Transcript: 

[00:00:00] Voiceover: Welcome to Retirement Unlocked with Larry Heller, your life Your Way, unlimited possibilities. Join us as we explore how tailored financial planning and investments can help you navigate life transitions with confidence. Let’s dive into this week’s episode.

[00:00:21] Matt Halloran: Hello and welcome to another Retirement Unlocked podcast with your host Larry Heller. Today we’re talking about m and a trends and challenges in accounting with Geoff Bruskin. He’s a mergers and acquisition specialist helping CPAs, financial advisors and their clients sell their businesses. With a background in business brokerage, private equity, venture capital, and executive recruiting, Geoff leverages expertise in valuation compensation models and industry trends to facilitate successful sales.

Wow. Preserving the seller’s legacy. Alright, Larry, take it away. 

[00:00:51] Larry Heller: Thanks Matt. Thanks Geoff for joining us today. I’m excited to talk about today’s topic. There’s a lot of things going on in the m and a world, but specifically [00:01:00] in the accounting world, uh, you know, every day you’re hearing about, oh, another accounting firm was just acquired or, or just sold.

So let’s, let’s just jump right into it and let’s talk about kind of what makes the accounting profession so exciting. Um, and that why are so many deals going on right now? 

[00:01:19] Geoff Bruskin: Thank you for having me so much, Larry and uh, Matt, thanks for that great introduction. Um, I think, you know, accounting is, uh, historically probably the poster child for not sexy businesses and interestingly, I think the less sexy the business today, perhaps the more focus there is on it.

Parallel examples, commercial, landscaping, dentist offices, I mean things that are, you know, super left field when it comes to the traditional private equity or roll up models. When you know, we think about Wall Street and all of the interesting things happening in the world of finance. We don’t really think about accounting firms, and yet there’s a lot of things that make accounting firms very interesting.

One of them is that it’s [00:02:00] largely an untouched space. So, you know, you think about the wild, wild west, the new frontier, uh, investors are always thinking about what the next frontier is. And until 2020 2021, PE was not really in the accounting firm space at all. So, you know, now I have 20 buyers to one seller crossing my desk as a business broker who focuses on the financial services space, specifically accounting firms.

So I think one, number one, it’s just, it’s been an untapped market for so long. Number two, I think accounting firms have a lot of opportunity for operational optimization, so workflow optimization in what is otherwise a pretty talent strapped. Market. Uh, we’re 350,000 CPAs short as a nation, Larry. And so talent constraints create the necessity for innovation and optimization when it comes to technology enablement, workforce optimization.

So a lot of investors think that they can get good deals, maybe great [00:03:00] deals on the accounting firm side. And then when it comes to operationalizing these practices for the next exit, there can be significant returns. And then maybe the biggest thing that I’ll just say. Is accounting like financial services, your world, world, Larry Accounting is a very nuclear function in the life of the high net worth individual, the closely held business it is usually the CPA who gets the first look.

If it’s not the financial advisor into a. When a business is thinking about a sale, when there’s some kind of estate planning, life oriented event that’s going to occur, a wealth transfer, when there’s an insurance placement that’s necessary when working capital or a bank loan is going to be needed. So all of these ancillary services and more that surround the nuclear function that the accounting advisor or the tax advisor does becomes relevant for the client.

CPA often is the first person who knows. And so wealth management firms are buying accounting firms to create platform service models. Private equity firms are buying accounting firms to serve and to be able to [00:04:00] touch more markets, but also to be able to serve their internal clientele. I had a call today with a technology company that wants to buy accounting firms to deploy their technology solutions first into the accounting firms and then into the clients of the accounting firms.

So it’s just a very centralized place in the life of the client. Okay, so 

[00:04:17] Larry Heller: we got a lot of things there that you mentioned that, that, that I want to kind of touch upon and unpack. So, you know, I don’t know if you know this, Geoff, but I am a previous CPA in my first life, so I forgot about that. I, I did know that.

