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NEWS DIGEST

Practice management

 

January 2013

J.H. Cohn LLP and the Reznick Group have closed on their previously disclosed merger, a transaction that creates the 11th-largest U.S. accounting firm and represents the second marriage of top 20 firms consummated in 2012.

The Cohn-Reznick combination, first announced in May, creates a firm with 2,000 employees, 25 offices, and annual revenue in excess of $450 million. The new firm unveiled in a news release that it has chosen CohnReznick as its new name.

Thomas J. Marino, CPA, CEO of J.H. Cohn, and Reznick Group CEO Kenneth Baggett, CPA, will serve as co-CEOs of CohnReznick, which will maintain Cohn’s membership in the Nexia International global network.

The announcement in October came nine months after Clifton Gunderson and LarsonAllen closed a merger that created one of the 10 largest U.S. accounting firms, CliftonLarsonAllen, with annual revenue of more than $550 million, offices in 25 states and the District of Columbia, and a workforce of more than 3,600 professionals and 500 partners.

The Cohn-Reznick and Clifton Gunderson-LarsonAllen deals are the largest in a series of mergers involving top 50 accounting firms over the past three years. Other deals of note include Plante Moran and Blackman Kallick LLP closing July 1 on a merger creating a Southfield, Mich.-based firm with more than 2,000 employees, 22 offices, and $375 million in revenue, and Dixon Hughes merging with Virginia-based Goodman and Co. in 2011 to form Dixon Hughes Goodman, a Charlotte, N.C.-based firm with 1,700 employees.

Joel Sinkin, president of Transition Advisors LLC, a New York-based company that specializes in brokering accounting firm mergers, said the trend of accounting mega-deals will accelerate over the next couple of years. He predicts that the pace of accounting M&A activity will quicken, peak, and then plateau at a “reasonably high level” for several more years, at least until the transition of Baby Boomers into retirement slows down.

“I would be surprised if we don’t see several more mega-firms created through mergers,” said Sinkin, who was not involved in the Cohn-Reznick deal.

A couple of main factors will fuel a rush of accounting firm mergers over the next several years, Sinkin said:

- Top 100 firms will continue to look for deals that strengthen their competitive position and capture market share by growing their geographic footprint, expanding their service offerings into more niches, and bolstering their talent and client bases. These dynamics can be seen in the Cohn-Reznick deal, in which Bethesda, Md.-based Reznick’s strong presence in the mid-Atlantic and Southeast is combined with New Jersey-based Cohn’s foothold in the Garden State and in New York City, where the combined firm will be based. The merger also creates a larger mix of service offerings with Reznick’s strength in the affordable housing and commercial real estate niches added to Cohn’s portfolio of tax, auditing, and business-consulting services. The new firm also features a stronger California presence fortified by offices from both of the merging entities. “In the current economic environment, clients require a strong combination of geographic reach, diverse resources, and deep industry expertise,” co-CEO Baggett said in the news release.

- The mass movement of Baby Boomer partners toward and into retirement over the next several years will drive smaller firms to look for ways to finance partner retirements. With retirement prefunding still relatively rare, retiring partners in accounting firms will be looking for the sale of their ownership stakes—either to the firm in the form of a buyout or to an outside buyer—to provide the money to live on in their retirement. However, most firms have not yet implemented formal succession plans, and the financial strain of funding the retirement of multiple partners could prompt many firms to seek upstream mergers with larger firms that would provide the money needed to purchase the Baby Boomers’ ownership stakes.

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