent? Do you think it's going to be over within 10 years? The only reason I ask this question—for those of you who've been around in accounting for a long time—there was a period in the late, very late 1990s and very early 2000s when there was a lot of outside interest in accounting. I think someone may have mentioned H&R Block earlier on as one of those kinds of firms. There were Amex, APS was rolling up accounting firms across the country. There was a lot of outside interest in different ways, and not much in the way of change happened. I don't think that's what's going to happen with PE, but because it has happened, it's worth thinking: Is this a storm that blows up and changes things for the short term or the midterm, or is it something that's going to change the profession permanently?

(00:36:46):

My own thoughts on it would lean more towards it's going to change the profession permanently, but it's a question that's worth thinking about. So we're asking you first, and then we're going to ask our panelists to talk a little bit. They think it might be, they think it to be permanent, but not necessarily permanent, or over within 10 years. I should mention also, you can put questions—I think people already are, so I probably don't need to tell you this—but you can put questions in the question panel throughout. We'll try to get to as many as we can, but I know we've got a lot to talk about here. So let's go ahead. If you haven't had a chance to tell us how long-term you think private equity involvement in accounting will be, please do so now. And I think part of the question is not just that historical question of once this happened before, and it was over relatively quickly, but there's also a sense of do you reach a point where the things that made accounting attractive to private equity have changed enough?

(00:37:34):

For instance, we often hear from private equity firms that talk about one of the things that draws them to accounting is just a very fractured profession. There's a lot of small firms, and they look at that and say, "Well, we can consolidate those firms and get economies to scale," and so on. Do you reach a point where there aren't enough of those small firms, where you sort of consolidated enough of a profession? Is there a point where the economy changes, and we run out of dry powder, and we're looking in other areas, that sort of thing? All those issues and all those factors can come into play there. It's not purely a matter of private equity losing interest or accounting losing interest. So things to think about while you answered this polling question. If you haven't had a chance to tell us how long-term you think private equity's involvement will be, please do so now. Still need to leave that open for a few more, for a little bit more. As I said. Go ahead. Yeah,

Alan D Koltin (00:38:24):

I want you to catch your breath. I'm worried about you.

Dan Hood (00:38:28):

No, I can do this all. I can rattle mindlessly all day just to fill in.

Alan D Koltin (00:38:32):

While we're waiting, could you go back to Alan and Eli because I think the storyline on the flip, there are two things that really need to be talked about. There's a lot of talk, "Well, why would you do something with private equity? You don't know ultimately who the next one will be, and you may be summoned to New York and told, 'This is the new partner.'" It might help to hear from Alan how hands-off New Mountain Capital was in the selection of the next private equity firm. The second—and it may be beneficial to hear from Eli about the resetting of the shares and newco and starting over. There's a whole industry evolving right now where the newbie says, "Well, why would you go with them? They're already fully baked. All the low-hanging fruit has been taken." Then there's the other part of that that says, "Wait, it's a new day. It's Citrin Cooperman and Blackstone, and they're 850 million, and they've got a plan to get to 2 billion." These are all new things to us, but maybe to have Alan just address that: who made the call on Blackstone, New Mountain, or Citrin, and how involved were they?

Alan Badey (00:39:44):

Would you like to repeat the question, Dan, before I answer it, or are you good?

Dan Hood (00:39:49):

Honestly, I feel like I'm just—I'm in the way here. No, it's a great question.

Alan Badey (00:39:55):

So it was interesting, to be honest with you. We were very humbled at Citrin Cooperman. We got a lot of interest from a bunch of different sponsors. Taking money away from everything, New Mountain was very generous and came to me and said, "Listen, Alan, this is very important to the firm who the next sponsor is." The reality is that finances aside, you guys are the ones who really should be making a decision as to who you want to partner up with because that's super important. Quite frankly, I spent a lot of time with Eli. I spent time with Eli's partners, and we are in a people business. In a people business, it's all the way around. It's not like we're in a people business with our clients or our staff or our partners. We're in a people business all the way around.

