The accounting firm of Crabtree, Rowe & Berger was named to Inc. 5000’s list of America’s Fastest Growing Companies in last year. Now there’s news of the top 20 nationally ranked CPA practice and advisory firm Carr, Riggs & Ingram, LLC’s (CRI) efforts to expand in Alabama, which includes the acquisition of Crabtree, Rowe & Berger. The sale allows CRI to increase its locations in Huntsville and across the state.
CRI is one of the fastest growing and forward-thinking CPA and advisory firms in the nation, now operating in 30 markets in 10 states.
This is just the latest example of the activity in CPA mergers and acquisitions. What this acquisition shows may be reflected in The CPA Journal’s recent review of the top trends in the CPA mergers and acquisitions market. Here’s a look at the current top ten trends.
Stronger Economy for CPA Practice
The CPA Journal found that the economic climate is substantially more robust than any time since the Great Recession of 2008. Would-be buyers are more ready to take on risk. Buyers are more confident about their ability to succeed and are conducting less due diligence prior to closing a deal, which is evidence of a continued stronger market.
Greater Availability of Funding
The report states that buyers are more willing to pay higher prices at closing because of the availability of funds in the market and very low interest rates. Outside lenders are offering conventional five- and 10-year loans at historic low rates, and it’s not uncommon for lenders offer up to 100% financing to buyers. Buyers say that they are able to afford higher prices, pay more money up front, and need less seller financing. This also means sellers are assuming less risk. The story reports that lenders can approve a CPA practice acquisition loan in as few as 72 hours.
Fewer Seller Guarantees and Retention Clauses
Buyers have been conditioned to ask for retention clauses in their CPA practice acquisition agreements to provide a greater guarantee of their success after the deal. The stronger economy has given would-be buyers more confidence that they will be successful and continue the growth of the previous owner. Thus, fewer seller guarantees and retention clauses. However, sellers are not as willing to guarantee the buyer’s success.
Sellers Stay after Sale
There are quite a few sellers who are realizing that they are not ready to retire and leave the business. These sellers say that they would like to stay involved in the company, but not full time— and in a position that does not require them to bear all the stress that goes along with the day-to-day of management of the business. Rather, sellers would like to stay on and work in a part-time capacity, perhaps even indefinitely. If permitted to do so, they can stay connected with clients and solidify client retention after the sale.
Specialty Practices Up
The article found that accountants are specializing instead of operating a traditional CPA practice. Many accountants are practicing in niche businesses like retirement and financial planning, management advisory services, litigation support services, or tax services for expatriates. Experts believe that specialty or niche practices will help to realize a higher sales price from the right buyer, who gains entry into new markets of opportunity.
More Virtual and Web-Based CPA Practice
More than a few CPAs now operate a web-based, remote practice. These business owners are not restricted by geography and represent clients across the globe. Cloud-based computing gives them the ability to operate from any location with access to the Internet. By the same token, clients are not limited by geographic boundaries. This trend evidences that the market has broadened to make the practice a more attractive alternative for would-be purchasers. For example, there are CPA firms in the northeastern U.S. that have purchased practices in sunny places like Arizona or Florida that can be operated remotely.
Technology Adding Value to CPA Practice
Another trend that is being seen in CPA practice mergers and acquisitions is the fact that accounting practices now operate much more efficiently with fewer employees. Today’s firms leverage more advanced tax, accounting, valuation, and time and billing software, which allows fewer people to do more work. Again, as mentioned above, use of the Internet for remote access has lowered expenses and operating costs. This contributes more dollars to the bottom line and creates a much more valuable practice that realizes a higher sales price. In the past, pricing and valuations were primarily based on a multiple of gross annual revenues; however, quite a few firms are now employing a multiple of net earnings to calculate pricing.
Privacy Law Impacting the Transfer of Clients
The promulgation of new IRS regulations and AICPA guidance now require CPA practice firms to provide notice of a change in ownership and to request the client’s permission prior to allowing a new owner access to client files.
Virtual Closings Increase
Technology has also increased the number of virtual closings because of the ability to obtain digital signatures through the Internet and electronically transfer funds. Thus, more and more lenders are conducting virtual closings. With advances in technology, documents can easily be executed in numerous locations at the same time or when convenient for each party. Plus, funds can be transferred in minutes.
New CPA Practice Broker Numbers Increasing
In the past, there were hardly any accounting practice brokers. However, now there are accounting practice brokers found in practically every major U.S. market. But many of these brokers are not regulated; as a result, parties should exercise more caution and use great scrutiny when thinking about hiring an accounting practice broker to help with the sale or purchase of a practice.