Archives for April 2012

Strategies for Growth: The Triangle Offense

Q:       At a recent conference, you spoke about the “triangle offense” as a current growth strategy that many CPA firms are using. Can you provide some background on this term and share the key elements of it?

A:        In the 1990s, the Chicago Bulls (with Michael Jordan and Phil Jackson) used the triangle offense to win six NBA championships. I’ve been using the term “triangle offense” (see Exhibit 1) to define what I see the majority of Top 200 CPA firms doing when it comes to growth strategies. Simply stated, the three triangles include a strategy for organic growth, growth from mergers and acquisitions (M&A), and growth through free agency/lateral talent.

Q:       Could you talk specifically about the first triangle, organic growth, and which components are a part of it?

A:        Organic growth clearly has been flat since the start of the recession and 2008 through 2010 has definitely been the flattest three-year growth period over the past decade for most firms. Having said that, we observed firms re-commit to growth in 2011 in a way that we have never seen in the past. Whether it is partners with big books of business who are passing them on to other client service partners so they can free themselves up for additional rainmaking, or a price war like we have never witnessed before, guerilla marketing strategies have taken over. I have also found that firms have been making strategic investments in talent, such as chief marketing officers and business development people in a way that they have not done previously. Specifically, firms are much more focused today on winning new clients, new projects, and have a greater focus on cross-selling services to existing clients. Finally, we are also seeing more firms go “out of the box” a bit and get into many new products and services through which they can make money unrelated to time by pricing their results on a contingent-fee or commission-based approach. While this has been popular in the area of financial services, firms are now branching into additional areas, such as corporate finance, tax savings, and other related fields.

Q:       The second triangle you mentioned was M&A. Is this any type of merger or is there a more precise strategy to it?

A:        We’ve seen two major changes in the M&A area. One is that many mergers today are more strategic in nature, as opposed to succession-planning oriented, which quite candidly had been the main focus in many of the mergers that have taken place over the past decade. The second big trend clearly is what McDonald’s has previously referred to as “supersizing.” In the past couple of years, there have been more mega-mergers of firms $25 million and above (see Exhibit 2) than in the last 20 years combined. I believe that many of these firms have had great success with prior mergers and now are looking to take it to the next level. Locals are becoming regionals, regionals are becoming mega-regionals, mega-regionals are becoming nationals, and nationals are becoming global firms, literally overnight. I don’t expect this trend to slow down in the near future.

Additionally, many of the mergers taking place today are now much more surgical in nature, in which they focus on the expansion of a specific industry, service line area, or sometimes broadening their geographic focus. A very popular merger today is one in which the acquiree wants to be the “foundation” firm for an out-of-town buyer that wants to expand its geography into a new region. While there have been a handful of what I’ll refer to as “mergers of equals,” this is still the exception to the rule and while I think there will be some in the future, they probably will come from very large firms that have cleared many of the hurdles that often arise in mergers of equals between smaller firm.

Finally, as the economy returns, I think we’ll start to see more “out of the box” mergers, whereby firms will buy specialty boutique and consulting practices that, for the most part, are non-CPA firms.

Q:       You have referred to the third part of the triangle as free agency and/or lateral talent. Can you shed some more light on this?

A:        When Arthur Andersen went out of business in 2002 and the PCAOB created Sarbanes-Oxley, I believe it forever distanced the Big Four from the middle market (privately-held companies with revenues between $25 million up to $1 billion). While the Big Four are back “dabbling” in the middle market today, it is clearly a short-term pricing strategy to keep their people busy and I believe their involvement in the middle market will go away in the next one to two years. What this created within the Big Four firms for many of the middle-market partners was a feeling of “second-class status” where all of the excitement was around Fortune 1,000 companies with relatively little focus on the middle market. What this has created has been a mass exodus of very, very talented managers and partners who have left to pursue new career opportunities in the Top 200 CPA firms. These firms have found great rainmakers, client service partners, and industry or service-line leaders and have found that this strategy can produce growth without some of the hassles that sometime come with M&A. It is clearly more of a “surgical strike” to obtaining talent and, to paraphrase the old saying, “If you can obtain the talent, the clients will follow.” I have also seen firms use this strategy to open up in a new geographic area, whereby they may recruit one to two partners (along with some staff) away from a firm, as they have found this strategy to be much more effective than transporting some of their own people into a new geographic area where they have limited contacts and knowledge.

Q:       You closed one of your recent presentations by saying, “If you don’t grow, you’ll die (worse yet, it will be a slow death.)” Please share with our readers exactly what you mean by this.

A:        When it comes to CPA firms, if you can’t continue to grow the firm, top young talent won’t stick around for a long time with each generation. CPA firms have to continue to grow great leadership, great rainmakers, and great client handlers. If they can’t continue to excel in all three areas, typically the firm will begin to erode, not necessarily overnight, but over a period of years. I have seen many second-generation firms essentially come to a screeching halt because the second generation didn’t have the type of leadership and rainmaking skills that the first generation had. They hoped that they could essentially “milk” the client base for another decade or two. Unfortunately, what they’ve learned is that with aging (or retiring) partners, oftentimes their client bases are of a similar age and those businesses typically sell, go out of business, or when the business is passed to the next generation, that generation uses the opportunity to find a new CPA firm.