(00:40:49):

It was really important for us to be able to connect on a level of being able to have great confidence in each other and have great relationship and dialogue with each other so that we knew that when things were good or things were bad or things needed to be changed, we had a partner that we could work it through with because the world doesn't always work linearly in one direction. So that's how we, frankly, chose Eli and Blackstone to go with. They've been a great partner so far. Alan is right, and I'll turn it over to Eli, but Alan is right. The whole world resets on a turn in terms of valuation and everything else. So Eli, you want to explain?

Eli Nagler (00:41:30):

No, that's absolutely right. I think we...

Dan Hood (00:41:32):

Let me step in real quick. We were doing a polling question. We're going to close that polling question up so we can get to your answer, Eli. If you haven't answered yet, please do so in the next five seconds. I'll count you down 5, 4, 3, 2, 1. We'll get the results from that in a second. Eli, please, yeah. Alan Koltin, by the way, great question. Thank you for asking it. Eli, go ahead.

Eli Nagler (00:41:51):

No, absolutely. I'd say our approach and philosophy is to have wanting everybody at the company to literally feel an employee-owner and feel invested literally within the business. Simply put, and using stylistic private equity models, the way I like to think about it is if you had a typical options pool and say it was 8% or so, and you increase that pool to 10%, you're getting the benefit of a 25% increase in motivation to the people receiving it, and it's at the expense of a 2% dilution. So if you think about that, that's an over 10-to-1 leverage ratio, and that is a phenomenal return on investment and capital and alignment accordingly. The approach we like to take is to provide that, give that incentivization, give that ownership, and frankly, it leads to great outcomes. It's actually quite satisfying when things go as they—according to plan. If things go well, there's never necessarily a linear route, but assuming things end the way they're supposed to, it generates real wealth creation for the people involved. That's what we're here to also do, and that's an exciting part of it.

Alan Badey (00:42:55):

To follow up on Eli, on Alan's expansion of that question, there's no stop at Citrin Cooperman, right? It's not like we grew for three years and then we're stopping, and that was it. The question also, I think where Alan was going with this, is that along the journey, is it less advantageous to join a firm like Citrin Cooperman in the middle of their hold period, say with New Mountain Capital, rather than at the beginning of the hold period with a Blackstone? The reality is you have to think of it on a continuum. It's just numbers, but it's on a continuum. It doesn't really matter where you join; it continues to go. Now, it's true that if we started at $1 in 2021, and we were at $3, and we did a transaction, that $3 gets reset to $1 per share, and then we keep going. But that's just math in terms of how the units reset. But it's all the same growth all the way straight through.

Eli Nagler (00:44:01):

I'd just go one step further and say there's a benefit in terms of how myself and my partners viewed it on, frankly, being with a firm that's had demonstrated success. There's—I'll just say de-risking for lack of a better term—in terms of there's a difference in sort of general compensation approach and philosophy, thinking about things on a more medium-to-longer-term basis versus a yearly distribution basis, making greater investments that take a little bit more time potentially to pay off, which is something that we are very happy to do. Having had a demonstrated track record of success and being able to do that—a lot of that's organic, so that's inorganic. You mentioned the consolidation play, being able to be a part of that, in our view, definitely makes it less risky for what, therefore, greater ability for valuations to compound going forward, given you've already put some of that in the rearview mirror. That's certainly something that we thought and think is the case as the industry kind of continues to undergo a degree of investment transformation.

