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November 21, 2011 FOCUS ON BANKING & FINANCE

Merger frenzy likely to continue | Accounting giants set sights on New England market, talent pool

Allan D. Koltin, CEO, Koltin Consulting Group
Carl Johnson, managing partner, BlumShapiro
Art Renner, executive director, Connecticut Society of Certified Public Accountants

An accounting firm merger wave has hit Connecticut and likely won’t recede any time soon, industry experts say.

In recent weeks, two major mergers have come to light, adding to a spate of deals that have taken place in Connecticut in the last year and a half.

And there’s likely more consolidation in the pipeline as regional and national firms look to grow their footprint in New England, which was spared much of the M&A activity prior to 2010.

Intense competition for talent, an aging partner base and a desire for organic growth are factors driving the merger rush, and now firms with or without a Connecticut presence have their sights set on the Nutmeg State and the rest of New England.

“There is definitely an M&A frenzy taking place in the accounting world, unlike anything I’ve seen in the last three decades,” said Allan D. Koltin, who is the CEO of Chicago-based Koltin Consulting Group, which advises CPA firms on merger activity.

Koltin said the accounting profession is going through the same process that law firms went through last decade, with small firms looking to become regional players, regional firms aiming to become mega regional’s, and mega regional’s looking to grow into national firms.

Almost all of the top 100 firms are in active M&A discussions right now, Koltin said. Currently there are about 20 firms with annual revenues of $100 million or more, but Koltin said he expects that number to double over the next five years as a result of consolidation within the industry.

A lot of the activity is being driven by succession planning. Koltin said the majority of partners at firms are aging into their 50s and 60s, and are having trouble finding talent internally to replace them. As a result, combining with other firms is sometimes the only viable exit strategy.

Carl Johnson, managing partner of BlumShapiro, Greater Hartford’s largest accounting firm, said there is a major talent squeeze.

Firms looking to grow are having a harder time finding quality, experienced accountants and consultants. In addition, some firms that laid off accountants during the economic downturn now realize they may have cut too deeply into their bench, and are in a rush to recruit.

“Accountants are in big demand, but harder to find,” Johnson said.

Deal making in Connecticut and New England really began to heat up last year when tax and business consultants UHY Advisors Inc. sold its 150-member New England practice — including its Hartford, New Haven and Boston offices — to accounting firm Marcum LLP.

Marcum officials cited the desire to expand the firm’s New England footprint as the driving force behind the deal.

Earlier this year, West Hartford accounting-consulting firm BlumShapiro bought Needel, Welch & Stone P.C. of Rockland, Mass.

In recent weeks, New York-based J.H. Cohn LLP acquired Kostin, Ruffkess & Co. in Farmington, a significant deal that will make J.H. Cohn a dominant regional firm with 105 CPAs and 225 total staff in Greater Hartford.

And just last week, Chicago-based Grant Thornton, one of the largest U.S. accounting firms without a Connecticut presence, announced it has entered into “exclusive negotiations” to acquire CCR LLP in Glastonbury.

Other deals have taken place in New Haven and Fairfield counties.

Art Renner, executive director of the Connecticut Society of Certified Public Accountants said, “It wasn’t a question of if this was going to happen here, it was more of a question of when it was going to start.”

Renner said there have been a large number of CPA firms throughout the country growing their footprint over the years, but not many have crept into the New England market.

But as firms increasingly look for organic growth, and try to satisfy the needs of clients with operations spread out across the U.S., New England is increasingly being looked at as a target.

Koltin, of Koltin Consulting Group, said the upper middle market is viewed as being underserved in New England.

By acquiring organizations, particularly outside the geographic footprint, CPA firms strengthen their bench and open a beachhead in new territory to recruit new business, he added.

That’s what drove BlumShapiro to enter the Massachusetts market when it acquired Needel, Welch & Stone P.C. earlier this year.

“It’s tough to build professional service firms from scratch,” said BlumShapiro’s Johnson. “Acquiring a firm gives you talent from the beginning, revenue that you can continue to invest in the organization and connections that the people in that office already have in the community.”

Johnson said his firm is looking for more acquisitions with a goal of growing to eight or nine 100-person offices. Today, BlumShapiro is a 300-person firm.

Johnson said BlumShapiro is in talks with a few organizations right now, and could have one or two more deals completed by the end of next year.

Dom Esposito, a partner and chief operating officer at New York-based J.H. Cohn, which has been active in Connecticut in recent years, said one of the reasons they have been attracted to the region is because no firm dominates the marketplace, particularly the middle market space.

J.H. Cohn pulled off one of the largest recent acquisitions in the state when it bought Kostin, Ruffkess & Co. In 2007, J.H. Cohn initiated another big move, when it acquired Glastonbury-based Haggett Longobardi & Co. The firm is now adding a Stamford office and is looking for future growth opportunities in the New Haven market.

Besides a thirst for finding new, quality talent, M&A activity is also being driven by a need to build the brand, Esposito said. It’s a consideration that was not prevalent in the industry years ago.

“The more visible, well known your brand is, the better chance you have of getting new business,” Esposito said.





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