Lightning Round

Get ready for a dynamic, fast-paced session where thought leaders in private equity take the stage to share their perspectives on its role in accounting. Each speaker will have just 6 minutes to present, ensuring focused, high-energy discussions. This is your chance to hear from industry experts and learn how different firms are navigating the intersection of private equity and accounting. Don't miss this opportunity to gain valuable insights and actionable takeaways.

Transcription:

Daniel Hood (00:10):

First up, I'm going to call up Alex Goldberg. He's a partner at F3 Partners. Alex, thanks for joining us.

Alex Goldberg (00:16):

Thanks for having me.

Daniel Hood (00:16):

Cheers.

Alex Goldberg (00:20):

Oh, man.

Daniel Hood (00:21):

Yeah, it's pretty blinding.

Alex Goldberg (00:22):

I get it. Yeah.

Daniel Hood (00:23):

We should have given everybody shades, but I want to start by asking you to tell us a little bit about your firm and what's going on there.

Alex Goldberg (00:30):

Sure. F3 is a 2-year-old private equity firm. We're focused on really two tenants. The first is we buy and more partner with only people focused businesses, and the second is our whole team is from funds that have some of the largest in the world. And we take all those experiences, whether it's how to build the best recruiting function or how to build the best IT function, and we bring those experiences to middle market businesses in a way that understands that they're people first. We partnered with our first accounting firm in February. We've now partnered with six, and towards the end of the year we expect to be well over a hundred million in revenue.

Daniel Hood (01:12):

Very exciting. Cool. Let me take a step back and ask you, when you look at accounting firms, you talked about the firms you've partnered with. What's the biggest opportunity you see for them?

Alex Goldberg (01:21):

So I'm going to answer that question two ways. I think everyone in this room is here because they're interested in private equity. Alan mentioned that the first minute that there's a firm that was one of the first firms that did a deal and is going to make, I don't remember what you said, 3, 4, 5 times their money that's available for everyone here. What we've seen when we first started, people said, sell me a hundred. Sell a hundred percent. I want as much cash. As much cash. The most recent deal we did, the team wanted to roll as much as they were allowed to. They said, well, can we roll a hundred percent? Can we just take stock? Because they realize, wait, if I sell today, I get 25 million, and if I do this, it's a hundred and a hundred's bigger than 25. So I think that's one opportunity people are really excited about. The second is technology, technology, technology. This job is really hard, especially in the peaks, using technology to make those peaks a little bit more manageable, an essential thing going forward.

Daniel Hood (02:18):

Awesome. I love the fact, I mean, the fact that you're talking about firms now getting a little more Saavy, there is definitely, there's a steep growth curve, but firms are on their way on it and it's certainly events like this are helping.

Alex Goldberg (02:27):

And I think once this deal happens and people actually hear from their buddies, here's how much money I made and here's what my beach house looks like, you're going to have a very different outlook.

Daniel Hood (02:37):

Absolutely. But let's do the flip side and what's the biggest challenge you see for accounting firms?

Alex Goldberg (02:41):

Right. So getting people, getting great people, period, but that's the number one answer. The other answer that's true forever is keeping those people happy. Everyone comes up here and the question is, well, how does private equity change? What's bad? Or what are you scared of? Or what decisions are they involved in? The question has to be when you meet your private equity firm, how are people going to be happier? How are they going to make more money, not less money of a scrape? And if those answers are good, then you found a partner.

Daniel Hood (03:14):

Awesome. Let me ask you, you've talked about the firms you've partnered with. What's your model for working with accounting firms?

Alex Goldberg (03:20):

Sure. We have a one firm idea. So we've gone around the country and we found A+ firms that are very growth oriented that see the vision of what they could be with capital and help and say, okay, we want to be part of that. But we also understand if we do it by ourselves and we're in our own silo, that will limit us. So what we've done is we've put these firms together and in January we'll launch the brand, but it's going to be one national brand. And there's a few things that have come out of that that we've been absolutely blown away by that we didn't expect Everyone could come up with their list of things they know that you get from being part of one brand. But the few that I'll mention that we didn't expect is one, everybody here recruits remotely.

