Why Are Mergers So Prevalent Among CPA Firms?

Gina Deveney
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Mergers are a common occurrence among CPA firms of all sizes, particularly in the United States. In many cases, a corporate merger is designed to provide a wider selection of services to clients. Whether you are an accounting professional or own a small firm, it is crucial to understand merger motivations in order to plan future business moves.

Mergers have become increasingly common since 1989, when the Big 10 group of accounting firms became the Big Eight. As competition heated up among the major groups, various mergers brought groups together. The Enron scandal and the resulting financial regulations drove further mergers.

Currently, four major companies now handle the bulk of business in the United States: Deloitte, PricewaterhouseCoopers, Ernst & Young and KPMG. The groups are not individual CPA firms; they are networks of smaller companies. By collecting a large number of businesses under one corporate umbrella, the Big Four are able to provide tailored services and consistently high standards. Each group has a recognizable name and an excellent reputation — crucial factors for clients who are handing over control of their finances.

Each of the Big Four companies actively pursue smaller CPA firms with the goal of acquisition. They acquire high-performing firms in areas where they do not currently have representation, expanding their reach without the cost and hassle of establishing a business from the ground up. Instead, the larger firm can provide training and orientation without interrupting the services of the smaller company. With regular corporate merger activity, each business extends its presence and offers customers more localized service.

A merger is also positive for the smaller business. After a merger, smaller CPA firms have access to the acquiring company's resources, which may have been unattainable in the past. As a result, they can offer better service to local clients. What's more, the smaller CPA firms no longer need to compete with the big-name companies.

The Big Four are not the only factor in the increased merging of CPA firms. In some cases, changing financial standards drive mergers. Age is another factor. Many owners of smaller firms are aging out of the workforce, resulting in a "graying" of the industry. In fact, a surprising 75 percent of CPAs in the United States will reach retirement age in approximately five years. To preserve the jobs and livelihoods of employees, many older owners are opting to sell their businesses to larger firms. Until more younger CPAs join the industry, the total number of mergers is likely to accelerate.

As the Big Four companies continue to pursue smaller CPA firms, the merger trend is likely to continue. Whether you are an individual CPA or the owner of a firm, paying attention to the latest mergers can help you make strategic career decisions that capitalize on shifts in industry.


Photo courtesy of Pong at FreeDigitalPhotos.net



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