I also find that some of the more unprofitable firms have limited or no growth strategies. When this sets in, they frequently hold onto the proverbial “C clients” longer than others, based on the theory that something is better than nothing. And, if they were to get rid of these clients, they have little to no confidence that they could replace them with new, more profitable business.

About the author: Allan D. Koltin, CPA is the CEO of Koltin Consulting Group, based in Chicago,  Illinois. Allan specializes in the areas of partner compensation, firm governance, profitability, strategic planning, succession and mergers and acquisitions. Allan can be reached at either or 312-805-0307.

IPA Best of the Best Firm Expands In Ohio

Columbus, Ohio-based GBQ (FY11 net revenue of $19.5 million) opened a Cincinnati office as part of the firm’s strategy to expand its specialty services, and hired Keith Hock to head the branch.

The office is for the firm’s Financial Advisory Services group, which does consulting on business litigation, bankruptcy and forensic accounting as well as other audit and tax functions.

GBQ MP Darci Congrove says the firm was considering a Cincinnati presence this year when the firm in February opened specialty offices for business valuation in New York and Philadelphia.

Congrove also hinted more acquisitions of niche practices could be on tap for the firm.

Crowe Horwath Intl. Names New CEO

Kevin McGrath has been selected to succeed Frank Arford as CEO of Crowe Horwath International.

McGrath, who is COO of Crowe Horwath LLP, will take over the CEO role when Arford retires July 1. McGrath, who has spent 35 years with the firm, most recently oversaw the firm’s brand awareness strategy coinciding with its national expansion.

“I’m honored and excited to take this new position,” McGrath said in a statement. “Under Frank’s leadership, Crowe Horwath International has achieved a single global brand with a defined strategy. I look forward to furthering his efforts to distinguish Crowe Horwath International among the global networks.”

Warren Averett Names New Birmingham, Ala. MP

Birmingham, Ala.-based Warren Averett appointed Thomas Sisson as MP of its Birmingham, Ala., office.

Sisson will lead the 250 person Birmingham office focusing on client service and strategic planning.

The designation of a Birmingham MP is a result of three members of Leading Edge Alliance (LEA) joining forces on January, 1, 2012.

The three way merger of Birmingham, Ala.-based Warren, Averett, Kimbrough & Marino (FY11 net revenue of $40.4 million), Wilson, Price, Barranco, Blankenship & Billingsley (FY10 net revenue of $19.4 million) of Montgomery, Ala.; and  Pensacola, Fla.-based O’Sullivan Creel (FY11 net revenue of $18.9 million) created the holding company of Warren Averett, LLC (WA).

Sisson has been with Warren Averett for thirty years. He has served the firm in various leadership roles over the years including multiple appointments to the Firm’s Executive Committee and Chair of the Firm’s Emerging Executive Group. Sisson has been an active member of the Firm’s Healthcare Consulting Group, serving physicians, their practices and families. He also consults with closely-held corporations and pass-through entities on a variety of tax planning matters.

With more than 550 team members, 12 offices throughout Texas, Alabamaand Florida, WA will rank among the top 50 firms in the U.S.and in the top five in the Southeast, behind Enterprise, Ala.-based Carr Riggs & Ingram (FY10 net revenue of $85.9 million).

Rehmann Acquires Financial Services Firm

Saginaw, Mich.-based Rehmann (FY11 net revenue of $87.4 million) acquired Reeves Risk Management of Jensen Beach, Fla., a financial services firm.

Reeves Risk Management will now operate under the Rehmann name.

Founder, Nelson Reeves and his staff will provide internal audit, regulatory compliance and other financial institution related services from Rehmann’sNaples,Fla., office.

Rehmann is a member of Nexia International.

H&R Block To Cut 350 Jobs; Close 200 Offices

According to the Kansas City Business Journal, Kansas City-based H&R Block Inc., plans to eliminate 350 jobs companywide, cull about 200 “underperforming” offices and shrink its seasonal work force.

Block’s stock was down nearly 13% after the announcement was made.

The job cuts and closing of 200 offices will contribute to a pretax charge of about $30 million, or 6 cents a share, the firm said. “These steps are necessary so we can create a stronger company, invest in our future, and produce greater value for our clients and shareholders,” CEO Bill Cobb said in the statement. “These actions will allow us to compete more effectively.”

Block indicated that it had a record-setting tax season. The total number of U.S. returns prepared through April 18 reached a record 22.2 million, up 4.5% compared to the prior-year.

In addition to the downsizing, Block announced a realignment of the organization, Phil Mazzini, president of Retail Tax Services, resigning from the company effective April 30, 2012. The company has begun the process of finding a new CFO, with the current CFO, Jeff Brown, remaining in the role he took over more than a year ago until a replacement is found and then transitioning into the role of chief accounting and risk officer.

According to the Kansas City Star, Block said revenues will be about $2.9 billion, below the $3.1 billion average estimate of analysts in the Bloomberg survey and a 23% drop from fiscal 2011.

