Town Hall: Ask the Experts

Our co-chairs take questions from attendees and round up the key considerations firms should bear in mind as they approach the decision, and what firms can expect "life after PE" to look like.

Transcription:

Daniel Hood (00:10):

In our future, we're going to kick this session off. This is the Q&A session that I've been promising you for the last day and a half. Like I said, what's Bob's pin number? Home addresses for all of 'em. God, we're going to talk some people, but anyway, so all the questions you've had that we haven't let you ask so far because we've been plowing through a lot of information. I think you'll all agree there was a ton of stuff to cover and a lot of information, a lot of great people to share their insights, which we appreciate from all of 'em. But now it's your chance to pepper us with questions. No question is too personal. I will say if your question is here's the size of my firm and how many partners we have and how much we do, who should be our PE partner? That's probably not the kind of question for this session, but there are people out there who would love to talk to you about it. So I don't know, Heather, whenever you're ready, if you have questions, just let me know. Otherwise I have some questions for these guys that we can get into.

Heather (01:07):

And if somebody starts to ask that question, I'll just pull the mic away.

Daniel Hood (01:11):

You go, all right. And clock 'em on the head with the,

Allan D. Koltin (01:15):

I have to do a Phil Whitman.

Daniel Hood (01:16):

Excellent. Alright, well I'm going to, yeah, Heather's going to let us know if we have questions because we can't see her. At some point I'm going to ask all three of you just to share your two big takeaways, but I want to start with,

Allan D. Koltin (01:33):

Hey Dan, can we intercept you just the three of us?

Daniel Hood (01:36):

Sure.

Allan D. Koltin (01:37):

And this has happened a little bit, but we just want to thank you and your whole team again for going where no one else has ever gone before. This will a big success very time and we hope you'll plan to do this again and get a save the date. I'm told if you don't sign up soon, you may not get in next year.

Daniel Hood (01:57):

Yeah. Oh, they're definitely not inviting me back. But no, thank you. I appreciate that very much. And I'm going to return the favor and say we definitely couldn't have done this without the input of all three of you and the participation and your help throughout it, so I appreciate it. So we'll round for our co-chairs

Bob Lewis (02:10):

Rounds.

Daniel Hood (02:11):

Thanks. I know all this talk. Number one, all this talk of rounds is making me thirsty, but I'm going to ask each of you at some point to talk some of your key takeaways, but I did want to start with just, I've got a couple of questions here while you guys warm up your questions. I wanted to ask if there's a piece of advice, a single piece of advice you would give firms that are looking at accounting firms. This is a problem I've had all day accounting firms and PE firms are both firms, so I got to remember to say accounting firms a piece of advice that you would give an accounting firm short, sweet. What would it be? And I'm going to, who am I throwing to this first, Allan, I'm going to throw it at you.

Allan D. Koltin (02:52):

Relax. Don't be so tightly wound. So many of the ones that were up here that worked with the three of us that talked about their story on day one where they thought they were going, they didn't matter of fact as you we reflect on all these deals that have happened, the starting gate was nowhere close to the ending gate. One thought they were going private equity and then they were going ESOP. One thought they were doing a mothership firm and they ended up with a Rollup. One thought they were merging up and they ended up being their own foundation firm. One thought they had a deal on a Friday and it was the press release coming and the deal died and they went with someone else. It's a roller coaster ride. So if leaders, if your partners are that tightly wound where they want it to fit like a spreadsheet, tell me exactly what we're doing. You never want to say this, but the reality is we're not sure where this is going to go. So the freedom to explore and know that the end game may have nothing to do with the starting gate.

Daniel Hood (04:06):

So Bob, how about you?

Bob Lewis (04:07):

I would look at where you're at in your inflection point and determine what makes sense for you to even start the journey to look at this as a process, whether it's private equity or remaining independent or emerging upward. Understand all the options that are out there and I got to stress this point, get help if it isn't the three of us, somebody else, there's people out there. Get an outside perspective on what you're doing because my experience, and I'm guessing that Phil and Allan's experience is a lot of firms, especially the smaller the firm, it goes, do not have a lot of experience in this kind of transactional work. And there's a lot of questions and there's a lot of pieces to a letter of intent and how to actually get even to the letter of intent in the process.

