UHY Advisors chairman and CEO Steve McCarty has presided over the firm growing its revenue in the past two years by approximately 25%, from $181 million to $225 million, as the firm also pursues merger deals.
McCarty became head of the Farmington Hills, Michigan-based firm in January 2019, but he has been at UHY since 1992 after beginning his career at a large hospital nonprofit. “I’ve been at UHY for 30 years and I came up on the tax side, focused solely on the middle market, and transitioned into our audit practice pretty early in my career and then created our corporate finance offering,” he told Accounting Today. “I moved into our corporate finance practice, and I still chair that today. That launched me into our board nationally.”
Since he was elected CEO three years ago, he has needed to steer the firm successfully through the pandemic. “It’s been a hell of a time to do that during COVID and everything else, but I guess there’s no better time to learn than working through that,” said McCarty. “We have a great firm and that’s one of the reasons I’ve been here for 30 years. We've always been really focused on our clients. When I took the role as CEO, one of the things that I really wanted to do was spread the word and share all the great things that we're doing here. Part of that was putting in place a strategic plan that had us looking forward to 2025. I’d like to think that's helping contribute to the growth.”
He noted that UHY is focused on quality and customer service while it also looks to grow. “As long as we do those things right, everything else will fall into place,” said McCarty. “We’ve been really intentional about the areas that we want to grow that focus on a number of different initiatives. For some of that growth, there’s no doubt the M&A activity has contributed to that.”
UHY has been approached by many other firms about merging with theirs. “We’ve said no to a lot of firms that have looked to join,” said McCarty. “We’re just really focused on trying to find those like-minded CPA firms that we feel can benefit from the services that UHY has. We want to make sure that we have firms that are focused on their people and the middle market much like we are. We think that if we have that great foundation, then we’ll be able to grow together from that.”
UHY has merged in two other firms so far this year,
“We did have some acquisitions just over this past year — an expansion in Kansas City attracted a nice firm in Iowa, and an expansion into Maryland as well,” said McCarty. “Some of those contributed to our growth. And even this year, we’ve got a few more that are moving fairly quickly down the path that will probably be maybe Q3 type announcements as well. That’s probably going to be a continued plan for us in the right areas and markets. We’re not just chasing growth. We’re chasing really good firms and good people.”
UHY has long operated an alternative practice structure, with a division between UHY Advisors, which provides tax and consulting services, and UHY LLP, which offers audit and other attest services, similar to what other accounting firms like
“UHY was probably the pioneer of that alternative practice structure,” said McCarty. “Now that private equity is racing into the CPA firm market, many firms have to restructure themselves to have an alternative practice structure. It will be interesting what happens from that private equity perspective. I’d like to think that private equity sponsors are focused on quality client experience, people experience and not just focused on valuation. It’s going to be important for the long-term image of our profession to make sure that these firms that choose the path of private equity continue to focus on all of those core competencies and not just focus on how much they take away.”
Private equity firms have a reputation for extracting as much value as they can from acquisition targets and then selling off the rest. “That’s not anything we're looking at,” said McCarty. “We're focused on continuing to grow our footprint and spread the word of all the great things we’re doing here at UHY so that we can continue that growth trajectory and continue investing in our people and continue to make more partners here at UHY.”
China practice
UHY is also looking to grow specific services at the firm, including its China practice. “I think about some of the areas where we’ve been pretty intentional on growing, and one of those has been different service lines inside our organization,” said McCarty. “One of the groups that you may have heard about was our China practice. Melanie Chen is our leader in New York City of our China practice, and she has really grown that group quite dramatically.”
He estimates that the China Group at UHY Advisors has nearly doubled in size over the past couple of years. “There we’re focused on inbound work, groups from China that are interested in businesses and real estate in the United States,” said McCarty. “But also in the middle market where we operate, it seems that so many of our clients today are doing business in China, and it has really helped fuel that practice. The level of service that our China practice brings to our clientele is top notch, whether it’s assurance services or advisory services, but it also may lead into capital raise activities and quality of earnings reports, due diligence, even structuring. Our China team has held hands with our clients here in the U.S. as they travel to China to organize and set up their businesses. That’s been an area we’ve really grown quite dramatically.”
UHY’s Asia Business Group increased its revenue from $5 million to $8 million, and its headcount from 20 to 53, in the past year, mostly thanks to the China practice.
“That team has really expanded both in New York and Los Angeles, and everywhere in between,” said McCarty. “All offices have been really benefiting from the growth of our China practice. Not only has it increased because of outbound China work, with U.S. businesses setting up shop or doing business in China, but also inbound or Chinese-owned businesses and Chinese-owned enterprises deciding to do work in the United States. The talent that we have on that team really does an incredible job. The clients are so appreciative that they actually get repeat work many times over, and that’s one of the big reasons they’ve grown so fast.”
The China Securities Regulatory Commission recently announced that it has been making progress on talks with the Public Company Accounting Oversight Board on cooperation arrangements, which have been a longstanding issue for the PCAOB (
“We actually have team members in China,” said McCarty. “That’s a little bit of a differentiator for our firm. But the PCAOB is wanting to get access to Chinese-owned businesses. Much like our SOX practice, I think the PCAOB would like better insight. At UHY, we do have some pretty stringent client-onboarding processes here. Our client acceptance standards are strict, so when a firm does become associated with UHY, I’d like to think that they’ve met integrity and high-quality standards in order for us to work with them, and I think that’s a good reflection on them too.”
Cyber, CAS and crypto
Cybersecurity and client accounting services have also been growing at UHY. “It seems like anything with a C is hot,” said McCarty. “You’ve got the China Group. Our consulting group nationally is growing dramatically, moving upstream into some Fortune 500 type customers. They’re really beginning to showcase their abilities. With our client accounting and advisory services, our CAS practice, our firm had never really been in that space historically, and that’s new for us. Already we’ve partnered with Sage Intacct, Bill.com and Expensify, but we're bringing that service to some of our client base as well as a whole host of new businesses that our partners touch. We’re seeing explosive growth in the CAS practice.”
