CohnReznick is planning to expand after becoming the latest major firm to receive a private equity investment, through funds advised by Apax Partners.
The deal with Apax was
The amount of the investment was undisclosed. The funds advised by Apax, alongside with an independent co-investor, will collectively own a 51% stake in the non-attest business.
"We've had discussions in the private equity arena for a couple of years now, and we made the decision over this past summer that this was the right path for us, and we ventured down the process," Kessler told Accounting Today. "Apax was very aligned with our management strategy. We feel it's going to have an impact on our growth in the future, and we're looking forward to partnering with them."
He believes the deal will add more capabilities for the firm to expand geographically in its existing areas as well as new territory. "We're very heavy in the Northeast and the Mid-Atlantic, and we want to expand in the Southeast, Midwest and West Coast," said Kessler. "We have a good presence right now in the Southeast, in the Midwest and on the West Coast, but we think this is an opportunity to expand our footprint and then also to really bring in advisory firms that we feel are compatible to the industries and clients that we serve."
Both Apax and CohnReznick representatives will be on the board of the advisory entity, but only CohnReznick partners will be on the board of the attest business, according to Kessler.
The firm had been approached by a number of PE suitors in recent years. "We've probably spoken with a dozen to two dozen private equity funds over the past three years," said Kessler. "We've been trying to educate ourselves on the benefits in the alternative practice structure and the model and what it would be for our staff and our clients and our partners. We spent a lot of time with a lot of different private equity funds looking into what a potential partnership could look like."
While he and other partners liked many of the PE firms they spoke with, he said one of the things that stood out about Apax was its culture. "We really liked how they took the time to understand us and our history and how we got to this point in our vision and our strategy growing in the future, and we felt like we were aligned on the growth strategy," said Kessler. "And we liked the fact that they did their homework on us. I think we gained a mutual respect for each other."
The firm has approximately 350 partners and 5,000 global employees, including 4,000 people in the U.S., and approximately 1,000 in India and the Philippines. CohnReznick has been able to double in size in the last five years, largely organically, while also doing some strategic acquisitions in key locations, Kessler noted. He would like to enhance the pace of acquisitions and the technology used by the firm internally and for clients. Partnering with a PE fund will help accelerate the firm's ability to advance the tech projects that are already in the works over the finish line.
O'Callaghan predicts the deal will create greater opportunities for the firm's people as well as create opportunities with a larger platform for their career advancement. She has been the service line leader for assurance of the firm's largest region, the Northeast, and also the partner in charge of its relationship with the American Institute of CPAs for years. She has worked at the firm for 25 years, and Kessler for 39 years.
"When I started, we had two offices, so we were able to grow from two offices to 29 and $1.1 billion in revenue, and we think this will be the next acceleration," said Kessler.
The deal was valued at $2 billion, according to
CohnReznick plans to use the extra funds to expand its audit and tax practice as well as HIPAA advisory, client accounting services, performance improvement and transaction advisory services, and more.
"We're looking to enhance all the existing areas that we're in and always identifying new areas to grow into, but we'll continue to evolve as we always have," said Kessler. "But the advisory practices that we currently are involved with are seeing a lot of traction, and we plan to enhance those services."
One area where CohnReznick has been seeing growth is public and private partnerships to help build infrastructure like airports, train stations and highways. In 2022, the firm helped
"We've done some work with the airports," said Kessler. "We've done some work with Union Station in Washington, D.C. train and California highways, so we have a good project finance group. We do a lot of work with financial modeling, and infrastructure is one of the areas that they focus on as well as all real estate credit incentives."
Emergency management may be another area with the rise in natural disasters. "I think there's a lot of opportunity across every single state, and one of the areas we focus on is emergency management and doing project management of large financial distributions that states are responsible for," said Kessler,
Audit and attest service expansion will probably depend on the uncertain regulatory environment.
"Right now, I see us focused on our core assurance practice," said O'Callaghan. "If there's new opportunities that present themselves through the regulatory environment, then we would absolutely entertain those potential opportunities, but that's really driven by regulators."
The new Trump administration is likely to pursue fewer regulations on auditors and accountants, but the changes are hard to predict.
"I think we're still vetting out what those changes are going to be," said O'Callaghan. "It's been almost two months now with the new administration, so we'll have to see. Things are moving quickly, but we'll have to see where everything falls out at the end."
They're both hopeful about the prospects for the firm and the overall accounting profession. "We think this is an exciting time for our profession," said Kessler. "We've been in this business for a long time, and our partners have been in this business for a long time. It's just an exciting time for our profession when you have institutional capital, and particularly private equity funds that are smart and are investing in the profession. They're investing in the growth and the quality of the profession, and it's just exciting to be a part of it. It really feels like we're at a precipice to advance how we serve our clients, and it's just an exciting time to be a CPA."
