Main Distinction Of 2005 Mergers: Geographic Expansion; Deals Help Accounting Firms Stretch Into...

Accounting firms, like many other business, frequently start the new year with mergers and acquisitions. But a striking number of large accounting firms are welcoming 2005 with deals that take their firms into new geographic territories.

The strategy makes sense: Breaking into new cities and

Building brand strength is one of the most significant reasons why regional firms are moving into new markets, says Terry Putney, co-MP at Blacklake Transition Solutions in Kansas City, Mo., and former CEO of HRB Business Services. "These firms are marketing to larger and larger clients. The Big Four are shedding clients, and these firms are picking them up. Their brand has more value to the client if they're perceived as more of a national player," Putney says. The trend appears to be at a fever pitch, he adds. "The growth of the top 200 firms in the nation is enormous, and there seems to be an inexhaustible supply of new firms to feed mergers."

Reznick Group, based in Bethesda, Md., realized a long-time wish for a Chicago foothold when it merged with Friduss, Lukee Schiff & Co., says MP Ken Baggett. FLS&Co. was attractive to Reznick Group for three reasons, Baggett says: its Chicago location, its cultural similarities to Reznick Group, and its practice areas. Approximately 60% of the Illinois practice is real estate - Reznick Group's national specialty - but it also has strength in manufacturing, an area that the Maryland firm wanted to add. Reznick Group has other locations, such as Charlotte, N.C., that can benefit from the manufacturing expertise, Baggett says.

At least one Bethesda partner will move to Chicago. FLS&Co. co-founders Brace Schiff and Jarvis Friduss will serve as co-partners in charge of the Chicago office. The Chicago firm's seven other principals and 50 staff join Reznick Group.

Reznick Group's strategic plan calls for the firm to be one of the 10 largest in the nation within 10 years, and it aims for offices in 10 metropolitan "hubs" across the U.S. within 10 years. "Chicago was the next hub we wanted," Baggett told IPA. "We have good coverage in the Southeast, California and the Northeast, but we're not as well-known in the Midwest, and Chicago is such a dynamic marketplace." Reznick Group has FY04 net revenue of $87 million, 72 partners, 900 total staff and six offices.

Reznick joins several other Third Tier firms that moved into Chicago within the last year, such as Plante & Moran of Southfield, Mich., and Virchow Krause of Madison, Wis.

After a hiatus from deal-making used to build needed infrastructure and branding, Cleveland-based CBIZ is deal-hunting again. It bought its first San Diego accounting firm by acquiring Nation Smith Hermes & Diamond, a $12 million firm with 11 shareholders and 95 employees. The company already had a benefits, insurance and valuation presence in San Diego, but not an accounting firm. NSH&D has specialties in A&A, tax, management consulting, business valuation, litigation support, IT and wealth management, as well as industry expertise in family-owned businesses, restaurants/ hospitality, nonprofit, manufacturing and distribution, and real estate. Its attest practice becomes part of Mayer Hoffman McCann, CBIZ's attest affiliate, based in Kansas City, Mo.

The NSH&D deal coincides with a new CBIZ-MHM initiative showcasing streamlined branding and consolidation of multiple offices in metropolitan areas such as Atlanta and Philadelphia. MHM is registered now in 45 states, and 28 of its accounting firm acquisitions have renamed their attest practices under the MHM banner. At one point, CBIZ-MHM had 52 accounting firms and 46 attest firms with different names, procedures and systems.

The company's five-year goal is to double its accounting firm size, says Leonard Miller, senior VP of CBIZ's accounting, tax and advisory services division. Half that growth will come internally; the other half will come from acquisitions, he tells IPA.

CBIZ no longer bases its acquisition price on a multiple of an accounting firm's gross revenue, he adds; instead, it's based on net income. Also, CBIZ now pays a maximum of 20% in stock for its accounting firm acquisitions, in contrast to the early 1990s when CBIZ deals were stock-heavy and cash-light. CBIZ-MHM continues to look for large accounting firm acquisitions with vibrant ownership groups who want to stay and help grow their practices, he says.

Also moving into new territory is LeMaster & Daniels, based in Spokane, Wash., which merged with South Johnson & Co. of Boise, Idaho - its first location outside of Washington state. Boise is a vibrant and thriving market that offers great long-term growth opportunities and helps offset the slower growth of eastern Washington's economy, says Scott Dietzen, CEO of Spokane-based L&D. SJ&Co. Partner Tom South becomes an L&D partner. The Boise firm's other partner, David Johnson, is joining his family's business but stays with the firm through july 1 to assist with the transition. L&D is keeping the $2 million firm's 17 employees.

L&D continues to look for merger partners, Dietzen tells IPA. "One of our strategies is to find metropolitan markets where we can fit, especially second-and third-tier markets with strong agricultural strengths, because that's one of our strengths. We've made concentrated efforts and significant investments in our infrastructure - particularly in the areas of IT, human resources and marketing - as a way to make ourselves an attractive merger partner. Smaller firms see that as a competitive advantage," he notes. L&D has FY04 net revenue of $24.1 million, 27 partners and 214 total staff. The Boise location is its 12th office.

Cherry Bekaert & Holland, based in Richmond, Va., moved into the Tampa Bay, FIa., market with the acquisition of Rex Meighen & Co The deal adds $2.2 million in revenue, four partners and 25 staff and gives CBH its 19th office. RM&Co.'s healthcare, construction and nonprofit practices complement CBH's, and it also brings in financial services and agricultural expertise. CBH has FY04 net revenue of $58 million, 43 partners and 560 total staff. CBH also has Florida offices in West Palm Beach and Orlando.

Meanwhile, tuck-in deals - firms merging with firms in existing markets - continue to be a popular strategy among accounting firms. Among notable recent deals:

* J.H. Cohn, based in Roseland, N.J., combined with New York-based Becker & Co., a tax consulting firm which specializes in family-based businesses, publicly owned companies and high net worth entrepreneurs. Stuart Becker becomes a Cohn partner. Becker & Co. also has offices on Long Island and in South Florida. Cohn has FY04 net revenue of $103.1 million, 90 partners, 510 total staff and nine offices.

* Anchin Block & Anchin merged in Yohalem Gillman & Co., creating a New York firm with combined FY04 net revenue of $62 million. The deal brings Anchin attractive expertise in business consulting and family office practices for high net worth and celebrity individuals, says AB&A Associate MP Frank Schettino. It's a specialty that AB&A has long wanted to develop, he says. Nine of YG&Co.'s 11 partners will join AB&A; 80 total staff come with the deal. YG&Co. Founding Partner and Chairman Ira Yohalem will join AB&A's executive committee. YG&Co. MP Joseph Tarasco and Tax Partner jude Coard opted not to join AB&A. It's AB&A's first merger in 10 years. Consultant Allan D. Koltin, president of Chicago-based Practice Development Institute, advised AB&A on the deal.

* Windes & McClaughry, based in Long Beach, Calif, established a Torrence presence by merging with Timothy Good & Co. in an all-stock deal. The deal brings 10 employees, giving W&M more than 130 employees. Timothy Good becomes partner-in-charge of the office. The merged firm will use the W&M name.

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* New York-based Holtz Rubenstein Reminick merged with Rand Consulting Group. The merger significantly expands HRR's existing litigation and valuation services group and positions the firm as one of the largest mid-size forensic accounting, valuation and litigation support firms in the New York metropolitan area. Martin P. Randisi joins HRR as partner in charge of the litigation and valuation services group.