Daniel Hood (04:49):

Excellent. Phil?

Philip J. Whitman (04:50):

Yeah, I'm going to dovetail off of both Allan and Bob. So after you're done relaxing, as Allan said and what Bob said about taking the journey and engaging an advisor, whether you do or not, as Allan said, it's not a straight line. The journey is not a straight line. There are many different ways to get there, but I think you all have an opportunity. You heard several of the PE players say it's their belief that PE is here to stay in our profession and while we are advocates of pe, we really think PE and the other alternatives, whether it's family office or ESOP, there's got to be a new direction that you go in and here's the opportunity you have since they're going to be around for a while. You don't need to do this tomorrow. Yeah, I hope many of you walk away and are very excited about this and the PE guys, maybe you'll say, Hey, we don't want to work with Phil after he shared with them the following.

(06:10):

You have an opportunity to be introspective and look at your business and if you're not offshoring or outsourcing or someone else used a different word for it, they don't like those terms. Well, if you do a deal with a PE group, they're going to bring that on. If you're not doing wealth management, they're going to bring that on. You have an opportunity for the next year or two to sit back and every additional dollar that you put to your bottom line, there could be a multiplier effect to that. It could be 4, 5, 6, 7, 12, 14. We don't know how high this is going, but why say, here's my business, take it and fix it and have someone else reaped the profits went with a little bit of help. You can do it on your own and have a bigger payday.

Bob Lewis (07:19):

Phil, I thought for sure you were 4, 5, 6, 7. I thought for sure it was going to be eight, but you want to rent a 12. It's an impressive jump.

Philip J. Whitman (07:28):

Well, you should see when I do the auction process.

Daniel Hood (07:32):

That's awesome, Heather, I dunno if we've got, again, I can't really see, so I dunno if we have questions. If we do this, now would be the time to ask questions like, Phil, where's that $50 you owe me or if you wanted, no. Alright. This will also be a chance to ask Allan to speculate on whether the south could have won the civil war. Any kind of question. It's open to whatever you've got.

Audience Member 1 (07:54):

Hi, I have a question. We have heard over the last day and a half that pretty much every deal depends on a multitude of factors. So many of us are wondering what does a typical, what would a deal look like? And I'll propose some hypotheticals. I would just ask you to present on a bell curve what it might look like. For example, let's say it's a $15 million firm, eight partners, two are fairly close to retirement, the rest are scattered from several years away to many years away. A fairly strong firm, no specific industry expertise, but very profitable. Let's say partners there at six to 700,000. So they're looking at PE. Can you address what the compensation system and incentive system might look like in a hypothetical firm like this? I know there's no right answer. There's a lot of factors that influence it. Can you give us a little bit of definition as to what the outcome might be?

Bob Lewis (08:59):

Would you say the partner compensation was 700,000? I did miss that little piece in there.

Audience Member 1 (09:04):

Partner comp, let's say they're in the six to 700 range on average.

Daniel Hood (09:11):

We don't want to jump. Maybe a different way to look at it is for a firm of roughly that size, is there a standard deal? Is there a standard PE deal or are they so different that we can talk about any aspects of it? Do you want to jump off?

Philip J. Whitman (09:22):

I'll start this off. So whether it's 15 million or 6 million or 20 million or 35 million, okay, the reality is you need to have available EBITDA for the scrape or whatever it is that Richard Pelman calls it.

Bob Lewis (09:39):

Income something,

Philip J. Whitman (09:39):

Income contribution. Because that's how, that's what the multiple is going to be applied to. That's scrape and adjusted ebitda. I can share with you, and maybe you could take it away from this, we were working with, and this will sum up a lot of factors for this group. We were working with a $6 million firm in New York City, pre private equity coming in. We took them out to market and we were told that they were an end of life firm managing partner was 72 years old with 360 4-year-old partners. They were profitable, they had new no future partners in the ranks. They had great clients. And when we took 'em out to market, one firm said, I'll give them 60 cents on the dollar a collections based deal.

