Accounting mergers reflect national trend

Bob Helm receives around 10 calls per year from parties interested in mergers.

In the past month, Elliott, Robinson & Co. LLP acquired two local firms, while Samek & Co. LLC joined forces with a 4-year-old Springfield accounting company.

“It’s a pretty popular thing in our industry right now,” said Bob Helm, managing partner at Elliott, Robinson. “I probably get 10 calls a year from people interested in us acquiring them or them merging into our firm.”

Over the past two years, the area’s top four largest locally based CPA firms have been involved in mergers and acquisitions. In November 2014, market leader BKD LLP acquired the 2,000-client Wolf & Co., which was listed by Crain’s Chicago Business as the 15th largest accounting firm in the Chicago area.

2014 was a busy year for KPM CPAs PC as the Queen City’s second-largest accounting firm finalized mergers with Davis, Lynn & Moots PC as well as Springfield-based Hlavacek Morris McIntyre Yates & Danielson PC. The moves helped propel KPM this year onto Accounting Today’s list of the Fastest-Growing Firms in the U.S., ranking No. 6 on 2014 revenue of $14.5 million, a 36 percent increase.

The deals represent a sign of the times, according to accounting executives and a national M&A expert, as baby boomers scramble to set up succession plans and surviving firms try to reach new customers.

Succession planning
Elliott, Robinson & Co. – ranked No. 3 among the area’s largest certified public accounting firms, according to Springfield Business Journal research – on Dec. 1 finalized terms with Lindy H. Maus CPA in Republic. A few weeks earlier, the firm picked up Gary Fenton, CPA PC in Springfield. Financial terms were not disclosed in the deals that grew Elliott, Robinson’s staff numbers to 47 from 35.

Helm said the impetus behind both agreements was succession planning.

It’s the same story for a Nov. 20 merger agreement between Samek & Co. LLC – No. 10 largest locally – and Bohl & House LLC. Samek & Co. owner Ed Samek, 72, said Bohl, House & Samek CPAs was created to ensure his clients were well cared for with or without him.

“I felt our office was a little vulnerable to some kind of illness on my part, or in the worst case, disability or death. I’m kind of the prime guy around here and that would leave everything in a lurch,” Samek said of his seven-employee firm. “Plus, frankly, I’ve had more work than I could take on myself, so I was looking around.”

The five employees with co-owners Ed House and Ryan Bohl are moving into Samek’s 7,500-square-foot office at 1900 S. Ventura Ave.

The local activity is in line with a national trend in accounting-firm mergers, said Joel Sinkin, president of New York-based Transition Advisors LLC, which specializes in the accounting field.

“2015 has been an incredibly active marketplace, but it’s been an incredibly active marketplace for several years and it just continues to build geometrically because of certain factors that are going on,” Sinkin said.

About five years ago, Sinkin said his company noticed a jump in the number of M&As to about 70 per year from roughly 45. In 2015, he expects the average to easily eclipse 70.

“We’re dealing with the aging of the baby boomer. It is very apparent that a significant quantity of current partners of accounting firms are baby boomers, and they are closing in at looking at reducing their time commitments to their firms and, ultimately, retiring,” he said.

The other factor is competition has forced firms to diversify.

“If I’m a $2 million to $5 million firm, and I’m competing against these firms that are $10 million to $100 million, and they can offer A-Z and I can only offer A-I, it’s challenging for me to stay competitive,” Sinkin said. “A lot of clients are looking for that one-stop-shop approach.”

He said the vast majority of the estimated 45,000 U.S. public accounting firms are small businesses with few staff members.

“You rarely have the expertise on the bench to be your successor. So, you are almost forced to look for an external succession solution,” Sinkin said. “But even with the larger firms, most firms have between 30 and 60 percent of their partners looking to slow down over the next five years.”

Workload demands
Helm said Gary Fenton approached him in 2014, but because of the ongoing construction of Elliott, Robinson’s new office in TerraGreen Office Park, he asked for a return call after tax season. In May, they began talks in earnest. The next month, talks with Maus began to take shape.

“Reputation had everything to do with it,” Helm said, declining to disclose clients coming over in the deals.

Agreeing with Sinkin that niche services are good reasons for joining firms, Helm said that wasn’t the case with Fenton and Maus.

“These are small general practitioners who just ran really high-quality, profitable practices, and I’ll take that over a niche service any day of the week,” he said.

Both Fenton and Maus joined the Elliott, Robinson staff to manage their respective books of business.

Samek, who also declined to disclose deal terms, plans to continue working but wanted to log fewer hours during the upcoming tax season. He turned to Bohl & House after researching their backgrounds.

“They’re a couple of young guys who came out of BKD well trained, obviously, and they’re just a couple of energetic good guys, who are tech savvy,” Samek said. “I was at the age where, frankly, I could not handle 100-hour weeks anymore during tax season. It was total dedication from about Feb. 1 to April 15. I will maybe cut my work down to 50 or 60 hours a week.”