More firms are getting into offering cryptocurrency services for clients who invest in Bitcoin and other digital assets such as nonfungible tokens, or NFTs, and UHY is planning to expand its work in that area as well.
“We’ve actually had some M&A transactions,” said McCarty. “Our corporate finance team has done some work around crypto in that space. Once again, that’s another area with a C. Crypto is one of those areas that we’re also continuing to explore and look at. It’s also evolving quite dramatically. It’s part of our strategic plan as an area that we’re looking at, and we’re beginning to grow into it. We’re focused really on cyber right now, which is another C, and some of the cyber initiatives around crypto and NFTs as well.”
SPAC services
UHY has also been helping clients go public through special purpose acquisition companies, or SPACs, also known as “blank check companies,” which typically do reverse mergers with shell companies to enter the capital markets.
“We saw just incredible growth, as I think everyone saw, in the SPAC arena last year,” said McCarty. “Whether that was UHY helping firms with IPO readiness or actually doing the compliance work or the de-SPAC work, even working with some of our other fellow colleagues at the Top 100 Firms, we were doing a lot of warrant value work as well for audits that those firms may have done.”
Last year, the SEC issued guidance cautioning about the accounting treatment of warrants, noting that many SPAC companies had improperly accounted for warrants as equity when they should have been accounted for as liabilities, prompting hundreds of such companies to issue financial restatements (
UHY worked with some other accounting firms on meeting the SEC requirements. “We worked collaboratively with them,” said McCarty. “If another CPA firm provided the assurance service, they were not independent with respect to the warrant valuation. That was an area where we stepped in and were able to work with them to do all the warrant calculation work and valuation that went alongside those audit opinions and audit work papers.”
Besides UHY, Withum and Marcum also have specialized in SPAC services. “I’d like to say we were right up there with them,” said McCarty. “We worked with them as well as handled a number of SPAC opportunities as well inside the U.S. It’s interesting in that SPAC world. There’s still an incredible amount of SPACs, those blank-check companies, that have capital ready to deploy. But it definitely seems to be a slowdown in that space, likely due to some of the additional regulation. But also finding those middle-market companies that can be ready for the public market can be challenging. The private equity world is seemingly stepping up in valuation right now and becoming incredibly competitive on those deals. They’re providing compelling valuations that might prevent a middle-market company from choosing the SPAC route. No doubt the lumpy stock market is contributing to the decline in SPAC values right now.”
Supply chain consulting
UHY has also been helping clients deal with supply chain constraints that have resulted from the pandemic, and more recently the Russian invasion of Ukraine adding to runaway inflation.
“We recently onboarded some folks in our consulting practice that focus on supply chain,” said McCarty. “That’s a little different for a middle-market firm to be investing in talent that focuses on supply chain, on business strategy. All of those teams really focus on helping our clients look at resourcing and alternative markets. We recently just put out a blast as well about how there are two large chip manufacturers in Ukraine, and that’s likely going to continue to impact all the supply chain issues that we’ve seen. Here in the Detroit area, you can drive around and you’ll see parking lots full of completed trucks and cars, but they don’t have the chips to deploy, so it’s definitely created some massive supply chain issues. But even down to all of those suppliers, they’re feeling the challenges of margin compression. Inflation and supply chain issues are really causing middle-market firms to struggle in that space right now.”
Recruiting and retention
Environmental, social and governance (ESG) reporting is another growing area for the firm, not only in terms of sustainability, but also diversity, equity and inclusion (DE&I) efforts at clients and within UHY itself.
“When it comes to DE&I, at every one of our national partner meetings, we talk about DE&I,” said McCarty. “We’ve engaged a couple of groups to continue to help us with our DE&I initiatives. We had our largest class of female partners at UHY. We benchmark against the survey that Accounting Today puts out and we actually are slightly better than the industry group standards for women in leadership partner positions. We’re really focused on minorities in our firm right now and are trying to partner with a few different groups that can also help us continue to become a more diverse firm and yet have this entrepreneurial culture that we have at UHY. That is an area that we’re focused on, and ESG is an emerging area as well for a number of our upmarket clients that we’re beginning to look into as well.”
Many accounting firms are facing hiring shortages, as are other professions, and increased diversity can help draw from a wider talent pool. “When it comes to our diversity efforts, one of the things that we're trying to do differently is offer minority students the opportunity to work on minority clients too,” said McCarty. “They have the opportunity to see leaders in the community that they service and almost become informal mentors. We are actually mentoring students in high schools and and colleges as they grow to try to compel them to come to public accounting. We’re doing things like that with an outreach program. It’s a challenge, and the first part of our strategic plan is all about the people at UHY. We’re focused on continuing to make the experience here at UHY better and, as a result, if we can get people to stay in public accounting longer, the likelihood that they ultimately become an owner and a partner goes up dramatically.”
Not only recruiting, but retention have become more important during this era of the so-called Great Resignation. “We didn’t lay anyone off during the pandemic, much like a lot of other firms did,” said McCarty. “We actually hired more than 150 people during that pandemic, so we picked up a lot of great talent and no one quit during that time. Then after things opened up, we saw some of that pent up demand from many other businesses that were hiring in the private sector coming after public accounting firm talent. That leveled off, fortunately, and we’ve continued to grow. Just a few years ago we had just under 700 employees, and in January we paid 1,347 in our payroll. No doubt we’ve added a tremendous number of heads, but that's public accounting. It’s a grind and you lose people, but our retention is better than the competition, we believe, based on the statistics that we receive.”