So I’ve kind of gone through that world in the, you know, the typical boring, steady type of business, but that I think. Is the one area that really attracts m and a is that the revenue stream is probably an easy revenue stream to maintain. Most people don’t want to change accounting firms or accountants because it’s tough to really start all over again.

So there’s a huge interest when you have a continuing revenue stream from a potential buyer versus [00:05:00] a transactional business. So why don’t you comment on that first and give your thoughts on that. 

[00:05:05] Geoff Bruskin: Yeah, I think the more subscription oriented the revenue is, the more attractive in the world of public accounting.

I think largely in the world of professional services, there’s three tiers of revenue classification. You’ve got seasonal revenue or project based revenue is the lowest and the, the hard, you know, the hardest of value. Well, you have subscription revenue services, which is like asset management or bookkeeping things which are stable.

And obviously the stickier, uh, the revenue, uh, is the better, the more highly it’s valued. And then you have value-based billing, which is like the new frontier. A few years ago, Cass, client accounting services, bookkeeping firms, was all the rage in the accounting profession. Now you have kind of firms that are really forward thinking, Larry, pushing that up into value-based billing.

Like, okay, if I’m, I. Mitigating $15 million worth of capital gain liability on a liquidity event for a client as a tax advisor, well, maybe I should take a 2% fee [00:06:00] on that 15 million rather than taking a flat $40,000 project oriented fee. So certainly the more advanced billing models are valued more highly.

Okay. 

[00:06:08] Larry Heller: So let’s talk about the other thing that you, you talked about and it’s being able to offer other services by, by downstream, I mean, I’m guessing a lot of these firms are going to be. Thinking about AI and thinking about outsourcing maybe to other countries to bring their traditional accounting fees down so they can approve operations there.

But then looking to add on, you know, other services, other consulting services, technology services. I mean, it’s been tried in the wealth management firm. A lot of back then, a lot of the accounting firms failed. They weren’t able to figure out. How to do what we do, but I’m not, they may try that again, but just seeing that, um, so I, again, I guess that’s another reason why there is so many interested buyers out there.

[00:06:58] Geoff Bruskin: It’s this [00:07:00] platformization of the professional services model thing is a, it’s a huge trend, Larry. I have PE that want to build it from scratch. I have RIAs that are acquiring accounting firms and Next’s going to acquire a marketing agency. I have CPA firms that want to acquire wealth management practices or are starting their own RIA.

I have goodness, I have, I have, uh, uh, uh, law firms that are building out the model. I think that the three major legs of the stool, and I’m going to get to your technology point in a second, Larry, the three major legs of the stool when it comes to professional services are it’s largely, um, tax, tax advisory, tax compliance, tax resolution, a staple need for for the client, right?

High net worth individuals especially. Number two is wealth management and insurance placement that, uh, financial service is, is super necessary on an ongoing basis. And then the third thing is estate planning and kind of the legal service that surrounds all of the major life events, uh, associated with wealth transfer or life events like divorce [00:08:00] or, you know, you know, significant legal life events.

Those are the three staples and the platform, if you will, the kind of comprehensive service model that Fidelity and Schwab are doing with. Estate planning, tax advisory, wealth management, insurance placement, working capital lending, kind of the entire financial service integrated into one stop shop.

That’s the North star that all of these mid-size, even small RIAs and CPA firms and law firms are looking at and want to build. It could exist nuclearized within a law firm. Within a CPA firm or within a wealth management firm? I actually think the wealth management firm is the best ecosystem to build it.

It’s the most ripe environment because the financial advisor is kind of the optimal quarterback, even more than the, the estate planner or the CPA is. Those are, those are more kind of nuanced functions than they really are geared towards the entire life of the client. And then just on your technology point.

You’re exactly right where AI is going. I mean, that’s really where all the interest in the space is. You know what, why does, why did [00:09:00] Citrin? Cooperman just traded a 14 and a half multiple after it traded a few, you know, years ago at an 11 times multiple. Uh, why is there so much interest from private equity?

