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Saturday, Apr 13, 2024

Special Report: Accounting – Teaming Up

The accounting industry’s talent pool has been experiencing a shrinkage problem of late, and that has caused more and more firms to turn to mergers.

Take the Long Beach-based O&S CPAs and Business Advisors. The five-partner, 36-employee firm recently merged with BPM LLP, one of the largest public accounting and advisory firms in the country. The deal, according to O&S Managing Partner Cynthia Schoelen, came about as the solution to better serve clients and expand the range of O&S’s services.

“We were getting more clients, but we didn’t have the staff to do the work,” Schoelen said. “So, you’re turning clients away and you’re also turning away existing clients who bring in stuff out of our wheelhouse.”

Schoelen’s firm, which provides tax, accounting, advisory and forensic accounting services and specializes in assisting closely held businesses and nonprofits, has worked with clients in Los Angeles, Orange, Riverside and San Bernadino counties for more than 25 years.

Now that O&S and BPM are under the same roof, Schoelen and her employees can refer existing clients to other accountants in the expanded firm. BPM has approximately 70 partners and more than 1,200 employees.

This is the third strategic combination that BPM has carried out in the past six months, following others in Santa Rosa and Sacramento. Those two mergers added Elliott CPA Group Inc. and Avaunt Ltd. CPAs and Consultants. Since 2020, BPM has also expanded in Southern California through mergers in Orange County, Long Beach and Santa Monica.

Tony Gales, a tax partner in BPM’s Long Beach office, said the priority for the mergers was people; he stressed that the accounting industry is in a place where recruiting and retaining employees has become difficult.

Making transitions

O&S had been contemplating a merger for a while before the BPM deal came to fruition, according to Schoelen, who added that her firm had been talking to BPM for several years off and on. She said that the cultures of the firms were very similar.

“O&S was looking for a while to see what was out there, because senior partners want to retire and they’re finding they can’t really replace their skill set as easily as they used to,” Schoelen said. “Normally, you’d want to bring that skill set up from (subordinates) and promote them, but it has been harder to get people in at the lower levels from college and up.”

BPM Partners, Cynthia Schoelen (left) and Tony Gales in the office.
Cynthia Schoelen, managing partner of O&S CPAs and Business Advisors, and BPM tax partner Tony Gales.

According to the 2022 New York State Society of CPAs’ Rosenberg Survey, many firms, including some of the largest in the country, are turning to mergers and acquisitions to handle succession issues and lack of leadership. Such moves, according to the survey, can also help a firm make the transition from compliance services to advisory services.

“Firms that offer financial services are more profitable,” the Rosenberg Survey stated. “For example, income per partner for firms that offer financial services is $638,000, whereas income per partner for firms that don’t offer financial services is $539,000.”

The Rosenberg Survey found that, on a national level, the percentage of partners older than 60 increased from 24% to 25% last year, meaning one-quarter of accounting firm partners are near or past retirement age.

Accountant numbers have also dropped in recent years. A Bloomberg Tax analysis from last year found that in 2021 the number of employed auditors and accountants dropped 17% from its peak in 2019, which was nearly 2 million.

One of the main reasons that fewer individuals are choosing accounting as a career, according to both Schoelen and Gales, has to do with changes in the licensing requirements needed to become a CPA.

According to Gales, CPA licensing requirements once included four uniform tests and one ethics exam, in addition to holding an undergraduate degree. Now, an additional 30 units are needed in order to qualify as a CPA.

Schoelen echoed Gales’ sentiment, noting that the additional 30 required units do not have to be in accounting education. She worries that the additional units could deter students from following through on their plans to be an accountant, whether it be the added time or money needed to pursue those units.

According to AccountingEdu.org, since a bachelor’s degree consists of 120 semester hours, students looking to become CPAs often enroll in master’s degree programs in accounting to earn the additional 30 semester hours.

Acquisitions

PricewaterhouseCoopers, a London-based professional services firm with two offices in Los Angeles, found that last year’s merger and acquisition activity was lower than 2021’s, but above historical levels.

In Los Angeles, merger activity among firms has not been high, but acquisitions have been a different story. PwC was one of several firms busy with such activity last year.

In the last two years, the firm acquired EagleDream, ACTS, Netrovert and Sagence, all of which reinforced and strengthened PwC’s existing offerings with cloud service providers and platforms.

BPM5000 E Spring St. Long Beach, CA
O&S’s Long Beach building.

“Collectively, the business logic for targeting these companies specifically is to increasingly have an impact on the digital fabric of our clients, as well as to have lasting, sustained impact on the operations and trajectory of their businesses,” PwC spokespeople said.

PwC added that in lieu of various economic cycles, it and other firms have had to engage in mergers and acquisitions with the long term in mind.

PwC’s 26th Annual Global CEO Survey found that the lure of mergers and acquisitions in challenging times is solid. According to the survey, 73% of corporate leaders were pessimistic about global economic growth, with 60% of those leaders stating that they were not planning to delay deals this year in order to mitigate potential economic challenges and volatility. The survey was released this year.

“Along with the need to grow, we believe that CEOs continue to eye M&A as a way to accelerate transformation of their businesses,” the spokespersons said. “And this is what we are seeing with our clients, as the challenges to organic growth and the urgency for transformation continue to make M&A a viable capital allocation option.”

In terms of the deals market, PwC is seeing business leaders operate as if a recession is imminent. It also found that more cost pressures mean additional pressure on near-term deals, giving businesses pause about what they pursue and when.

Recovery should emerge later this year, according to the spokespersons, who added that those who see deals as an enabler for growth may benefit from acting decisively.

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