Dan Hood (00:44:59):

Thanks. I want to stick with you, Eli, and talk a little bit about how long-term you think private equity interest in the profession will be. We'll bring it up to everybody, but before I do that, I want to give you the answers, what the audience thinks in terms of that, how long they think the PE's involvement or interest will be. About a third say they think it'll be permanent (33%), about 53% think it's going to be long-term but not necessarily permanent. Only about 14% say that it'll be over within 10 years. So I think the audience perception is that PE is at least here for the long term, if not permanently. So what's your take on that in terms of do you foresee a future where PE is always looking at accounting firms, or do you reach a point where we talked about low-hanging fruit where all the low-hanging fruit is gone, and so it's only specialist PE firms? Do you have any thoughts on that?

Eli Nagler (00:45:44):

Yeah, I think in category A, permanent is the succinct answer. I think you have many analogous examples within professional services, financial-related professional services. We could point to the insurance brokerage space where I think you had private equity. Blackstone itself made investment in that area in 2006. I would say the sector continues to draw material private equity investment 20 years later today. Likewise, 10 years after that. About 10 years ago, in the wealth management industry in the RIA space, I think you saw a similar theme. I think you have two decent models that show what the trajectory has been. I think it will be not just private equity. I think as you get greater scale, obviously Citrin is a public company. You have the potential for greater public equity firms that may go public as well and a bit of a transformation of the shareholder model. But I think you'll continue to see private equity involvement and involvement at greater scale, very much so for the continued future. As people who are investing in the space and thinking about what the right time is, that's an appeal, frankly. You sort of want to get in as the trend is your friend, and there's more momentum and more capital that continues to come into the space, as that obviously will give you attractive optionality when you look for liquidity later on. So that also factors into our thinking.

Dan Hood (00:47:02):

There's no question that—this may be one way to put it, other people may put it differently—but private equity's interest in accounting seems to have opened the door to a lot of other potential investors. So it's definitely creating its own optionality, we put it that way. Lisa, I want to get your thoughts on this in terms of how long-term you think private equity's interest will be.

Lisa Simpson (00:47:23):

I don't see an end in sight, so I guess I'm with Eli. I think the fundamentals of the profession, as long as we keep those, we focus on creating those sticky relationships that Eli alluded to earlier. I think that will continue to be a profession that is regarded as a good place to put your money. So I see it as permanent.

Dan Hood (00:47:43):

Excellent. All right, Alan Koltin, what's your take on this?

Alan D Koltin (00:47:47):

I heard a young futurist speak. His name was Badey, his last name. I don't know what his day job is, but he scared the living daylights out of me. He basically said, "Koltin, in four and a half years, it's going to be 2030, and I want you to anticipate AI taking over the two work products of financial statements and tax returns." And each year for the next five years, doing 20% more of the work. It's now 2030, and the entire preparation of a financial statement and tax return is now done by technology. The question that should be keeping all of us up at night is, "It's 2030, what will you be doing?" If you're not making the product, where will you go? A third of the partners when I've asked this question have said to me, "I'm already doing advising, and I love it. I guess I'll have more time to do it."

(00:48:45):

A third of them have said, "I would like to do it, but I don't have any time, but I guess maybe I will." I also worry about the third that it's not their thing. So on one hand the negativity, we've heard about kids not wanting to come into public accounting, work being offshored. I think the reality is starting to set in that by 2030, the business model may require fewer accountants, but we will for the first time ever have more advisors. We'll make the move from being the most trusted advisor to the most valuable advisor. So I think when we're all talking to the kids today, it's a new day. We're going to push you in the fire sooner, whether you want it or not, but here's what it's going to look like a couple years from today. So end game to me is really more a function of where is the puck going, where is this industry going? I guess it's either really exciting or really scary, but that's the strategic question we all need to be asking today.

Dan Hood (00:49:51):

I think it's exciting and scary at the same time, which is better than just scary. Alan Badey, I want to get your thoughts on this in terms of long-term. Obviously, you're on your second...

Alan Badey (00:50:01):

Someone just told you what my thoughts were.

Dan Hood (00:50:05):

I'm assuming he might've gotten it wrong, so we want to give you a chance to correct him or to recall.

