Economic indicators suggest the time is ripe for CPA firm owners to be making major decisions to buy, sell, merge in or out, or re-invest.
by Rick Telberg
At Large for the AICPA
For many observers, the demand for solid practices is a good sign.
By some of my own off-the-cuff estimates, buyers outnumber sellers by at least three to one these days. As we discussed in last week's issue, there are three times as many firms looking to buy a practice as looking to sell.
"Many of our firms are having the best years ever," said Roman H. Kepczyk, CPA, CITP, and head of InfoTech Partners North America. "This success leads to expansion dreams kicking in for firms."
"The state of the profession is healthy," said Art Bowman, the Atlanta-based industry analyst and advisor. "But I'm not surprised that buyers might outnumber sellers. Buyers are in it for the long run and that means increasing the depth of resources they can deliver to
clients. It's a healthy profession but only the strong prosper."
On the other hand, a new wave of mergers and acquisitions among CPA firms could be a part of a larger trend already reshaping the competitive landscape.
"Well, this is a polarized profession, with the top 100 to 500 firms operating in a different world than the other 49,500 firms that are either sole proprietors or less than 10 people in total," said Ron Baker, a vocal advocate for value billing. "Since we are a mature profession, mergers and acquisitions will probably be on the rise over time, as a way to reduce redundancies, much like in banking or retail. I suppose in that sense, at the high end, it's more of a seller's market."
Still, it's easier than ever to launch your own practice, which complicates the picture.
"Certainly more firms are easier to start by a solo person with a laptop, Internet connection and FedEx account," Baker continued. "I meet all sorts of solos going out on their own, either from industry, coming from larger firms, or the government or education sectors. The barriers to entry are quite low, while the exit costs are quite large for established partners. It's really hard to make blanket statements about this profession because of the massive polarization. The Big Four operate in a different world than even the next 96 firms down, and the smaller firms are in another galaxy from them."
For the firm with growth on its mind, it's often cheaper and easier to buy rather than build, according to Allan Koltin, the Chicago consultant who engineered the recent merger of KGN into Virchow Krause. "It's the fastest way to grow the practice."
"For the acquiree," Koltin added, "it also represents a form of 'finality' and this step, along with a perceived 'giving up' of some level of autonomy causes a lot of acquirees to back away from upstream mergers or acquisitions unless it is crystal clear as to the benefits or the situation is desperate."
But some of it may be a mirage. Don Scholl, a veteran practice management consultant based in West Chester, Pa., suspects "many more firms are lookers than real buyers." And yet, for the sellers, it can give them context and insight into larger opportunities.
So buyers should be wary, as well. Gary Shamis of Columbus, Ohio, is a buyer, but a selective one. He's looking for solid practices. "We don't want to be someone else's succession plan."
