Strength Numbers.

• Author: ROSS, SHARON
• Position: Accounting firms

With the Threat of Consolidation Gone, CPA Firms Grab Hold of Their Destinies

Adapt or die! Remember the consolidation storm of the A mid-90s? If you owned a small CPA firm that offered A tax and accounting services, the doomsayers cried that you either had to join the consolidator such fierce competition that you'd need to change your practice's focus. The storm has faded, but the forces of change are still here, and CPAs are finding strength in numbers.

A HISTORY LESSON

In the late 1990s, consolidators were courting small to medium-sized CPA firms to build national networks of accounting, tax and consulting practices. American Express Tax & Business Services was aiming to be in 25 of the largest metropolitan areas, H&R Block set its sights on becoming the industry leader and Century Business Services was acquiring firms at a record rate.

The largest accounting firm acquisition occurred in 1999, when H&R Block acquired the non-attest assets of McGladrey & Pullen, LLP, then the nation's seventh largest accounting and consulting firm, to form an arm of H&R Block, RSM McGladrey, Inc.

In the November 1998 issue of The Practicing CPA, Jay N. Nisberg, a management consultant to the profession from Ridgefield, CT, predicted that the number of midsize firms consolidating would grow from 20 percent to 60 percent by 2003.

It was a trend that appeared only to gain speed, says Gary Shamis, managing partner with SS&G Financial Services in Solon, Ohio and past chair of the AICPA's Management of an Accounting Practice Committee. He says many firms viewed it as a way to swell profits and fund retirement.

Though many CPAs were against consolidators at the outset, when the trend peaked, firms were scrambling to get on board, says Rick Telberg, director of online content at CPA2Biz and former editor and publisher of Accounting Today. "People were crowding into rooms to listen to the pitches of the consolidators."

But, just as things reached a peak in 1999, the trend started to lose steam, Shamis says. The wave of consolidations shrunk from 150 over the course of a year to about five in the last 18 months. "There hasn't been a lot of activity in the top 100 firms," he adds.

A SCREECHING HALT

In the wake of the Internet bust and the overall slowdown in the economy, "the phenomenon of roll ups by Wall Street-funded outfits has come to a screeching halt," Telberg says. In part because capital has dried up, but also because the return on investment was "just not...