And the answer to that is when you have the platform service model. What can you do with it? Right? Where is the space going next? And, and AI up to now has been mostly regressive. Like, you know, we talk about accounting, right? Your bookkeeper looks backward, your CFO looks forward. AI has been mostly backward looking and since its inception, where it is going to go, Larry, in the next several years.

Now, you know, application that sits on top of the platform, professional services firm is able to derive insights. From clients and that is to anticipate for what clients will need before they ever need it. And then to have the entire ecosystem of service capability to support them with whatever they need.

[00:09:50] Larry Heller: Right. So you mentioned ci, ku, and I was going to bring that up ’cause it’s not accounting firms buying other accounting firms out. Citrin. Cooperman was just bought by Blackstone. Right. So it’s [00:10:00] a a PE firm buying an accounting firm. So they’re figuring out a lot of different things to do it. And you just mentioned.

It’s up to a 14 multiple. Who would’ve ever thought that 10 years ago was that accounting firms could sell for 14 times, and where they’ve gotta come up with other revenue streams if they now want to try to turn this in five years at a 17, 18, multiple. So it’s going to be really 

[00:10:25] Geoff Bruskin: useful. I don’t, I don’t think, Larry, I don’t think Citron is going to turn it, Blackstone is going to turn it, I mean, it’s possible.

Blackstone turns it to Citadel, right? Or BlackRock. I mean, that’s possible, but I, I think more likely they’re going to hold it for more like 10 to 15 years because what the AI enabled professional services firm is going to be able to do two years from now is to extract so much value. I mean, I, I say extract, I should say apply so much value to the client.

You know, a Citron Cooperman has clients that are billion dollar companies [00:11:00] that are getting audited or getting valuation work or buy-side consulting for their m and a activities, you know, and a host of other solutions, consulting solutions for them. What an AI enabled professional services firm could do for those customers is pretty groundbreaking.

It’s going to make the 14 times multiple, quite likely look like peanuts. 

[00:11:17] Larry Heller: Yep. But let’s talk a little bit more. So you, you working not just in the, the, the mega size, the ci cooperman size, you’re kind of focusing more on the small to medium size. So what do you kind of see going on? Are some of the trends going on in the smaller firms?

Uh. And you mentioned a little bit, but why, why don’t you expand on that? 

[00:11:36] Geoff Bruskin: So, so, uh, my specialty, I mean, I, I did 13 deals last year in the CPA profession. Smallest deal size was 40,000, largest deal size was about 20 million in enterprise value. I have a deal, I’m a couple of deals actually I’m working on right now that are bumping up into the nine figures.

In, uh, the accounting firm space. Uh, the only reason they’re that high, they’re not, you know, 60, 70, $80 million firms, Larry, they’re, they’re actually technology [00:12:00] enabled CPA firms. And so they’re being valued more on the basis as a technology company, which is like 20 to 25 times adjusted EBITDA as opposed to the CPA profession, which is.

Five to 14 if we take Citrin adjusted ebitda. You know, I, I see a lot of consolidation there. The biggest trend that I see, and this is maybe in the profession as a whole, but as you say, my specialty, Larry, is in the lower middle market talent. Talent is the biggest issue. So we, my firm, we do recruiting, we do mergers and acquisitions, and we do consulting for the CPA profession.

And, uh, talent is the biggest issue. You know, it’s maybe five to 10% of firms numerically have talent figured out. Most of them do not. So a lot of the firms that are on the market, Larry, on the sell side, are on the market because they are suffering from, uh, talent. Challenges and the buyer is invariably going to inherit those challenges.

So whether we’re working in kind of a succession planning capacity, helping a seller get ready for a sale and [00:13:00] doing talent acquisition and kind of firm optimization in that category, or we’re working with the buyer to help secure the seller and then solve for the talent paradigm retroactively, one way or another, you’re going to have to address talent if you’re interested in the space.

[00:13:13] Larry Heller: Yeah, I mean you mentioned that right up front and I was going to bring that up. Next is, uh, you know, I talk to Joan, people. Mean, not many people are going into the accounting world. The, the, the, these days. I told all three of my kids to go into the accounting world. One, listen. So, uh, so he’s in, he’s in. There you go.