(10:38):

I don't even know if we have the people that can take over those clients and do the work. I told my client, no, we're not going to do 60 cents on the dollar. We stood on the sidelines. Enter private equity, 72-year-old managing partner gets rolled into one of these constellation firms. Ultimately he will receive $9 million for his 5 to $6 million end of life firm. The opportunities out there. So I mean if you're a $15 million firm and you're not an end of life firm and you have next generation partners, there are so many things that go in. Do you want to roll into a bigger, larger firm? Do you want to be the foundational firm? There are so many factors. There are too many factors. I will tell you this and Allan might have it and Bob may have it. I like to make it easy for my clients. I've created a private equity calculator that has six moving parts. You enter numbers in six boxes and this will give you an approximation. Now there's so many more factors that go into it, probably hundreds of them, but this will give you a ballpark of, you know what this is approximately what a transaction might look like for you.

Bob Lewis (12:06):

We did the same thing, Phil, something similar to that. So you can do calculations in different levels. To answer your question though, there's more than just the financial element of that. What does that bench look like? What location are they in? There's so many other pieces to really come down to the comp, but when you really adjust the competent private equity, please agree or disagree. There has to be an adjustment at the equity partner level downward on comp. Unless you've got a really exceptional firm, there's no way to get this to work. What are your thoughts on that?

Allan D. Koltin (12:39):

So Jeff is the guy that worked on your deal into wiffle. You wouldn't get as good a deal as you got. There's your answer. No, that was humor. I was trying to be funny was So

Bob Lewis (12:50):

You're killing it. Yeah. 10 o'clock comedy club later.

Daniel Hood (12:54):

Well, that'll be after the cocktail out.

(12:57):

I have a quick question I wanted, because we've been talking about scrape people. We're talking about the scrape all day at different points and someone wants to describe the scrape to me as accounting firm partners are currently paid one sum of money, but really it's from two streams. One is their sort of salary if you want to look that way, and the other is their portion of the earnings of the firm. They get paid, right? It's one check, but it's in theory it's really two different income streams and that some people have described the scrape and again, they describing it to me. So they were using simple small words where it's the splitting of those two things. You're going to get a salary because you got to live, but then the part that's going to create the EBITDA is what would've been the earnings you got from as an owner of the firm? Is that a simplistic but fair definition is that?

Philip J. Whitman (13:44):

Yeah. Yes.

Daniel Hood (13:47):

Again, recognizing these deals are wildly different from everybody and they come,

Philip J. Whitman (13:50):

And by the way, it's not that, okay, here's the compensation portion and here are the profits of the firm and you're giving up all the profits. How much of those profits are you willing to give up? Because for every dollar that you are willing to give up, that's going to be what that multiple is applied to. So we have a transaction where I had two managing partners each making, I'm sorry, a managing partner and a second, his second in command, they were each making $3 million. They are going to go down to a million dollars. So that firm created 4 million of scrape or leave behind EBITDA as I call it. And so whatever multiple they got, they have some younger partners that were only making 200,000 a year and they weren't going to scrape anything from them. If anything, they were going to raise them from 200,000 to 300,000 and they were going to put some of that rollover equity in their pockets because the other two guys were older. But it's how much do you want to give up? And we've always thought of every penny that we earn as partners in CPA firms as this is my compensation and as long as I beat last year, I'm happy.

Allan D. Koltin (15:03):

Right. Allan, do you want to win? Sometimes you got to stop the clock just to buy time to think. And the revelation that has probably hit all of us is when you're a partner in an accounting firm, you're chasing compensation. I remember as a young staff accountant at 15,000 and then you're making 30 and then you're making 60 and you make a hundred and you think you won the Illinois lottery. At least that's where I was. And then you see some young partner making 200 and then you're making 300 and the food chain just keeps going. And if that's the world you want to chase, go for it. But if you want to maybe chase the world that your clients chase where they look at risk and investment and make a good compensation, but not define that as the moment, but define the equity in what you can ultimately build, then that's for you. And this may all sound pretty basic, I've just never stopped to think about it. Yeah, if you want a max comp, don't do this. But understand, it all comes out in the wash at the end when you get some type of modest deferred comp. Right?

Daniel Hood (16:19):

Right, right. I mean in some cases you you're trading guarantees versus higher upside. But I mean it's a classic sort of risk calculation and particularly given that this is new for a lot of people in the field.

