Canadian Firm Takes Innovative Approach To Help Create Significant Wealth For Partners While...

It's not uncommon for accounting firms to set up wholly owned subsidiaries and other entities to generate revenue. But Calgary-based Meyers Norris Penny set up Tamarack Capital Advisors with the primary goal of generating wealth for its 230-plus partners.

Tamarack, which might be considered a corporate finance arm of MNP and has a 25-person staff, offers such services as capital formation, succession services, expansion and growth plans, and M&A services to middle-market clients in western

And significant wealth is what the MNP partners wanted, although there was some hesitation when Tamarack was created in 1999. "Many of the partners had their doubts about the strategy," says Bernakevitch, who points to the five potential deals, each with a $1 million minimum, that Tamarack receives each week. "Now it is snowballing - avalanching really. Now they think it is great." MNP has 1,400-plus total staff.

Strategy Helps Meet Goals Of Both The Client And Partner

Tamarack's model "allows you to help clients pursue their goals, and you can make a fee and create wealth for yourself," says Bernakevitch. "A lot of clients want help raising capital. Some need help transitioning their business. Some want to sell their business," he says. "As the trusted advisor, you have the relationship to help them through those concerns."

Here's an example of one recent successful deal: Tamarack developed a public income trust for a client through the sale of five companies in the oil and gas industry. "It was a succession plan for all five owner/managers, basically a M&A deal," Bernakevitch explains. "We brokered the vendor and the purchasers together and charged a fee in excess of $3 million. In the short run, it created an opportunity for the clients, and we created a fee, but we didn't create wealth." To create wealth, the partners who wanted to participate invested the profit from that fee in a long-term casino project that will have an eight- to 10-year return on profits. "One is a service we make money on, the other is a wealth builder," he says.

The entire MNP team is highly aware of the independence issues regarding audit and attest clients and is careful not to cross any lines that might jeopardize their new-found wealth or create conflicts of interest. In many cases, Tamarack clients are referred to competing firms for audit and attest services. Compensation issues are also watched very closely.

Consultant Robert Gallagher of R.J. Gallagher & Associates in Pittsburg, applauds the entrepreneurial spirit of the MNP partners. "Independence is so sacred today that, for me, if the independence issue has been cleared, then having other entities is part of the American dream."

Gallagher advises firms to complete three tasks before choosing this wealth building strategy: follow the rules governing independence, perform thorough due diligence, and ensure partner buy-in to the philosophy behind the venture.

Although some U.S. firms are pursuing similar strategies, MNP has "taken this to a whole new level," says Gallagher. "American firms are doing this, but not branding their effort. There are philosophical differences from firm to firm, and I think independence and objectivity are driving such differences."

There is financial risk involved with Tamarack activities. Each partner makes a decision whether or not to invest. All partners have equal access to deals. An investment review board is appointed to assess the viability of the company to be invested in and to make sure it meets the board's criteria. The minimum investment can be as little as $1,000.

At that phase, the Tamarack team sometimes loses money - the deal can go south in the incubation stage, after significant tune and money is already invested in due diligence. "Sometimes when you swing for the fences, you strike out. That's the nature of the business. You need patience," Bernakevitch says.

One Risk Involves Potential For Envy Among Partners

Regret and jealousy are another risk when huge profits are at stake. While each partner has the option of investing, each interprets the level of risk differently. "Because the partnership is ever-growing, there are some who are in on the deals and some who are not, depending on when you joined the firm," Bernakevitch says. "I'd love to buy IBM now where it was 20 years ago, but that's not how it works."

Tamarack also has a private investor network open to anyone. Investors must meet application requirements but don't have to be associated with MNP or Tamarack to participate. Partners actively seek potential individual investors to join the network as part of their marketing plans. "All partners have a role in promoting and actively searching for and supporting deals, [such as] trying to find deals through M&A or putting contacts on our private investor network list," Bernakevitch says. An estimated 90% of the deals and the investors come from MNP clients.

Bernakevitch says the amount of wealth that has been created is a private matter for each individual investor and is difficult to measure. Factors include the individual's investment wisdom regarding which company to be a part of, how much is invested and how long the investments were held. Most of the investments take five or six years to generate a return.

Bernakevitch knows of several U.S. firms pursuing similar wealthgenerating strategies for partners. "There is a bunch of money to be made," he says.