Today’s public accounting firms are hitting the plus sign.
Mergers and acquisitions in the CPA industry began surging late last year after a pandemic-related slump, and several Arkansas deals illustrate the trend, local industry leaders say.
Most of the mergers and buyouts are designed to give accounting firms better technology, a deeper bench of employees in a challenging labor market, and a foothold in new specialties as accountants add consulting to more traditional work like taxes, auditing and compliance.
Just under a year ago, Hudson Cisne & Co. LLP of Little Rock and Jones & Co. Ltd. of Jonesboro united to form HCJ CPAs & Advisors PLLC, a team that now numbers about 90 employees. Five Arkansas CPA firms merged in January to form Garland & Greenwood CPAs and Advisors PLLC.
Also in January, Landmark PLC Certified Public Accountants and Landmark Financial LLC — known simply as Landmark — added two Arizona offices to their operations in Little Rock, Fort Smith, Rogers and Bentonville.
HCJ Managing Partner Karen Garrett, who held the same position at Hudson Cisne, said the Little Rock firm and Jones & Co. “both knew the growing trend across the nation” was toward mergers. “It has been a real challenge in our industry to retain employees and keep up with all the new legislative changes in both the audit and tax areas. And the smaller your firm is, the harder it becomes to keep up.”
The firms discussed coming together throughout 2020, working through concerns and legal details; a year later, none had second thoughts about their mergers.
“We had to make certain a merger made sense for us, and obviously we reached a conclusion that it did,” Garrett said. “Our new name is a representation of where our firm is headed. We added ‘Advisors’ to our name to align with clients’ needs for more than just tax preparation or auditing.”
‘Industry Changing Rapidly’
Other benefits of merging included technological and software upgrades and economies of scale, said Brent Stidman, the Jones & Co. managing partner who remains with HCJ, working out of Jonesboro. “The accounting industry is changing rapidly, and one of the ways to combat this is by increasing your size, leveraging their resources together as kind of a synergy effect. One plus one equals three, if you will.”
All three of the recently merged Arkansas firms were on Arkansas Business’ list this year of largest accounting firms in the state. HCJ ranked third behind BKD LLP and HoganTaylor LLP, both of Little Rock, with 51 CPAs and 87 total employees. Landmark PLC was fourth with 49 CPAs and 133 total employees, with Garland & Greenwood 12th with 15 CPAs and 36 employees.
Before the HCJ merger, Jones had about 35 employees and a large tax, audit and client accounting business in northeast Arkansas. Hudson Cisne had about 55 employees in Little Rock, White Hall and Rogers, also heavy with audit and tax work.
The merger “allowed us to pool these resources together and leverage this technology,” Stidman told Arkansas Business in a telephone interview. “Having the bigger merged firm allows us to offer resources from one office to another throughout the state. We can borrow up. We’ve long needed more employees and more CPAs, and of course there’s a real labor shortage in general, but that’s been the case for quite some time for accountants.”
An Aging Generation
Mergers and acquisitions also afford succession options to smaller CPA firms, Garrett said. Hudson Cisne founder Dick Cisne died in February, and while that played no role in the merger with Jones & Co., an aging generation of accountants wants options, Garrett said. “It’s a major theme in the advice CPAs give to businesses, and it’s a consideration” in many CPA mergers, she added.
Bob Lewis, president of The Visionary Group of Palatine, Illinois, who has made a specialty of helping CPA firms grow, said aging and outdated technology are constant problems for CPAs. Those have only been compounded in an industry that always faces a compressed work crunch in tax season, and has dealt with extended tax deadlines and unprecedented COVID-related challenges like Paycheck Protection Program loans and forgiveness rules.
“One of the biggest things happening now is that the average baby boomer is 66 years old … and they own 60% of the marketplace,” Lewis said in a recent online presentation. “That’s not all CPA firms, but a general statement. In all professions right now, we’ve got a lot of aging baby boomers figuring a way out.”
The Garland & Greenwood deal united FDV/CPA & Consulting Services of Bentonville; Gasaway & Co. CPAs of Little Rock; McIlroy Keen Goodman LLP of Little Rock; Prince & Tuohey CPAs of Hot Springs; and Robert G. Schichtl II CPA of Conway.
Rocky Goodman of Little Rock and Jake Froemsdorf of Bentonville, who happened to go to high school together in North Little Rock, will be co-managing partners of the new firm. They had kept in touch through the years as Goodman joined McIlroy Keen and Froemsdorf opened FDV in northwest Arkansas. “Rocky knows a lot of people in the industry, and we had stayed in touch, and he talked to all of us individually about the prospect of merging,” Froemsdorf said.
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Succession plans played into the five-way merger, Goodman said. “I had a partner who was nearing retirement age, and then Mike Tuohey had purchased Prince & Tuohey in Hot Springs from Ann Prince.” So Tuohey, Goodman and Froemsdorf joined with Jaye Gasaway, who had a shop in Little Rock, and Greg Schichtl, who had an agency in Conway.
One impetus for the merger was to offer a bigger firm to CPAs looking for a company to join, Goodman said.
“There were a lot of reasons, but I think No. 1 was recruiting new talent. (See In Recruiting New Talent, Accounting Firms Come Up Short.) Obviously, we can pull some resources together, find some economies of scale from the financial side.”
The Little Rock CPAs and staff are combined at Garland & Greenwood’s new headquarters at 501 N. University Ave., and the Hot Springs, Conway and Bentonville locations remain open. The firm took its name from the areas where the partners met to discuss the deal, Garland County, Arkansas, and Greenwood, Mississippi.
“All of our practices are built around our local communities, working with a lot of businesses that are next door or around the corner,” Froemsdorf explained. “We wanted to be a bigger firm, but one that doesn’t lose sight of the individual taxpayer or small business. They may not have the resources internally to handle accounting and compliance. We want to be here for them.”
Landmark, which itself resulted from a merger of Beall Barclay & Co. of Fort Smith and Thomas & Thomas LLP of Texarkana in 2018, now describes Little Rock as the home office, Managing Partner Randy Milligan said. “Most accounting firms are growing, and I think we’d probably be growing even without the merger, but it helps us do what we need to do.”
With 20 partners as opposed to three or four, he said, “we’re able to pick up work we weren’t doing because we didn’t have the manpower or expertise.”