(04:07):

Maybe not everybody. Most people here recruit remotely. If you're able to tell someone, yeah, you're going to be a remote worker, but also you have an office to go to, you're going to have colleagues that you're going to be able to meet when you want to. You're going to be able to have relationships. We've found our ability to hire remote workers, just be the hit rate, be much higher. The second thing is, well, like any other distribution, Florida, you have an easier time hiring tax partners, tax seniors and tax managers than you do in Utah and in Seattle, you got an easier time hiring valuation folks than you do in Florida. So the guys in Utah now have a tax office in Florida. The guys in Seattle now have an audit office in Utah to gather people. And what's that enabled people to do is really increase the partner count, which we've done dramatically and increase the amount of help that you folks you're able to retain. The last piece that I think is really important about being one firm is we got everyone together. So when you are part of a large organization and you have a lot of partners, there's this energy that goes in the room when you went from 13 partners to 50 and everyone says, yeah, it's better. Yeah, I only get to do more work. I get to see my kids more often. That energy amplifies. It's not one plus one, it's one plus six.

Daniel Hood (05:28):

Awesome. Well, I think that may be the start of our last question, which is why should firms partner with PE?

Alex Goldberg (05:34):

Not everyone should period. Even if you can, even if you have the financials, not everyone should. If you believe in the equity story and you want make more money, that's a great way to reason to partner with pe. If you don't know how to navigate capital markets and building a world-class back office, you should partner with PE. If you don't know how to build a great recruiting function and deal with all the technology that's coming on, you should partner with PE. But if you're good at all of those things, I think one of the folks said it here at the last panel, these $200 million revenue firms, and by I've seen 50 million revenue firms who spend enough money and enough focus that they're able to do it, maybe it makes sense to keep going it alone, get really big and not have to take a new partner.

Daniel Hood (06:20):

Anyway, there you go, Alex, really appreciate it. Alex Goldberg of Equity Partners, thank you so much. Thank you so much. Great stuff. Alright, and Alex gets particular points for hitting those mark perfectly. There is a time limit and he needed it perfectly, particularly given he's the first of our lightning rounds for today. I'm going to turn it over to Danielle for our second.

 Danielle Lee (06:38):

Yes, it is time for the second round of Lightning Rounds. My name is Danielle Lee, I'm Managing Editor at Accounting Today, and I'm here with Rory Kenny. He's a partner at Shore Capital Partners. Rory, thanks for being here. And to start, can you tell us a little bit about your firm?

Rory Kenny (06:52):

Sure. It took me about five years to convince my wife to marry me. So we will see what I can do in five minutes, but quickly about Shore. So we're a Chicago based firm and we focus exclusively on what we call the micro cap. And for us that's just companies that have anywhere from five to $50 million of revenue. And I'll give you guys a quick anecdote to illustrate some important points about us. There's one company we partner with. We've done about 60 partnerships in our history across a bunch of different industries, but founder, family owned business, almost every business we've ever partnered with, this founder, family owned, brother and sister, second generation took over the business. They were about 10 million in revenue and their industry, like yours was on an early wave of consolidation and they took a lot of calls from other acquirers that were already in their industry and they thought, Hey, it's just not the right fit for us.

(07:43):

We think our cultures a bit unique or we want to scale, but we're going to do it in our own way. We had a chance to meet with Hillary and Matt or the brother and the sister I mentioned and told them our story and they said, look, when we sit out to our whiteboard and we put our options ahead of us, we didn't think private equity was an option because we're only 10 million in revenue. And what we told Hillary and Matt, what I'll tell you guys stay is if you're a firm in that size range, we do think you are a platform and we think there's plenty of platform opportunities in the industry here.

 Danielle Lee (08:13):

Great. My next question is why are you interested in the accounting profession?

Rory Kenny (08:16):

Yeah, so I think you've heard a lot about it today. I think, look, one of my mentors in the investment world, it told me a very simple idea, which is that the most valuable assets in business are predictable assets. I don't think there are many more businesses that are more predictable than accounting. You've heard a lot about that at this conference, that that's what private equity firms really value. I'd also say that if I look at the history of Shore, we do have some roots in healthcare. We've since expanded into a number of different industries, but where we've done our best work are in industries where demand is not an issue. So almost every firm I've ever talked to in accounting tells me, Hey, we're turning down work. Our issue is supply or labor. Those are industries where we've done our best work. It doesn't mean it's easy, it's very hard to solve that problem, but we do have experiences in doing that.

(09:05):

And again, it comes back to a lot of themes that you guys have heard at this conference. For us it's how do you get that back bench of talent, the next generation really interested in what you're doing. I think there's creative ways to do that through incentives. I also think everyone's talking about a lot of things that might need to change in accounting. I think one of the things that doesn't need to change in accounting is if you're a younger accountant, say you're 23 years old than a firm and you're really good, and that's the key qualifier, you kind of know exactly how the next 40 years are going to go, Hey, if I hit my performance targets or I'm good, I'll hit this position at this age and get paid roughly this amount. I think for a younger generation that is extremely valuable, that level of certainty in a career. And I think if you're a private equity firm, that is one thing you cannot change because if you come in that younger generation is going to say, what does this mean for me? It's maybe a bit less clear than the older generation. You've got to demonstrate that same level of certainty to them that they have today. And we have experienced doing that successfully in other industries and it's why we think we're a good fit for accounting.