He’s in great demand. The other two are okay, but then, well one went the accounting world. But you know, he talks to his friends and they’re, you know, anyone right now, they’re in the driver’s seat on. Kind of where they want to be and the type of firms they want to work for. So it is going to be a gr a big challenge ’cause I don’t see it’s going to take some years.

The accounting world has backed off a little bit on some of the requirements you need to become a CPA, uh, because nobody was going in that field. So hopefully though there’ll be like a, a [00:14:00] switch and people, younger people will realize it’s a great opportunity and start going there, but that’s going to be it.

A lot of these . You know, uh, buyouts here now, um, is going to be a biggest challenge. I talk to a lot of different accounts and that’s the first thing that comes outta their mouth is they can’t find how 

[00:14:17] Geoff Bruskin: palen is the biggest issue. It’s actually a surmountable issue. You know, it’s easy for me to say that as someone who’s a subject matter expert, but, um, it, it is a surmountable issue because if you think about

First of all, to your point, the A-I-C-P-A has done a terrible job for the last 25 years, incentivizing young people to go into the profession. You’ve got the, the, in order to get the license, you’ve gotta do 1500 hours unpaid, uh, or, you know, it could be paid, but it could also be unpaid inside of a CPA firm and then get a CPA to write off on that.

It’s, it’s a five year schooling. It’s, I think 

[00:14:48] Larry Heller: they’re coming off the five, I think they’re coming off the five year 

[00:14:50] Geoff Bruskin: schooling. Yeah, they’re going to be, A lot of states are going to be coming off the five, but nevertheless, it’s um. It, it’s just a lot. You’re, you know, if you’re talented, if you’re forward facing, Larry, you go into investment [00:15:00] banking or executive recruiting, or be an analyst at a PE firm.

You know, if, if you’re good with numbers and you’re forward facing, you go into another profession because first of all, the CPA profession is a terrible branding problem. It’s like the least sexy thing under the sun. But second of all, it’s more school and less money than other professions. So they, they’ve, they’ve got a lot of catching up to do there.

Uh, offshoring is huge, and you mentioned that at the beginning. That’s a, a major piece of the puzzle that I think firms, uh, today are frankly foolish if they don’t think very seriously about it. Everybody’s been burned with bad offshoring. There are exceptional firms over there, whether it’s India, the Philippines, South Africa, Canada, Argentina.

There are excellent firms. It’s a piece of the puzzle. It’s not the macro answer because you need client advisors that are here in the States. Now, as the front office folks are concerned. You think about, there are tons of young accountants. They’re just owned by Eisner and, and, and, and Citrin and e you know, PWC and, and everybody else, the big firms.

But a lot of those people, the young [00:16:00] guys, they’re and gals, they’re, they’re not happy in those firms. They just don’t want to go out of the frying, out of the fire and into the frying pan, right? You have to provide an environment that is enticing. You have to have a compensation model for them, which is, which is enticing and, um.

A lot of the, the smaller guys struggle with that, but it is surmountable. 

[00:16:20] Larry Heller: And even the bigger guys struggle with that. They don’t get the, the, the, the challenges and part of it came from the pandemic and working remote, and now a lot of the accounts still want to be remote and they are calling the shots because.

They’re in the driver’s seat, and I don’t think that is a great, uh, a, a great system for long-term culture in the accounting firm. So they, they have a lot to figure out on that side. And just, you know, going into what you had mentioned before, your background, um, so how do you kind of leverage both the recruiting background to support the m and a process?

[00:16:55] Geoff Bruskin: They’re almost two halves of the same coin. I, I often will sell, uh, one [00:17:00] engagement, which includes both recruiting and m and a, and then at the center of it is consulting and advisory because ultimately whether we talk about recruiting Larry, or we talk about m and a, we’re always, we could sit in a, in an ivory tower and talk concepts.

We are always going to be limited to what does the market bear, right? In any transactional solution environment, you, you, you can only deliver based on what comes through you as a, as a broker, whether, you know, recruiter, whatever we call it. So I, I like to align with my clients on . Understanding what their objectives are, and we usually solve those objectives through a combination approach.