Alan Badey (00:50:09):

Yeah, I don't think this is a "want" question, to be frank with all of you. I think this is a "need" question, and I think the question is, "Where is the capital going to come from in order to transform your business into what the future of this profession is going to be?" I think for a lot of us, that's super exciting and super nerve-wracking at the same time. But it's super exciting. If I was a young person in this profession right now, what I saw coming at me was greater client reliance on us as professionals. They're going to need us more than they will ever need us before. There's nobody who has means who's going to call into a computer and say, "Hey computer, what decision should I make?" That's not going to happen. This is—we're in a people business.

(00:51:01):

Number two, you are right. What's going to happen is that if we're smart, our margins, our profitability of our businesses are actually going to grow over the next five years. But in order to get there, we need capital. One of the reasons why Eli and his team were such a great option for us, and one of the reasons we ended up with them, is exactly because of all the depth of expertise that they have in technology. Eli mentioned it before in terms of the data scientists and all of those resources that they have. That's super important, and it's a big focus at Citrin Cooperman in terms of how we get to the future. The other thing is we need our young people to step up, and I think that we're incentivizing them to step up. We're giving them a path to step up that's not built on that 30 years to get anything out of this profession. We're transforming financially how the profession works so that they have that opportunity to step up in terms of earning money and making money and maybe even building wealth.

Dan Hood (00:52:12):

Eli, I think you may have to jump relatively quickly, but you have a minute just to talk about—you mentioned the optionality of where firms can go, where private equity firms can get their exits. Quick thoughts on that before you.

Eli Nagler (00:52:24):

Yes, and I appreciate that. I would say there are a couple different avenues, which is actually part of the appeal. I think for starters, there's still ways to go just within the confines of private institutional investing. So whether that be other private equity firms, whether that be other more limited partner types, pension fund types who are attracted to what is obviously very stable, cash-generated businesses is certainly a part of it. I think over time, once you reach a certain critical scale, you will see more public firms and a couple of firms IPO, kind of like you have in the insurance brokerage space where you have obviously a couple of the majors, whether Aon or Marsh, et cetera, that have substantial scale that are out there in the public markets. But what that may also lead to, which I think we were ways off from, is a merger or consolidation among the larger players. Given that you're right, it is still a fragmented space, but for that reason, I think the fragmentation has a long ways to run before that really becomes something that we would run into. So I guess that's a bit of saying all of the above, but I do think there are multiple avenues that will be available to everybody within the industry today.

Dan Hood (00:53:35):

Well, as you say, that's got to make it attractive for private equity or anybody else coming in looking to invest. Alan Koltin, I want to get your thoughts on the sort of exits that people are pursuing or can pursue. We've only seen one so far technically in US firms, but when you look at that, what do you see?

Alan D Koltin (00:53:52):

Well, I think we'll have a second one sometime in 2025 that you could bet on, and I think next year, 2026. One thing we haven't talked about has been the roll-ups, the non-mothership accounting firms. If you took the five largest ones today and aggregated their revenue, you'd have a $1.2 billion firm. You'd have a Top 15 accounting firm in less than two and a half years. So there's a whole—I don't want to call it a sub-industry—but there's a whole industry within an industry. Do I be my own foundation firm and use the capital to tuck in? Do I go with a big mothership? Do I go with an aggregator? There are different kinds of aggregation that goes on within that segment. Who knows the future anymore?

Eli Nagler (00:54:48):

I just wanted to say, I briefly interject that I—apologies, I'll have to jump. I appreciate I actually have our firm offsite today that I was able to somewhat discreetly duck out of, but I very much appreciate being invited to join here, and it's been a great conversation. So sorry to have to leave a few minutes early.

Dan Hood (00:55:04):

No, we appreciate your making the time for us. Thank you so much. Thank you, Eli.

Eli Nagler (00:55:07):

Thanks.

Dan Hood (00:55:08):

Speaking of private equity firm exits.

Alan D Koltin (00:55:13):

Dan, that's good.