 Danielle Lee (10:07):

Great. And along the same lines of things that need to change that you mentioned, what do you see as the biggest challenge for accounting firms?

Rory Kenny (10:14):

Yeah, I mean everything to me comes back to people. It's how do you recruit good talent? How do you retain good talent? There's no silver bullet. I think it takes a lot of different things you've probably heard at this conference, but I think what's a little bit interesting about the paradigm shift, you're seeing accounting. I was sitting down with a firm last week that was 15 million in revenue. They're here in Chicago and they say, Hey, we will go to DePaul or we'll go down to University of Illinois and we run into the Big four and other firms and it's really hard to recruit against those firms. And I say, Hey, I totally get it, but let's say you're competing for top tier accounting talent against any of those firms. You go in today and you say, Hey, maybe we offer a little bit different lifestyle. Here's some benefits to our firm and that may work. But I also tell them what if you go in and tell them, Hey, we're 15 million of revenue but we're trying to go to 200 million of revenue, do you think that will make your pitch a little bit different or attract a different level of talent? What I hope you can say in our model. And so I think to me, it just all comes back to people, but you've really got to demonstrate how you're going to have a differentiated approach to recruit them.

 Danielle Lee (11:22):

Great. And speaking of your model, what is your model for working with accounting firms?

Rory Kenny (11:26):

Yeah, look, I think whether it's an accounting firm or any other business we've partnered with, we don't believe in day-to-day oversight. We don't know how to do tax returns. Lord knows you wouldn't want me doing a tax return. We don't know how to do audits. We empower you to do what you want to be doing more of. That's different. In accounting firms, that's different by partners. You have finders, you have grinders, you've got minders. You've got to empower those people to do what they're best at. And I think what is maybe most different about shores, you hear a lot about, Hey, we're going to help you with back office and this and that, and that might be a little bit more challenging for a 5 or a 15 or a $20 million revenue firm. But the way that we built our firm is we've got 80 people, half of our firms all operational support. We have a chief technology officer, we have a chief talent officer. We plug those people into smaller firms to help them grow really, really quickly. So those people are there to empower you to do more of what you prefer to do to help grow your business.

 Danielle Lee (12:22):

Great. And with our final few seconds on the clock, do you have a specific type of accounting firm that you're targeting?

Rory Kenny (12:29):

I'd say Alan mentioned this briefly in his speech yesterday, it's cultural alignment and I know we've got a little bit of time here left, but the most important thing to me is a firm that's growth minded, but I also was with a firm this morning and just talking a little bit about what's important to them and they said the younger generation, this has to be better for them and I care a lot about them. That's how we think about the world too. And there's a lot of alignment with that approach for us.

 Danielle Lee (12:51):

That's a great note to end on. Thank you so much Rory for sharing your insights.

Daniel Hood (13:00):

Call up the next of our lightning rounds. We have to have just a couple of seconds because they've got to refocus the camera on this side of the stage. But I'm psyched to have you here Rajini Kodialam, Founder and CEO. Lemme start that over again. Founder and Co-CEO of E three Tech, thanks for joining us. Good

Rajini Kodialam (13:17):

Morning, glad to be here.

Daniel Hood (13:18):

Thanks for coming. Want to tell us a little about your firm?

Rajini Kodialam (13:21):

So let me start by telling you I'm not a private equity firm. Full confession, not investing out of a fund, don't have a defined timeline and I've got your attention. You're wondering what the hell is this woman doing here? So let me try and tell you who we are, what we are doing, and why this might be of interest to you. So my partner Rudy, a dolphin myself for the last two decades, spent our time building a firm called Focus Financial Partners. Alan Kolin had it up on his screen yesterday. Focus is the largest aggregated partnership of independent wealth management firms in the us. We founded it in 2006 based on a very simple theory. RIAs are amazing. You're amazing too. RIAs are amazing. They do right by their clients as fiduciary. Their clients refer their friends and family to them and they run amazing, profitable businesses.

