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March 22, 2021 FOCUS: Accounting

Competition heats up in Greater Hartford’s accounting sector after mega deal

Photo | contributed When CliftonLarsonAllen announced it would be acquiring blumshapiro, Whittlesey CEO Drew Andrews suddenly found himself leading the largest Connecticut-based accounting firm.
By Matt Pilon

When Whittlesey CEO Drew Andrews first started working at the Hartford-based accounting and audit firm back in 1984, there were dozens of small homegrown firms competing in the market.

Today, following years of consolidation capped off in December by CliftonLarsonAllen’s (CLA) absorption of West Hartford-based blumshapiro — which is nearly four times larger than Whittlesey by annual revenue — Andrews said he’s still in a bit of disbelief that his firm is now the largest that remains.

“I’m just surprised that there’s no one left,” said Andrews, whose firm posted $26 million in revenue last year, making it the 158th largest firm in the U.S. and (now) the largest Connecticut-based firm by far, according to recent rankings from Inside Public Accounting and Accounting Today.

Blumshapiro was 58th on the national list, which means there are now no top 100 firms based in Connecticut.

The Greater Hartford accounting sector is a battleground where increasingly large firms compete for private-sector, government and nonprofit clients. The entry of CLA, the eighth largest U.S. accounting firm, brings another giant into a market where most of the top 10 firms are already well represented, including the Hartford region’s “Big Four” market leader PwC, as well as No. 5 firm RSM, which will officially relocate its 160 employees in New Haven and Farmington this May to downtown Hartford’s Goodwin Square office tower.

“Anyone in that area is considered a competitor but wherever competition is, there is opportunity,” RSM’s New Haven office leader Susan Martinelli said in an interview.

Sue Martinelli

Area accountants who have competed with blumshapiro predict CLA’s Connecticut entry will mean the firm takes greater aim at various larger national accounting firms in the region.

Competitors also predict that smaller firms may try to pick off some of blumshapiro’s clients, at least over time, similar to how community banks try to win new clients after a big bank buys a competitor.

“If companies need the huge accounting firms, they can find them, they are all here," said Michael Sabol, partner at Glastonbury-based MahoneySabol, whose firm has competed with blumshapiro and respects its work.

Michael Sabol

“They are an excellent firm,” Sabol said. “They certainly have the largest municipal practice in the state and they have an enormous automobile [dealership] practice."

CLA officials said they welcome the competition and only intend to build their business in this region — not shed clients.

Fee structures will remain the same, and accounts will be serviced by the same local CPAs, they said.

CLA also brings the ability to invest in new technologies and practice areas. For example, it expects to shepherd blumshapiro into the wealth advisory business. CLA also boasts more state government auditing assignments than any other accounting firm, and is expected to be a boon to blumshapiro’s ability to compete for municipal audits in Massachusetts.

“Smaller firms may tell companies that they will pay more in fees now because they’re with a top 10 firm, but that’s not true,” said Joseph Kask, former CEO of blumshapiro and now New England managing principal at CLA. “The fee structure is the same. We will service clients from the same offices. We aren’t flying people in to do your audits.”

Kask said he’s excited the deal will give blumshapiro’s team the opportunity to enter the wealth advisory market, where it’s been looking for a way in for some time.

Photo | contributed
Joseph Kask, former CEO of blumshapiro, is now managing partner of CLA.

“There are going to be so many opportunities,” he said. “It’s an outstanding opportunity for us to go into another area and we can stick with our clients all the way through a company’s life cycle.”

Competitors expect CLA to eventually chase bigger clients used to paying higher fees to larger accounting firms.

“CLA didn’t get to $1.3 billion [in annual revenue] by working on $30 million to $50 million manufacturers, that's just my gut feeling,” said Sabol.

However, James Watson, CLA’s chief practice officer for the Northeast, said CLA focuses on industry sectors, rather than whether a particular client is big or small.

James Watson

“There’s really no set wheelhouse as far as the type of client,” Watson said. “We have a small million-dollar nonprofit we’re serving alongside Make-A-Wish, which is one of the largest nonprofits in the world.”

One thing you won’t see CLA doing? Chasing auditing assignments from publicly-traded companies — Watson said it's a conscious choice the firm has made.

Boston market

While blumshapiro was in the Connecticut market for 35 years, some of its more recent moves were aimed at growing its Boston area presence, mainly through acquisitions.

CLA already had a presence in that market and likely saw blumshapiro’s growth there as a key trait, said Andrews.

“CLA can leverage that and move more into the Boston area, which is considered a higher-growth area than Connecticut,” he said.

Whittlesey fields several calls a year from larger firms, both from the area and further afield, sniffing out potential interest in an acquisition, and they’re often interested in proximity to the Boston area (where Whittlesey doesn’t have a presence).

“One firm told me that ‘we’ll get you to Boston and build it out,’ ” Andrews said. “I said ‘well, it doesn’t work that way. If you’re not in that market you’re not just going to be able to walk in there and grow.’ ”

Sabol agrees that Boston is a draw for many outside firms, and notes blumshapiro likely saw value in building additional clout there.

For its part, CLA says it was interested in securing “a more local presence throughout New England.”

“Our service model is built on being close to our clients,” Watson said.

Future outlook

At Whittlesey, Andrews says he discusses the firm’s future at just about every annual partner meeting, including the possibility of being acquired one day.

“I bring it up as an alternative at least once a year and I never get anybody wanting to do it out of our 23 partners — zero,” he said. “We like running our own shop.”

Andrews thinks the retirement benefits his firm offers to partners, which are designed to move younger talent up the ranks to replace aging counterparts, have been one important factor in remaining an independent firm.

Partners worry that being acquired might mean they are forced to take on more clients than they can handle, and they will lose their decision-making autonomy.

In an age of steady M&A activity, Andrews said he sees that local autonomy as increasingly unique.

“Now can we keep it going forever? Who knows?” he said. “I think we can if we do the right thing.”

Both Sabol and Andrews expect more consolidation in the region’s accounting sector moving forward, though the remaining firms are relatively small and may not draw the eye of national giants like blumshapiro did.

“Most partners are getting older and most haven’t done what we've done, which is develop talent underneath us, and they need an exit strategy,” Andrews said.

His partners are determined to remain independent, but there’s still pressure to keep growing; acquisitions or mergers could be part of the equation.

“We’re constantly talking to folks,” he said.

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