insight magazine

What’s Shaking Small Firm M&A?

Small accounting practices have their work cut out for them in today’s mergers and acquisitions environment. By BRIDGET MCCREA | Fall 2018


When New York-based accounting firm Mitchell & Titus finalized a deal to purchase Chicago-based Washington, Pittman & McKeever in July, it closed the final chapter of a long-time plan of managing partner and former Chicago Federal Reserve Chairman Lester McKeever, Jr.

“There had been talk around here for many years over the issue of merging,” says McKeever, 84. “I spoke to all of the local CPA firms — particularly minority-owned firms — to see if we could come together to create the scale necessary for a firm to offer all of the different services that the large firms could offer in order to support our growth.”

As it turned out, McKeever knew the perfect suitor for decades, but protecting the legacy of Washington, Pittman & McKeever was crucial; the firm was founded nearly eight decades ago by Mary T. Washington Wylie, the first African American woman to become a CPA.

Around the time McKeever was rallying the troops in favor of a large, merged, minority-owned accounting firm, he renewed a conversation with Mitchell & Titus founder Bert Mitchell that took place some 25 years ago about combining the firms. “That was the kind of firm we all aspired to — a larger, minority-owned firm with multiple offices,” says McKeever, reflecting on Mitchell & Titus, which is the largest minority-controlled firm today. “It’s an aspirational dream that has come true for me [the merger], particularly because this is geared toward African American business development; it was a natural fit.”

McKeever is no stranger to the challenges of running a small accounting firm in today’s increasingly competitive and complex marketplace. If anything, he empathizes with small firm owners. “It’s almost impossible to keep up with everything,” McKeever says. “It takes a broader-based organization to cover all of the different areas that must be addressed in order to survive, sustain, and grow.”

Looking at the accounting landscape right now, McKeever says every smaller firm is going to have to start thinking like this, particularly if M&A is to be the backbone for future success or succession planning.

“Some firms are waiting until it’s too late and wind up with nothing of value to sell. It’s not easy to find a successful firm that will pick you up,” McKeever warns. “If the right opportunity comes along, I always encourage small firms to take advantage of it. It’s not just about sustaining growth; it’s about protecting your hard work and seeing it survive and sustain over time.”


There was a time when small CPA firms (less than $3 million in revenues) were hot commodities. That sentiment has changed over the past couple of years as acquirers have become more interested in firms that have an advisory, consulting, tax planning, or specialty service/industry focus, explains Allan Koltin, CPA, CGMA, CEO of Koltin Consulting Group in Chicago. Koltin has been called “accounting’s busiest matchmaker” by Crain’s, so perhaps it’s wise to heed his words.

“Large firms aren’t as interested in small firms because they see them as ‘stale goods,’” Koltin says, pointing to firms focused heavily on compliance work that must undergo transformations to catch up with the increasing use of automation, artificial intelligence, machine learning, and robotics. Combined, these factors are pushing acquirers to move investment dollars away from old school, “traditional looking accounting firms,” Koltin explains. “The interest level for small firm M&A just isn’t what it used to be.”

That’s not to say there’s no hope for small firms, though. Koltin says the potential for smaller, high-performing firms that have shown consistent growth and profitability is still there; they’re the kind that “always sell at the high end.” However, the small firms run by a few baby boomer partners who have built their business empire around themselves will be hard-pressed to realize a good valuation right now. “Those types of firms will sell at the low end because the buyer will have to invest in talent,” Koltin says. “It will come down to cost versus deal value.”


Getting top dollar is always top of mind for firm owners looking to sell, but expectations should be realistic. Trent Holmes, a broker at Accounting Practice Sales, handles the sales of about 15-20 accounting practices annually in Illinois, with 80 percent located in the Chicago area. He says one times gross revenue has historically been the jumping-off point for selling price.

In the Chicago market, Holmes says the average sales price has hovered around 122 percent of gross revenues. “The firms located in larger metro areas are going to demand a premium. It’s kind of like people asking what houses are worth. There are a lot of factors that go into it, and you can’t just ask what practices are worth without looking at all of the details,” Holmes says.

In the midst of his busy season, Holmes cautions that too many firms on the market also can have a negative impact on practice values. He warns this could compound in the years ahead as more baby boomers look to make their exits. Firms also need to be aware of the value of their talent. In assessing the sales opportunities for smaller firms (less than $2 million in gross sales), Holmes says the fact that some or all the talent will leave once the sale closes can be a deterrent.

“In many cases, there’s no talent left once the firm is sold. That will have a negative effect on the practice’s value,” Holmes explains, stressing that the greatest M&A potential for small firms lies in taking the time to develop solid succession plans well in advance.

“You’re going to need the younger talent to come in and take over. Don’t wait until it’s your last tax season to go out and find a buyer,” Holmes advises. “Start now. It’s never too early to have a discussion with a nearby firm or a broker or to create a plan of action — even if it’s still two to three years out.”


Like Holmes, Koltin sees good planning as a way to ward off problems when it comes time to hang up your pencils and enjoy your retirement years. “Don’t wait until the bitter end to do something about it,” Koltin says. “Engage an outside party for help with the process. Every firm stands on its own, so get objective advice on what’s realistic and what intersects with each of the partners’ wishes.”

Having recently wrapped up the sale of his firm, McKeever says mid-size firms may have an easier time finding a suitor in today’s market, but all is not lost for the small firm that wants to be acquired. “The real challenge is trying to find firms that have a good mix of different skill sets with the same quality,” he says. “To be able to broaden the scale and the scope of the services that you provide — I think that’s really the objective.”

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