(14:20):

Wow, you peel back the onion. You realize succession planning is a nightmare in an industry where the very success of the founders creates an economic gap between them and the next gen where they can't bridge it. And many of them have not even cultivated the next gen. If they get hit by a bus tomorrow, their businesses are in trouble, the clients are in trouble. And what was the inevitable answer? Selling back. Either take a hit on your valuation sucks for you or sell into a conflicted environment. Decimating every promise you made to yourself, your employees, and your clients. And we wanted to provide them with a different way of doing business. We wanted to be the partner of choice for advisors and their next gen founders and their clients. It worked focus. We did 300 deals away, 18 years. Many bankers don't do 300 deals across their lifetime for other people, a hundred of them platform where we took a stake in the business, we surrounded them with value added services.

(15:21):

We were permanent capital. We provided them with ongoing liquidity options, but absolutely consistent. And on behalf of about half of them who are interested, we did about 200 mergers. The metric that I am most proud of is not the a hundred platform deals. The metric I am most proud of is the fact that there was one on one over 18 years. We did what we said, we said what we did, and courtesy that I have nothing to do with focus anymore. We took the firm public in 2018. It was a celebratory incident for the entire REA industry, but for reasons consistent with a lot of people in corporate America. We took it back private last year in a seven plus billion round with Clayton Dub Rice. And as part of that, both Rudy and I decided to exit. And E-3 Tech is our next iteration.

(16:12):

So what is E-3 Tech? E-3 Tech absolutely builds on the foundation of focus financial partners and its ethos, the ethos of focus, which is, well, let me tell you what our name stands for. It's a very plebeian name E three. In fact, I was trying to tell him what my name is and he's finding it difficult to find it. But the three E's matter, the first E is entrepreneurial, DNA. We never want to turn a pilot into a passenger. Your entrepreneurial DNA, the legacy, the boutique nature of your firm that brought your clients to you, your partners, to you, your employees, to you is absolute paramount. We will never change it. I am an entrepreneur, I am you. That's literally what we are. We get it. We get that ethos. The second E stands for empower, empower them with everything that they need to be bigger, better, stronger versions of themselves.

(17:04):

It could be strategic thinking. Talent is a very big part of it, support with marketing and definitely technology. But to me, while technology is super important, technology without talent, a talent first strategy and without that, if you just have technology in a professional services business, all you have is soda that's been left out too long without the fist, you don't want it. It is entrepreneurial. DNA, empowered within a talented ecosystem because tech is important. Rudy and I can talk about entrepreneurs. Rudy and I can talk about m and a. We can talk about strategic planning. We went looking for a partner who understood founder vets, who understood a very, very long time hold. My hold and focus was 18 years and someone who truly understands technology with credibility. So our partner in this joint venture is one of the largest and celebrated VC firms and recent Horowitz. So what is E-3 T one of the four professional services verticals? We are looking at, we are looking at four professional services. Verticals is accounting and E three T is, yes, like private equity, we bring capital to the table providing monetization diversification to founders of successful businesses. But unlike traditional PE, super, super long-term hold two but infuse it with VC like growth trajectory, long-term founder beds and tech enhancement. And three in the end it is simply by entrepreneur for entrepreneur with programmatic M&A.

Daniel Hood (18:48):

Excellent. Lemme check. Is there a specific type of accounting firm you're looking to work with?

Rajini Kodialam (18:54):

Yes, we are looking to work with accounting firms that like themselves. We don't do re-engineering. Okay. I don't like who I am. I want to change everything about me. Very noble, I'm not the right person for you to talk to. There are plenty of other people who will help you. We like who we are, we want to preserve that, but we also know that we can't chug along like this without some support is exactly the type of firm that we are looking to partner with. And we are doing two types of deals, hos and spokes platforms stuck in scarlet, maybe two or three platforms who are firms that are looking for partial monetization but want to continue to control their destiny. But looking for support and spokes can be all colors of the rainbow. We are happy to talk to people who say, I'm looking for a full succession or I'm leaving, but my next gen is here. Or a younger person who says, I came into this business to be with clients, but I'm doing back office work. We are very open to all colors of the rainbow for that. But really looking for firms that like themselves and firms that are willing to make two bets. Bet one that you with little interference from us are going to continue to do exactly what you did. And two, leveraging the value add that we bring to the table in some way, you're going to be bigger, better, faster versions of yourself.

Daniel Hood (20:13):

Awesome. Well, this was easy because you answered all my questions without me even having to ask them. So that was fantastic. This is way I want the ball to be exactly easy.

Rajini Kodialam (20:21):

Can I?

Daniel Hood (20:22):

Exactly. From E-3 Tech. Thank you so much. Cheers.

Rajini Kodialam (20:25):

I do want to say one more thing.

(20:27):

Do I have time? I don't.

