Look Who’s Bullish Now
Some astute firms are seizing once-in-a-lifetime growth opportunities. Tell me: What should CPAs do?
November 17, 2008
by Rick Telberg/At Large
The credit markets are frozen. The stock market is crashing. America’s auto makers face insolvency. Job losses are mounting. Consumers are catatonic.
Some days it seems as if the wheels are falling off the economy at home and abroad.
So why are some accountants so bullish? The fact is that a number of strategic-minded accounting firms are investing aggressively in mergers, acquisitions, talent grabs, global expansions and capital restructurings.
At an AICPA conference recently, I ran into a CPA from Sacramento, Calif., who had taken a week off following the Oct. 15 tax deadline to catch up on CPE and grab a little R&R. He was in New York for the securities industry conference after visiting the AICPA auto-dealers meeting in Las Vegas. Considering the parlous times on both Wall Street and in car showrooms, he couldn’t have picked two gloomier venues.
But he was counting his lucky stars. His home mortgage was paid down. Business has been holding steady. “Everyone needs their taxes done,” he was saying.
And he’s expanding his office to eight staffers from four, after picking up three local accounting practices from CPAs who had had the misfortune of serving a few too many clients in the real estate or lending industries. He was saying, “Just lucky, I guess.”
But it’s more than luck when you look at the skein of strategic moves reshaping the CPA landscape nationwide.
To be sure, it’s nothing to cheer about. These are scary times in America from Main Street to Wall Street. But, as always, some firms will do better than others. Our job is to find a few lessons in the carnage.
New Jersey-based J.H. Cohn, for example, is forming a “client economic recovery team” to advise financial institutions and public companies affected by the financial crisis. They’re looking for a piece of the risk management and regulatory compliance work stemming from the Troubled Asset Relief Program, the $700-billion (so far) federal bailout. J.H. Cohn is mobilizing professionals in business investigation, corporate governance and financial services practices, and targeting banks, insurance companies and credit card providers.
Another New Jersey-based powerhouse, Rothstein Kass, a specialist in hedge funds, decided this was the time to launch operations in Orange County, Calif., by opening an office in Irvine, and installing as partner-in-charge, Luis Puncel, a 30-year veteran of U.S. Securities and Exchange Commission (SEC) and regulatory matters. It’s the firm’s fourth location in California and becomes part of a string of offices including one on the Cayman Islands.
The firm sees the move as strategic. Having grown up with the hedge fund industry, Rothstein Kass gained access to adjacent areas, such as family offices, litigation and forensic accounting, corporate advisory services and insurance risk management practices, according to Steven A. Kass, Co-Managing Principal of Rothstein Kass.
Some accounting firms appear to be benefiting in the midst of the economic downturn. Sageworks, the makers of ProfitCents Software, reports that accounting firms are seeing revenues surge at local and regional firms from single-digit percentages to over 10 percent to 15 percent, with Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) growing even faster.
At Wolters Kluwer, one senior executive tells me: “The regulatory compliance environment is exploding in the financial service sectors and now all government agencies are beginning to look at their governance and regulatory structure. Regulatory compliance, government audits, restructuring, work outs, bankruptcy activities, liquidations, fraud, expert witness activities — CPAs will be fully employed for many years to come.”
In little Harrisonburg, Va., Brown Edwards and Co. is acquiring the smaller S.B. Hoover CPAs, bringing Brown Edwards up to 200 associates and seven offices in Virginia and West Virginia.
In Atlanta, Habif Arogeti & Wynne hadn’t done a deal for another firm in its 55-year history until a year ago. Now it’s done two, and the deals signal a strong push by the firm into the upper market. “We think we can position ourselves in the market as a true option to the Big Four,” said managing partner Dan Simms.
Noting that the accounting industry has had a lot of double-digit growth over the past few years, Simms believes that a deep, two-year recession in the U.S. is creating opportunities for acquiring talent and clients at attractive costs. Over the years, Habif Arogeti has launched at least two businesses that the partners have then spun off for fresh capital, giving the firm a well-deserved reputation as an entrepreneurial incubator.
In San Francisco, Burr Pilger Mayer, the fifth largest CPA firm in the Bay Area is acquiring Spector & Associates LLP, a high-end tax and estate planning firm in Palo Alto. Burr Pilger is adding three partners and nine staffers to its Palo Alto office, bringing the firm overall to 340 employees and more than $60 million in revenue with five area offices. One partner said this completes the firm's growth strategy of "Ringing the Bay."
Perhaps it’s no coincidence that the latest deal comes just a few weeks after the firm launched an employee profit-sharing plan (ESOP), said to be a first for a public accounting company of its size.
Eide Bailly, LLP, the super-regional business advisory company based in Fargo, N.D., has closed three deals in rapid succession. In Boise, Idaho, Eide Bailly is expanding its foothold with the acquisition of Keller, Young & Grover CPAs. One of the three selling partners said she could now offer clients new services “like cost segregation studies, business valuations and technology” consulting.
In a second deal, Eide Bailly is entering Colorado for the first time with the acquisition of the venerable Golden-based Gordon, Hughes & Banks. Founded 39 years ago, Gordon Hughes brings $13 million in annual billings, six offices, 15 partners and more than 80 staff. Last year Eide Bailly reported revenue of $114 million. The firms apparently see opportunities in forensic accounting, investigative services, medical practice management and technology consulting.
At the same time, Eide Bailly is also acquiring Magee Rausch & Shelton LLP in Tulsa, Okla. The deal comes just three months after Eide Bailly gobbled up another Oklahoma operation, Murrell Hall McIntosh CPAs.
In Chicago, Crowe Horwath LLP (better known until recently as Crowe Chizek) is acquiring Grobstein Horwath & Co. LLP of Sherman Oaks, Calif., adding 120 Grobstein employees to Crowe’s 2,500 nationwide headcount. Grobstein, which has a second office in Costa Mesa, Calif., has strong ties along the Pacific Rim, including China.
Talk about international expansion, Grant Thornton has now reported that 25 percent of its new revenues in the just-completed fiscal year came from new international clients. The firm’s overall revenue grew about 10 percent to $1.2 billion.
In more news from China, PricewaterhouseCoopers is defying the credit crunch and betting big, by looking to hire 2,000 newly-graduated accountants in 2009, a huge increase from the 11,000 now on staff. Worldwide, PwC has about 155,000 staffers.
"The current economic crisis is something that everyone is very, very concerned about," said Frank Lyn, Beijing-based China Markets Leader of PwC. "But if you take a longer-term view and the fact that we're here to stay, we are not just hiring for now but ready to train our people for the next five to 10 years."
Clearly, many CPAs are taking the long view. Are you one of them? Just as the economy has hit a once-in-a-generation slump, some CPAs may be finding a once-in-a-lifetime opportunity.
What should CPAs be doing about it? Send your comments to me at firstname.lastname@example.org.
Copyright © 2008 CPA Trendlines/BSG LLC. All Rights Reserved. Used by Permission. First published by the AICPA.
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