We have to consider everything that the market can offer to us. And if we do m and a, we’re talking about recruiting. If we do recruiting, we’re talking about m and a, whether it’s on the succession side or it’s on the growth side. We’re always talking about both together. 

[00:17:47] Larry Heller: Okay, so let’s, let’s kind of get, talk about like a real world scenario.

So I’m a, I’m a seller. I own an accounting firm. We’ve had a great run and now I’m seeing some of these multiples of [00:18:00] EBITDA and saying, wow, I want some of that. How do I, what are the challenges and how do I position myself to maximize those returns rather than just looking at all the numbers that are going on today?

[00:18:14] Geoff Bruskin: Well, first of all, the, the earlier that you can, um, start talking to people who, who know a lot about the space, the better because just like if you’re going to apply for a bank loan, Larry, you want to show two or three years of strong cash flow statements in order to make the bank confident in giving you a great interest rate.

Similarly, you want to be able to show two, three years to a, you know, your future buyer of operating within a healthy environment. Uh, and you know, it, it, it’s not enough to just say, okay, I’ve kind of, you know, I put some lipstick on the pig in the 12 months and then expect that the buyer is going to have a look back, which memorializes one year of, of something great.

Uh, you, you want to build the firm that you would want to buy if you’re on your way to succession. So the earlier that you can start meaningfully thinking about this, the better. That’s the first thing I’ll say. If [00:19:00] you’re at a point, and there are many people that I deal with daily who, who are like, I wish I had sold yesterday.

I want to be out, get me as much money as possible. I want my clients to be taken care of, Geoff. I want my staff to be taken care of. But at the end of the day, just I need to sell to the best possible person I can sell to now or within the next three months, or within the next six months. The best thing that you can do is, is, uh, first of all, you know, often we don’t take our own medicine.

You have to have clean books. Right? Mm-hmm . You, you, you, um, you need to be able to understand what you’re adjusting your EBITDA for. So, professional services, businesses, something to be clear about. Citrin sold at a 14 times adjusted EBITDA multiple. They did not sell 14 times ebitda, right? Because EBITDA technically is all of the equity partners compensation packages on top of the bottom line of the firm.

So. Anyone’s going to evaluate your firm based on the bottom line after the cost of replacing you, right, as the principal, as the owner. So you gotta get clear on, on what, what we’re calculating, and then the multiples, because that’s always the question that everybody’s most interested in. [00:20:00] You know, if, if you’re somewhere between 400,000 on the bottom line after your comp and, uh, you know, 1,000,005, that’s a, a lot of the folks that I deal with, Larry, you’re probably five to seven times adjusted ebitda.

You know, the one times revenue was largely what the space, you know, thought of before private equity meaningfully came into it. Now it, it can go up to 2.25 times gross. In some cases, uh, if you have a really attractive firm, but five to seven on the low end of adjusted ebitda, and then cash upfront is also a major question.

I get a lot and. 15 to 75% down. I mean, there’s a whole ecosystem of considerations that go into that. 

[00:20:42] Larry Heller: Hmm. Okay. So one, one more question. One more question here. One more thought. Let’s flip it the other way. You just, you came on, you said there’s basically 20 buyers versus every, um, one seller. How do you set yourself apart from the other 19 buyers to be attractive [00:21:00] to this seller?

[00:21:02] Geoff Bruskin: That’s a fantastic question. Table stakes is having a strong data room, meaning the ability to produce strong offers at the 12th hour and, and stand behind them, whether through loan structures and or through, uh, financial backers. Uh, that’s table stakes. You, you have to know as a buyer what the aggressive side of reasonable is in this demand centric environment.

That is table stakes. It is surmountable. And it is table stakes. The thing that sets the great buyers apart from the pack is relationship acumen. Uh, you know, you, you could call it culture, but it’s more precise than that. Culture to me is more about, uh, what, what the guts of the firm look like. I.