Dan Hood (00:55:16):

The interesting thing is, as you talked about, as both Eli and you talked about, Alan, it made me think about how much going into—maybe Alan Badey, you could talk a little bit about this—how much going into a private equity deal do you as a firm, as an accounting firm, want to be thinking about potential exits? What types of—do you go in saying, "Well, we'll figure that out when we get there. There's no—whatever us and the private equity firm can agree on," or do you want to aim for? Do you think there are firms going in and saying, "You know what? I want to be a public firm. I want to be an IPO in five years, so I want to partner with a particular private equity firm that's down with that strategy?" Or do you think most firms are going in more of a, "We'll figure that out when we get there. Right now we're worried about—or not worried about—right now we're working on this deal. We're not thinking about the next one?"

Alan Badey (00:56:02):

Well, here's what I would say. We've been very, very fortunate to have about 30 firms in the last three and a half years joined Citrin Cooperman, and every single firm that has joined us, we have had a deep conversation about what is that exit look like? What does that look like for Citrin Cooperman? So I think every firm is—this isn't a hard question or a deep question to think about. They should be thinking about what is that exit? There is potentially different outcomes of what that means, right? Obviously, a strategic buyer is different than a private equity buyer is different than more long-term capital is different than an IPO. I think all of them do have their positives and their maybe detractions from each of them. So it's definitely something you need to think about. Quite frankly, I think it's still exciting. I do think you need scale to get to an IPO. You're not going to IPO a small firm. You're just not at any type of scale to do that.

Dan Hood (00:57:14):

One of the interesting things is we talked about the platform firms, the roll-ups. In theory, they could be rolling up all these firms to make a larger firm that can then roll with another firm and become an—there's a potential conveyor belt situation going on there, which would be interesting to see how that plays out. We have a little bit of time left, but I want to make these next two questions sort of lightning round questions. Just quick impressions of, because we're looking at the future, and again, these are not promises. We're not going to hold anybody responsible for what they say, but I just want to get a sense of what you all think the midterm impact of private equity on accounting might be, or what it might look like, or some of the elements that might go into it. Lisa, I'm going to throw this one at you first.

Lisa Simpson (00:57:57):

Sure. I think we're going to see continued consolidation. I think we're going to see more of those firms in the middle deciding to roll up or deciding to take PE, and we're going to continue to see maybe more firms that are getting bigger, and then a lot more firms down at the smaller end of the profession. I think that's okay. I think we're going to see a lot of innovation at the top and a lot of innovation at the bottom, a lot of excitement on both ends of that spectrum of firm size. So I think it's going to be fun, but I think we're also going to see—and we are already seeing—firms understanding that they have to think differently about how to run the business of an accounting firm than they have in the 20, 30, 40 years that we've seen recently. So they're thinking about how to be more strategic. They're thinking about how to deploy capital more effectively. They're thinking about what services they're going to offer to whom and how with what staff. So I think it's a lesson learned from having private equity come into the profession is that we all need to think about the fact that we're running businesses, and we have to transform the way we run that business to meet the changing environment.

Dan Hood (00:59:14):

Right. Again, going back to Alan Koltin's point about it's not about that you're independent, it's about how successful you are, and to be successful, it's not a question of PE or not PE, it's a question of making the changes you need to be a successful firm, whether you're independent or with a PE firm. Excellent. Alan Badey, what's your thoughts on this? The midterm impact?

Alan Badey (00:59:36):

I would add to what Lisa was talking about. I do think that the regulators will come to a position where they understand that PE is here, and they'll create maybe an easier road path or a more defined road path as to how this works and the acceptance of it. I think that we'll see that in a short period of time, and Lisa's leading some of those committees at the AICPA. I also think what we will probably see is we'll see not only firms continue to come together, but I think you're going to see a lot more investment in technology with the mid-size firms in particular. I think you're going to see a lot more investment in the people inside the firms. When I say investment, I'm not talking about just their technical skills in terms of whatever tax or attest or whatever. I think you're going to see a lot more investments in their skills as financial professionals, right? Understanding how to truly service the clients, how to advise those clients on their financial outcomes and what that means. I think the technology, the AI, will actually help us get there. So it's very exciting.