Daniel Hood (20:28):

We're a good two minutes over. Sorry.

Rajini Kodialam (20:30):

That's it.

 Danielle Lee (20:37):

And here with Jennifer Kim, principal at Flex Point four. Jennifer, thanks for joining us today. Yeah, thanks for having us. Can you start with talking a little bit about your firm?

Jennifer Kim (20:47):

Yeah, absolutely. So Flexpoint Ford, we're a Chicago headquartered private equity fund. We invest exclusively in financial services and in healthcare. The idea being that these are two highly regulated industries and we're going to have deep sector expertise when we're investing in it. Our ethos for investing is certainly providing capital. So our flexible capital solutions usually investing in partnership with founders and founding management teams. What does that mean? That means we can do majority investment, we can do minority investment, really helping to provide what founders want and what their priorities are in any transaction. In terms of our professional services experience, we've had a lot of experience in insurance brokerage. We've had a lot of experience in wealth management. We were also one of the first institutional investors into accounting advisory only when we invested in CFGI in 2014. It was a very successful investment for us. The company was acquired by Carle Group in 2018, and both US and CFGI did very well. Great.

 Danielle Lee (21:47):

And why are you interested in the accounting profession specifically?

Jennifer Kim (21:50):

Yeah, so we've had a lot of success in brokerage and wealth management. I think we see a lot of the same parallels there. I would also say we want to bring our experiences to the CPA industry and then a lot of the same hallmarks of the industry, whether it's the recurring revenues, whether it's the fragmentation of the industry, but importantly, it's a very important part of the financial markets. CFOs are having to buy the service every single year, excuse me, every single year. And CPA firms, you're really, you're the front row of seeing what the CFOs need and being able to provide that trusted advisor. That's a great launching pad for providing other services.

 Danielle Lee (22:32):

Great. That dovetails nicely into my next question of what is the biggest opportunity for accounting firms?

Jennifer Kim (22:37):

So I would say there's a lot of disruption going on. I think probably private equity induced taking advantage of that I think is certainly a very interesting opportunity leaning into it. Whether it's making strategic hires, making m and a, that's certainly an opportunity that everybody should lean into. I'll use an example of an investment we made in 2020. We invested in a firm called Tiger Risk Partners, which is a reinsurance broker. At the time, it was the fifth largest reinsurance broker, but quite a bit smaller than the top four. Shortly after our investment in 2020, the number two player bought the number four player. Aon tried to buy Willis, but they were blocked by the DOJ. So chaos ensued and we used that opportunity to really lean in, make a ton of strategic hires. And so in doing so, we were able to recruit from all the top four firms and they were interested in joining a growing entrepreneurial firm or a company that had a long runway for growth, private equity style incentives. In doing so in two years, we were able to bring the company from a hundred million dollars of revenue to 200. So again, a great example. And so really leaning into that, all the disruption that's going on right now, I think is a great opportunity.

 Danielle Lee (23:55):

Great. And on the flip side of that, from your perspective, what is the biggest challenge for accounting firms?

Jennifer Kim (24:01):

Yeah, Talent. I know everybody kind of said the same answer as me, but the talent shortage,

 Danielle Lee (24:05):

Popular one,

Jennifer Kim (24:06):

It's a popular one. I mean, it's the lifeblood of the industry. So really making sure that you guys, all the CPA firms are able to articulate what is the culture that your firm is bringing, what is the opportunity that you're offering to the younger generation. I think being able to convey that is important to bring not only people to the firm, but also to the industry. And this is a little bit of a segue into the YPE, but private equity is a great signal for signaling to that younger generation, private equity structure, private equity style incentives that is real currency that has value in five years. And again, we all talk about the Gold Rock. If you look at other industries that we've invested in, brokerage or wealth management, it's very much there. And so being able to really use that to the advantage of these firms, I think that's a really good opportunity.

 Danielle Lee (25:08):

Great. And you've kind of touched on this already, but are there any other reasons that accounting firms should consider working with private equity?

Jennifer Kim (25:15):

Yeah, I mean, we talked at length about the equity opportunity. Certainly there's structural elements, whether it's the resetting of equity structures or setting up the liabilities. But I do think the resources we can bring to the table are truly, I think, valuable, whether it's our M&A resources, whether it's our operational folks that can be helpful. We fully acknowledge we're not CPAs, we're outsiders to the CPA industry. But being able to bring our experiences from having invested into those other sectors, I think we can bring those fresh ideas and debate that with the management teams.

 Danielle Lee (25:57):

Great. Thank you so much for sharing. Jennifer. Thanks for being here.