The CEO of Baker Tilly US LLP and the managing partner of Squar Milner LLP traded phone calls and text messages every day while the coronavirus pandemic raged.
Between efforts to shore up cash and adapt to all-remote staff, they were laying the groundwork for merging the two fast-growing operations to create what is slated to be the 10th-largest accounting firm in the country with a workforce of 4,300 professionals.
The two firms had just decided to formally pursue a merger when the pandemic broke in March, Alan Whitman, Baker Tilly’s top executive, said in a phone interview.
“We collaborated with Squar Milner from the get-go and it actually brought us much closer than we already thought we were,” he said.
Industry watchers say the combination, effective in November, could be a sign of more mergers to come. The pandemic is expected to accelerate the pace of technology adoption by the accounting industry and shift the types of services that clients require.
“I think that we’re moving towards an era of greater consolidation, concentration of the industry,” said Tim Fogarty, an accounting professor at Case Western University.
“The larger you are, the more you have resources to imagine different possibilities,” he said.
Baker Tilly’s acquisition fits squarely within the Chicago-based firm’s growth strategy—targeting new regions, industries, and services. And the firm believed that Squar Milner’s own aggressive pace and focus on business transformation and leveraging new technology fit neatly into that plan.
“We have big aspirations for where we are going,” Whitman said.
The firm, already among the 15 or so biggest firms, had its sights set on California for some time, as many of its clients were there. But getting a foothold in the state would also open the door to new clients in the fifth-largest economy in the world. Squar, a fast-growing top-50 firm, operates offices in all of the state’s major markets.
The deal, which grew out of exploratory talks that started roughly three years ago, builds on Baker’s other recent acquisitions that opened up Texas, New York, and Pennsylvania and expanded services like municipal advisory and insurance forensics. Growing its consulting business and the types of services the firm offers are a key driver of such mergers.
“We’re here to build the advisory-CPA firm of the future,” Whitman said.
The deal, announced Aug. 13, also strengthens the larger firm’s financial position—crucial in a year when demand for certain services has dried up or been put on hold for many firms. The firms said that their combined revenue last year would have been $920 million.
Competition and More Mergers
Competition is tight among the largest firms as they look to set themselves apart in an industry dominated by six big brand names. Technology that makes accounting more efficient and state-of-the-art business tools that wow clients are increasingly the differentiator.
Fogarty said firms can’t afford to sit back, but have to aggressively pursue mergers in order to survive. He called it the perfect time to merge.
“This pandemic has caused everybody to reflect upon who they are, what they want to be and how they do their business,” Fogarty said. “The larger companies are using this as an opportunity to go places they never have been before.”
Larger firms are better positioned to invest in and then put those new technology tools to work across clients and offices, allowing the staff to serve a truly national market, said L. Gary Boomer, whose Boomer Consulting works with the 500 largest firms to grow and modernize their operations.
Demand for services beyond traditional tax and auditing is also driving mergers. And Baker Tilly is targeting the types of advisory services that clients want and are willing to pay for, Boomer said.
Still, he said, it takes leadership to focus on the long-term advantages and to push through with a large acquisition in 2020.
“It’s really a great time to be a CPA. And it’s also great if you are willing to change and learn faster than the competition,” Boomer said.