Dan Hood (01:00:56):

Mr. Koltin, your thoughts on the midterm impact?

Alan D Koltin (01:00:59):

So heavyweight, middleweight, welterweight—never want to call somebody a lightweight. What's happened in these last four years essentially is the heavyweights, the top 30 accounting firms, and the top 50 PE funds have done battle, and more than half of them have engaged, and there's a whole segment of that top 30 group that is going to stay independent. You know what? They're going to be very successful a different way. It's a business. But what we've seen now in the last year is the middleweights, the mid-size PE funds and firms of $100 million to $500 million getting married, and a whole another weight class, if you will, literally overnight is born. But what we're now seeing is the welterweights. There are funds with plans to go into firms that are $1 million of revenue up to $5 million. They know the niche. Lisa, help me with the numbers, but if there are roughly 45,000 firms, we've been sort of first watching the top 30, then the top 100, then the top 500. Guess what? There are 44,500 firms left: 33,000 sole practitioners, 10,000 firms of two, three, four partners. Now we're seeing specialized PE firms wanting to come in to that segment. So trickle-down is on. It's happening, and I think we're going to see private equity, by the time they're done, which may be never, touching every weight class within our profession. I think that's what's going on in the playing field right now.

Dan Hood (01:02:37):

Very cool. We're going to talk about the long-term impact, which I think is what you're teeing us up beautifully for, but we do need to get our third polling question in. Like I said, it's the third polling question if you're keeping track of that kind of thing. This time we just want to know what do you think PE's impact on accounting will be? Very positive, somewhat positive, neither positive nor negative, somewhat negative, or very negative. Go ahead, click the button that works for you, go to the right, and hit submit. We're eating into what's technically the closing remarks portion of the program, which is—I'm glad to have our panelists talking on this instead of me. I do, however, need to make a couple quick things. One, you want to make sure that if you want CPE, that you answer this question, but also that you fill out the CPE form in the attendee hub. It should be there in the resources tab for you or somewhere in the attendee hub.

(01:03:24):

Grab that, get it back to us by, I think it's July 18th, to make sure that we can get you CPE. I would also be remiss if I did not make another plug for our live in-person private equity summit that's happening in Chicago in November. We're very excited about that. Alan is a co-chair of that with us, and he'll be there to share his thoughts and all the things he's learned in the six months between now and then, or five months, whatever it is between now and then. We hope to see you there. It is a great gathering. I think we can say because there aren't any other gatherings, we can say it's the foremost gathering of private equity experts and accounting firms, people who are interested in private equity in the profession. Last year's was fantastic. We expect this year to be great as well. That's in November 20th, 21st in Chicago.

(01:04:11):

So sign up for that if you get a chance. In the meantime, tell us what your thoughts are about this question so we can close up this poll. What do you think PE's impact on accounting will be? Would it be very positive, somewhat positive, neither positive nor negative, somewhat negative, or very negative? You know what? I'm going to leave that open, so we'll have a chance to trickle in because I know some more will come in. Why don't we jump into this again, this last question, sort of lightning-round style, but what do you think the long-term impact of this will be? Alan, you were chugging along nicely, leading us up to the future, so I'll let you go first. Alan Koltin was setting us up for this. Maybe you can take us into the future a little bit.