Horne LLP Names New Managing Partner

Joe  Havens will become MP at IPA 100 firm Horne LLP, (FY10 net revenue of $45.8 million) effective May 3. Havens succeeds Hugh Parker who has served in the role since 2003.

Haven began his career at Ridgeland, Miss.-based Horne in 1984 and most recently led the firm’s disaster recovery team. “oey is well prepared for this role,” Parker says. “His experience combined with his passion and personal commitment to excellence in client service means our clients and our team members will continue to be our primary focus under his leadership.”

Horne, with 12 locations in Mississippi, Texas, Alabama, Tennessee and Louisiana, is celebrating its 50th anniversary this year.

BKD Bolsters Client Service Culture With Hi5 Campaign

Springfield, Mo.-based BKD (FY11 net revenue of $390.7 million) recently launched the Hi5 campaign to engage employees, cultivate clients and celebrate excellence. Employees “elevated” for their efforts to deliver unmatched client service are entered into a year-end sports car giveaway.

BKD’s commitment to client service is at the heart of Hi5. Propelled by firmwide participation and education, this effort encourages employees to recognize each other and celebrate BKD’s culture.

BKD launched the Hi5 campaign, using real-time recognition to applaud employees who take client service to new heights. Those employees are entered into a sweepstakes to win a fully loaded 2011 Mazda MX-5 Miata sports car at the end of the year. The roadster is valued at more than $30,000.

BKD’s culture is rooted in the five standards of client service – ­Integrity First, True Expertise, Professional Demeanor, Responsive Reliability and Principled Innovation. Years ago the firm published The BKD Experience: Unmatched Client Service, a hardbound book spelling out the firm’s philosophy in great detail.

The first week of January, BKD rolled out Hi5 in all 30 of its offices by providing every employee with a branded launch kit. Firm leaders challenged personnel to create Hi5 moments for clients in 2012 and to “elevate” each other on a Hi5 Wall of Fame housed on BKD’s intranet. Peer-to-peer recognition is a simple morale builder that has proven popular; elevations on the wall recently surpassed the 1,500 mark.

The firm’s MPs are serving as Hi5 champions in their respective regions and offices. Their charge: Keep BKD’s client service standards front and center through a series of group coaching sessions and Hi5 rallies designed to educate and reward employees.

To promote Hi5 throughout the year, the sports car – emblazoned with Hi5 decals – will be on display in select offices to remind employees that delivering excellent client service is rewarding on many levels.

IPA Best of the Best, Acquires Houston Firm

Fort Worth, Texas-based Whitley Penn (FY11 net revenue of $37.6 million) will acquire Houston-based Null-Lairson, (FY11net revenue of $10.5 million) on May 1.

The move allows WP to expand its presence while adding complementary services. “I knew I needed to be in Houston long term, and I was looking for a
firm of substantial size, and Null-Lairson (NL) is unique in that they have services we don’t have,” WP MP Larry Autrey says.

“We knew that in order to keep hiring the right people, we needed to keep growing,” Autrey told IPA. Houston is among the top five largest metropolitan areas in the country, so it was the right place for the firm to expand. The firm currently has about 100 staff focusing on Houston businesses, according to Autrey.

John Null, the MP of Null-Lairson, says “This merger will accelerate our growth and broaden our service offerings to clients in the Houston area by adding the deep experience of Whitley Penn in the oil and gas industry and in serving the public company market. This will be a win for our clients, our staff and the Houston area.”

NL professionals serve as auditors for more than 75 governmental entities, a service WP did not offer. By contrast, NL did not do much oil and gas work, but it’s WP’s largest practice unit. NL doesn’t do public company work; Whitley Penn does. A complimentary match was made.

The combined  firm will be part of Nexia International, a global affiliation of regional accounting firms serving clients in more than 110 countries.

SingerLewak Names New Managing Partner

Los Angeles-based SingerLewak LLP (FY10 net revenue of $37.1 million) has announced that Jim Pitrat will assume the position of MP, effective July 1. Pitrat will be the third MP in SingerLewak’s 53-year history.

The current MP David Krajanowski will conclude his current term as MP the end of June. Krajanowski served MP since 2001 and has played a pivotal
leadership role in growing three office regions, as well as spearheading the firm’s rebranding and national growth. He will now focus on a niche market
segment, Entrepreneur & Family-Owned Businesses, a sector that has been a key area for the firnm, since the firm’s beginning.

Pitrat previously served as the Assurance & Advisory Practice Leader and currently holds a seat on the firm’s Executive Committee. As MP, he will assume the firm’s organizational and operational leadership role for all six offices in California.

“I am honored to follow such successful leaders as David Krajanowski and Harvey Goldstein, and to have an opportunity to lead a firm with a long history
of quality client service,” Pitrat says. “SingerLewak has always been an innovator in the industry and has consistently demonstrated an ability to adapt to changing market places and regulatory environments, while remaining focused on serving and advising clients to help them achieve greater success. I look forward to working with an excellent group of partners and professionals as we grow the firm.”