ACCOUNTING
A CPA Firm Finds its Future by Merging Upstream
By Larry Feld Contributing editor , COMMERCE
At every strategic retreat over the last 26 years , managing partner Alan Sobel reviewed his CPA firm ’ s strategic plan and posed the same question to his fellow partners : Should they stay independent or merge into a larger organization ? Every year the response was always the same : Stay independent . Until 10 months ago , that is . That ’ s when the firm ’ s partners decided it was time to investigate merging their team of 200 professionals into something larger .
As a result , in February 2023 , Livingstonbased accounting firm SobelCo merged into CLA ( CliftonLarsonAllen LLP ) the eighth-largest accounting firm in the United States .
“ The primary issues became clear when we reviewed our strategic plan ,” said Alan Sobel , who is now Office Managing Partner for CLA ’ s New Jersey practice , “ Our SWOT analysis revealed how external threats were changing our business .”
Threats like the talent war – exacerbated by the shrinking number of people entering the profession – as well as the ever-mounting cost of technology and ongoing professional development needs , were beginning to impact the competitive growth capabilities of the firm .
What Sobel was facing is common for midsized professional services . As business becomes ever more complex , the need for experienced professionals – specifically those with niche skills – is transforming accounting , legal , engineering , and architecture . To innovate and grow , firms need talent and capital , two things in short supply .
“ Partnerships don ’ t typically have a stockpile of capital ,” noted Milton Kahn , Chief Operating Officer with The DAK Group , a North Jersey business advisory and investment banking firm for middle market businesses . “ Most professionals want to distribute profits at the end of the year ,” Kahn continued . “ With no capital reserve , firms must rely on a line of credit to invest in technology , acquire talent , and expand .”
Kahn is no stranger to CPA firm mergers . Prior to joining The DAK Group , he was a practicing CPA for over 40 years . Most recently , as a Partner in the Private Business Services Group of EisnerAmper , a large regional CPA firm . Before that , Kahn was the former managing partner for a prominent Bergen County accounting firm , merging it into the former Amper organization in the early 2000s .
“ Professional firms typically want to merge or sell when partners want to retire and they have not properly planned for transition ,” Kahn said . “ However , it is just as common for healthy firms with younger owners who want to expand , and that requires capital they may not have .”
As for SobelCo , their situation involved a mix of both scenarios . The decision to merge sent Alan Sobel on a mission , to take the temperature of the marketplace and immerse himself into what the firm needed to know for a successful transition . To help him find a suitable suitor , Sobel reached out to CPA firm mega-dealmaker Alan Koltin – initially not to hire as a business broker , but simply to have him as his merger sherpa .
“ Alan Koltin is in front of so much of what is going on in the marketplace , he helped us understand the process . He understood what we were going through and helped us find the right match ,” Sobel related .
SobelCo declined offers from private equity firms that would have invested in the firm in exchange for a percentage of ownership .
“ Expansion requires dollars ,” noted The DAK
“ The primary issues became clear when we reviewed our strategic plan ,... Our SWOT analysis revealed how external threats were changing our business .”
Group ’ s Kahn . “ This is the reason why private equity has a growing interest in professional firms . Many larger firms are expanding their niche services , including non-accounting services such as technology and human resources . Competing in these nontraditional spaces requires capital for training , marketing , and acquisitions ,” Kahn explained .
Of course , there are both downsides and upsides to any private equity investment , warned Kahn . “ Part of the private equity investment involves the partners partially cashing out . The firm partners or owners stay on and continue to participate in the business . Typically , the time range is five to ten years , and then the equity firm will want to cash out . The firm has to be ready for that day ,” Kahn said .
Instead of private equity , SobelCo agreed that a successful merger must meet certain criteria .
“ We framed four pillars that are most important to us . First , we wanted to continue to
Alan Sobel , President and CEO of SobelCo .
be a foundational firm ; a market leader in New Jersey ,” explained Sobel . “ The SobelCo partners have established a reputation . We wanted to expand on that reputation , not just disappear . Our people would not become invisible ,” Sobel said .
“ The second pillar was finding a firm that was built to last . We knew a merger was going to be disruptive to our people and our clients . We needed to find a firm large enough to ensure they would not merge themselves into yet another firm in a couple of years .”
The third pillar involved approach . The firm that SobelCo selected would have to be progressive in the way they service clients and treat their employees .
“ CLA has a client-oriented reputation and works with small to mid-sized businesses , just like us . They use technology to help drive the services they deliver ,” Sobel continued . “ As for
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