Alan D Koltin (01:04:47):

Yeah, so I would say three distinct things hit me. Number one, we have one publicly traded company today. If we look five to 10 years out, I wouldn't be surprised if we had eight to 10 publicly held accounting firms, and I'm cheating a little bit. I'm betting on the fact that all of the Big Four won't go the way of private equity due to size, but will go the way of an IPO, and as soon as the first one cracks the code, the others will follow. But I already see some of these investments talking about three, four, five years from now going the way of an IPO. I think the second prediction I would have would be that the old unfunded chain letter—I call it the Ponzi scheme—the deferred comp program, I think will go the way of the Dodo with independent firms. I think they'll look not just at recapitalization, but I think that they'll say that the valuations of accounting firms have gone through the roof, and what we have is an outdated valuation.

(01:05:54):

So you'll see a lot of discussion in the boardrooms of independent firms about raising the value of the firm. The third, and maybe the most important piece, is I think as private equity not only raises the bar but moves the mentality from measuring success based on paycheck. When we go to all the management conferences, we talk about average equity partner comp. That's the defining moment. I think what's happening now is you are seeing partners talk about the appreciation of their equity of their shares, making the money unrelated to time. I think what you're going to see is not just owned firms, but independent firms creating incentive programs to give the kids a piece of the rock. I worked with one—it is fiercely independent. I doubt they'll do a private equity deal, and if they do, they'll wait till I retire so I can't help them. They're already feeding the kids incentive shares so that when they qualify to be an equity partner, there's an account already set up. I'm starting to see more firms think that way. So even though we've had it forever, the deferred comp program, maybe there's something new and better creating wealth for the kids or equity. You don't have to wait to become an equity partner and lots of publicly traded companies.

Dan Hood (01:07:17):

All right, we're going to close up the poll. If you haven't had a chance to tell us, you've had a lot of chances, so please do it now. We're going to close it up in 5, 4, 3, 2, 1. We'll get those results in a second. I want to make sure that Alan Badey and Lisa Simpson, you get a chance to weigh in here. Take a quick minute to tell us what you think the long-term impact. Alan Badey, why don't you go first?

Alan Badey (01:07:36):

I'll tell you, I think Alan said a lot of things very well there. I'm going to give you a wild prediction. You want this one. I think private equity actually helps to bring the accounting firm profession and the law firm profession much closer together.

Dan Hood (01:07:55):

That's fascinating. I wish we had an hour to unpack that. I appreciate.

Alan Badey (01:08:00):

I guarantee it's going to happen. It's already started, so they just got to figure out the laws around it, and they will make it work.

Dan Hood (01:08:08):

They're starting in Arizona. I appreciate that. It's fascinating, and I appreciate the brevity. Lisa, you get a chance to wrap us up.

Lisa Simpson (01:08:15):

I'll have the last word. I don't know the number of firms that'll go IPO, so I'll just rely on Alan and his eight. I love the other Alan's idea, and I see this as an opportunity for us to think about how we can—we're already increasing the profile of the profession to attract more people in through innovative compensation structures, through focus on capital, through creating wealth earlier in a person's career. These are all things that we know have been detractors against the profession, so we're adapting to those. I think, again, to Alan Koltin's point, it'll be independent and firms that have outside investments that are making these changes to compete for talent. So I love it.

Dan Hood (01:09:01):

Excellent. Very exciting stuff. Very quickly, the results are just under 60%, but 58% say that private equity impact will either be very positive or somewhat positive, and then another roughly 20% say it'll be neither positive nor negative. So the overwhelming majority there are neutral or positive about private equity's impact. So very exciting stuff. With that, like I said, we're a little bit over. I appreciate your audience sticking with us, and I appreciate Alan Badey, Alan Koltin, and Lisa Simpson. Thank you so much for your insights. Fascinating stuff. I wish we had a lot more time with you, and thanks to Eli Nagler, who had to jump, but brought a lot to the table, and we appreciate all four of you. So thank you all. Thank you. Thank you for having us,

Alan Badey (01:09:40):

Dan.

Lisa Simpson (01:09:41):

Thank you.

Dan Hood (01:09:45):

Thank this panel, and thank you all for attending. We hope to see you at a future webinar or a summit or in Chicago.