October 20, 2018

Here’s The Real Reason Mid-Tier Firms Are Merger Mad

As we know, BDO and McGladrey have both been on a very busy acquisition streak lately. BDO picked up one of Ohio's biggest firms with SS&G and then grabbed UHY's Texas practice. McGladrey, meanwhile, gobbled up sub 100 firm Cole + Reed out of Oklahoma.

We're talking apples and oranges when it comes to size, but Crain's Chicago thinks all this merger activity in the public accounting space actually serves a greater purpose than sending out press releases and boasting about growth.

Nope, it's about succession problems.

In a recent piece about the BDO and McGladrey mergers — which, by the way, includes a threat from BDO CEO Wayne Berson to kick McGladrey CEO Joe Adam's ass if the two shall meet in a dark alley somewhere — Crain's Chicago lets the cat out of the bag:

Plenty of smaller firms are interested in selling to mid-tier firms that want to grow, said James Sikich, CEO and managing partner of Sikich in Naperville, an accounting and advisory services firm that has had its own growth spurt.

Alright, that seems innocuous enough. But wait, what's this?

It allows the smaller firms to offer more services to clients, and in some cases it solves succession difficulties. Much of the industry's drive toward consolidation has been driven by the need to infuse cash into the underfunded retirement plans of baby boomer partners. [emphasis ours]

Now we're talking!

This isn't about dominance or growth at all, it's about making sure partners are able to spend their twilight years in comfort. Armed with that information, should we expect merger mania in the years ahead?

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