Accounting Firm Mergers Driven by Need to Grow Tech, Talent Pool

Emerging technology is making accounting and professional services firms more efficient and competitive. Successful adoption relies on experienced accountants—a group in short supply—and robust business resources, both requiring large capital investments. These factors are leading firms to find growth through mergers and acquisitions.

BDO USA PC’s recent acquisition of Horne LLP shows how firms can strategically grow through M&A. BDO gained 1,300 employees, a built-in customer base, and greater geographic reach. It also can sell services to the federal government by leveraging strong, existing client relationships.

BDO’s strategy for funding its growth isn’t the only one that works. Many firms, including Smith + Howard, have successfully scaled by securing private equity investments and strategically channeling resources into regional firms with compatible cultures.

Smaller firms see acquisition as an attractive business decision, too. Many regional firms have found that their continued growth is predicated on investment in technology and people.

Growth-minded firms have two options: Start making investments in new technology and people, or partner with a like-minded firm that already has set out on that path. For many smaller firm owners, the second choice is more attractive, leading to more consolidation in the market.

Technology and People

Firms that don’t leverage artificial intelligence-enabled technology are quickly finding that they can’t remain competitive with firms that do. But these emerging technologies are expensive to acquire, adapt, implement, and maintain.

Setting aside cost, recruiting and hiring experienced professionals to implement new technologies effectively can be challenging in the current hiring environment. However, simply having existing accounting professionals “moonlight” as implementers of technology can prove equally challenging and costly in other (and often more detrimental) ways.

For example, tasking an already busy professional team to manage the implementation of a new technology can be onerous. Additionally, their highest value activity is most likely not technology implementation, but rather some facet of client service, technical expertise, and team development.

Then there’s the toll that expansion takes on the leaders of smaller firms. Accounting firm partners and principals revel in working with clients and training their staff rather than handling administrative tasks or actively developing the business commercially.

Acquired firms benefit from getting immediate access to their parent firms’ business support and development services—human resources, marketing, information technology, and more—giving partners and principals the ability to focus on their highest-value activities: serving their clients and developing their people.

Growing regional firms often find that they lack the internal capacity to support new clients, let alone adopt new technology. Growth is stymied as a result. The well-documented accounting shortage in the US complicates this issue. Often, it’s more efficient to acquire or be acquired by a firm whose employees specialize in services that existing clients seek.

Capacity constraints lead firms to turn away business. When a firm doesn’t have the right expertise to help an existing client, it may refer the client to another firm, leading to lost potential revenue and reputational risk. When you consistently tell your client, “No, we can’t do that for you,” it becomes a matter of when, not if, that client will ultimately seek a stronger firm.

The accounting shortage applies to firms of all sizes. Although many are working hard to build up their staff, it can be a struggle to find those with the experience needed to establish a new service line or bolster an existing one.

M&A provides an opportunity for firms to offer a more comprehensive menu of services with a shorter return on investment than investing in direct hires. They can combine existing workforces to build up their practices and cross-sell services that their clients couldn’t previously access. In addition to having a combined workforce, having a backbone of clients that may provide recurring work clears a shorter path to profitability and scale.

Strategies and Takeaways

Like funding sources, acquisition strategies vary by firm. Some acquirers plan to run their acquired businesses as standalone entities. Others work to integrate each acquired company into their larger ecosystem, treating them as one unified business.

Smith + Howard has opted for the latter. We want to invest in companies that share our vision for growth, providing the necessary infrastructure to help them achieve their full potential.

We also only acquire companies that fit our service-oriented culture. That way, when we integrate the business into the larger Smith + Howard ecosystem, the inevitable challenges that are always necessary to address in any change management process are more likely to be understood, appreciated, and seen as the key to long-term increased success.

Growing a professional services firm today requires investment in capable experts who can help the business adopt emerging technology, strengthen existing service lines, and expand into new offerings and geographies. Through consolidation, firms are building the talent pool and infrastructure needed to thrive.

M&A helps firms pull on these growth levers with the support of shared centralized business services. Where regional firm leaders must balance both technical and administrative work, leaders of acquired firms are relieved of extra assignments, allowing them to focus entirely on work that moves their clients forward.

A confluence of factors has led consolidation to become a popular path for growth-minded firms. It appears that the trend will continue as larger firms continue to execute their growth strategies.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Sean Taylor is the CEO of Smith + Howard, a tax, accounting, and advisory firm headquartered in Atlanta.

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