Relationship has to do with, you know, who’s the tip of the spear on the buyer’s side and what is their ability to build a genuine relationship with the seller and to understand their hierarchy of needs, their concerns to take a, a genuine interest in their personal wellbeing. They’re going to be [00:22:00] involved, professional services firm, the seller is going to be involved fundamentally post transaction for not less than six to 12 months.

In some cases, five to 10 years. So you really want that relationship to be quite genuine because obviously what’s being valued, the asset here is goodwill with the clients. So that relationship is paramount. That’s the thing that ultimately, I mean, I’ve seen sellers Larry take a deal that’s 10 to 15% less material on the financial side because they have such a strong vibe culturally, you know, relationship wise with the buyer.

[00:22:32] Larry Heller: So, Geoff, this has been a, a, you know, tremendous eyeopening. A lot of information for either someone who’s looking to buy or looking to sell. So hopefully anyone who, who’s been, uh, uh, considering that will, uh, will reach out to you. So, uh. Geoff, you know, any final thoughts, uh, on, on this? And then also where can they get ahold of you?

[00:22:52] Geoff Bruskin: Thank you so much, Larry. One, one final thought I would say, so my, my firm, we’ve started doing Larry a lot of work at the intersection of the wealth management [00:23:00] space and the CPA space. That’s a, a major, uh, initiative for us right now because. Historically wealth management firms wanted to create joint ventures with CPA firms, largely because the CPA firm client base.

Larry was a great place for a wealth management firm to cross sell their services into. And if they were buying, they would even run the CPA firm business at a loss. They were so interested in the growth that could be provided through the CPA firm’s client base. Well, what has started happening recently is that wealth management firms I’m seeing are, um, so interested in.

Developing that one-stop shop that I talked about earlier, Larry, that they are more willing to play ball with CPA firms in a way that it’s really going to benefit the CPA and it’s necessary because the CPAs have so many options as to what they can do. Now I. So if an RIA, for example, wants to buy a CPA firm, they have to be able to offer something that’s better.

Well, here’s why. They can, because the RIAs have clients, hundreds, in some cases, [00:24:00] thousands of clients who need the services that the CPA can offer. So a CPA firm can walk into a wealth management environment and potentially have a lot of clients that can be serviced, that need to be serviced. So a long-winded way of saying that, it’s uh, it’s a really interesting time to be in the space.

[00:24:16] Larry Heller: Yeah. Great. So Geoff, what can, uh, where can somebody that needs your services or even just wants to kick your tires and thinking about either buying or selling, where can they reach you? 

[00:24:26] Geoff Bruskin: www.whitetigerconnections.com is our website. Uh, you can fill out a form on that. You could also find me on LinkedIn.

Larry Geoff Bruskin, G-E-O-F-F-B-R-U-S-K-I-N. Those are the best two places. Great. Thanks Geoff. This is great. 

[00:24:39] Matt Halloran: That was like a fire hose man. There was so much great stuff there. I highly recommend that all of you go ahead and go back and listen to that whole thing one more time, because I was sitting there taking notes, uh, just because I’ve got like three or four, uh, advisor friends of mine who are looking at purchasing CPA firms for [00:25:00] all of those reasons that

You were talking about Geoff, but, um, you know, to try to bring this back home to the retirement unlocked component here. Listen, when you sell your business or when you are trying to add great value with great opportunities like 401Ks for employee benefits, please make sure that you, uh, lean on Larry and the team at, uh, Heller Wealth Management.

’cause they specialize in really helping business owners really take their business to the next level personally, so that when they get to Geoff, all of a sudden, you know, Bob’s your uncle. You’re selling for a much, much better, multiple. So this is some cool synergy to use that word correctly, uh, and some really, really neat stuff that you guys got to hear on this show today.

And if you want to know more about what’s going on with Geoff, please go and follow him on LinkedIn. We’ll make sure that we have all of those links in the show notes in case you would like them. And also you can go to Heller wealth management.com and find out more about what Larry can do for you. And also if you have not subscribed to the show yet.

Make sure you subscribe and we will see you all on the other side of the mic very [00:26:00] soon.