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The CPA Accounting Firm "Merger-Rama" Will Continue.
Learn why top national leading accounting firms are joining forces.
Big news recently, in case you missed it: DHG and BKD are merging. Two big accounting firm logos, one big consolidation and an exciting future. And this won’t be the last big, or small, merger this year.
There are 3 reasons why:
Reason #1: Talent
It’s no secret there’s a talent squeeze on CPA firms. Baby booming firm leaders are retiring, fewer young guns are sitting for CPA certification, and ”The Great Resignation” compounds the result: firms have to do more with less as they struggle with succession planning – a tenuous challenge.
So what can a near-retirement Managing Partner do? He/she has two options:
- Walk away (i.e. merge or sell). Clean, (relatively) easy, and (potentially) lucrative.
- Reinvest and find a way to steer through the storm by bridging the talent gap.
Those that choose "Door #2," may wonder: "what's the best way to do this?"
In short, the answer is to make it impossible for someone to NOT want to work for you.
And what’s the best way to do that? Make the work at your firm fulfilling and frictionless (the best talent wants to do the best work).
That’s where technology comes in.
Reason #2: Technology
The next generation of professionals will not tolerate a day-to-day experience hampered by 20 year software and paper-based systems.
Firms need the best of the best tech to do three key things:
- entice and empower the best new talent
- unlock every ounce of efficiency out of current and future staff
- (finally) access and understand performance data to make the important and difficult decisions
Only with the right data can firms analyze their book of business to thoughtfully determine:
- Which clients should I, respectfully, disengage from because they take too much time and deliver low margins?
- Which clients should I, respectfully, raise prices? (And which will accept that increase?)
- Which clients should I engage more rigorously and consistently because they represent cross-sell opportunities?
- Which clients should I just call more often to say "thank you for your business, how can I help you more?"?
The right data can give the insights, but it's only with the right talent that firms can continuously act on those data-driven insights.
The rub? Just like top talent, the best data and tech cost money.
And sometimes the only economically feasible option for a firm is to merge with another and to consolidate their back-office and IT spend. Thus, another reason the M&A continues.
Reason #3: Tomorrow
Talent and tech are not one-time expenses. They’re compounding and recurring. Firms will need to continuously reinvest in tech and talent – and compete on their merits — in order to answer the big unknown:
“What do the services of tomorrow, look like?”
CPA firms are de facto annuity businesses with extremely high trust rating and strong cash flows (one of the reasons PE firms have so enthusiastically jumped into the space).
But the smartest firms know they may soon risk price pressures via commoditization in several service areas (or face outright losses via automation).
But the value of the CPA firm has not always been in the delivery of currently-constructed services… it’s been solving business and financial problems.
So, firms need to find the problem-solving services of tomorrow, and how to deliver them at scale. And without great talent and great tech, it’s tough to predict the future. And costly.
So the path to tomorrow may run through M&A for many.
Terry Snyder mentioned this to me recently, and it stuck:
“Aside from all the legacy reasons such as retiring partners, improved margins and expanded geography, today's modern firms need deeper financial resources to acquire and/or invest in expensive technology and emerging innovations.“
(Thanks as always for the insight, Terry!)
And going back to BKD and DHG specifically Peter Kern from BKD shared this insight on the merger with Solon Angel and me:
“There are three main things that excite me - culture, opportunities for our people, and the value we bring to the market. In terms of culture, we've collaborated with DHG over the years on many projects, and to be able to combine with such a like-minded firm that focuses on their people and on providing an unmatched client experience is just a phenomenal cultural fit for us.
The merger also provides deeper industry vertical markets and a broader geographic footprint that provides so many new opportunities for our staff, and positions us as a destination employer.
And finally, I believe the marketplace is really starving for high-quality professional services from a firm with a national, coast-to-coast footprint. BKD and DHG are both known to provide exceptional service, and our merger creates a powerhouse national firm that will continue to deliver exceptional value to our clients.”
“Powerhouse” jumps out to me as the operative word – this new firm will clearly have the power to make the investments in people and technology to set a sustainable course for the future.
I think we can look forward to seeing other new “powerhouses” forming as the accounting profession continues to navigate challenges like “The Great Resignation” and firms continue to evolve and consolidate.