Allan D. Koltin (16:32):

So what do you do with the typical accounting firm where a third of them are risk takers, a third aren't and a third just don't want to get in the game? Crossfire, how are you going to get to a decision here?

Philip J. Whitman (16:43):

Herding cats?

Allan D. Koltin (16:45):

Yeah.

Philip J. Whitman (16:46):

You try and move those other 30, it's same thing. Should we do wealth management? Should we not do wealth management? A third of 'em embrace it. A third of 'em will say, we make our money the old fashioned way. We would never do that in pairs, our independence. And then the other third are in the middle. They could be moved one way or the other, but as soon as I give him a nice check and incentivize him because he brought a client, his client sold the business, and we now have $60 million of a UM and we're going to pay him above the line and give him a bonus and we announce it to everyone, we're going to get some of those people to move over. And I think it's the same thing as we're going down the road with this PE opportunity. Again, it's something that you really need to sit back and think about is it right for us? But I am confident, I know that there's a private equity group slash family office out there in the audience. They've done multiple deals and what I would tell you is they without a turn. And so Cherry Beckert hasn't done this. Eisner Amper hasn't done this. Citron Cooperman hasn't done this. They're in the midst of their journey and they got two private equity groups to come in and make an additional investment behind their money. And they came in at 17 times earnings. That's pretty phenomenal.

Daniel Hood (18:21):

It was 12 a minute ago. Everything just the numbers

Allan D. Koltin (18:23):

Inflation adjusted.

Philip J. Whitman (18:24):

I'll tell you, I'm a good auctioneer and we work with clients. We go to the private equity groups and they go, okay, do I hear 10? Do I hear 10? Do I hear 12? Okay, Tony's a 12. Okay, Jim, will you go to 14? No, it's not like that at all.

Bob Lewis (18:39):

Bob firms

Philip J. Whitman (18:40):

Have value. Sorry,

Bob Lewis (18:41):

My takeaway from this so far was Phil owes me money. You said something about sending a check, right? Yes, yes. I'll give you the bank information. The one thing to keep in mind too is and a, you were talking about one third of the partners. One third of the partners. Unfortunately, what's happening is in some firms, the partner who is in place now can maybe needs to be a partner that needs to be displaced is the firm has grown. You cannot have blockers stopping some of these transactions from occurring because I'm uncomfortable with doing it. And then the rest of the partners feel like they're being penalized Nick, because that just creates long-term chaos and probably a lot of bleeding and leaving from the firm from other people. But it's a hard decision to make, especially if you've had some of your partner for 20 years. That's a hard call.

Daniel Hood (19:25):

Gotcha. Heather, I dunno if we have questions again. I can't, but if we don't, I've got more for these guys. So we have one.

Heather (19:33):

We have one just I have to run up there. Here you go.

Audience Member 2 (19:40):

Besides profitability, what makes a firm a good candidate for private equity or strategic buyers? What other characteristics in the firm are there or what might make 'em not a candidate for private equity?

Bob Lewis (19:55):

Mike, if I go quickly on this one, besides the profitability, really the bench strength location I think is key too in terms of ability. Well, with the remote workforce and a remote work, it's a little bit less important, but to me it's the strength of the people. The other thing that we like to look for too, and I know this may sound crazy, but we always have clients come to us and go, I want to buy a firm that's just like me, very highly profitable. I would prefer to buy a firm that's a little bit weaker, damaged that I can bring all the expertise that Phil has developed in his firm to the table and quickly raise the profitability. But to me the biggest key on this is the bench I think. But gentlemen,

Daniel Hood (20:35):

Allan, What do you, what's your,

Allan D. Koltin (20:37):

So like real estate, location, location, location. I think private equity and other investors in our space are consumed if I can only pick one, profitable organic growth. And are the key players that drive that, are they on the 18th hole of the golf course? Are they on the ninth hole? Where are they in that journey? It's almost like they take out a depreciation schedule and they go through the partners. Here's the current age, here's when they plan to expire. That's not a good word. And then they code 'em A, B, and C. The A is the superstar, the five tool player can do it all. The B is good and the C is so-so. And we're sort of pushing that out. And the asset, remember we all talked about it's a people business, so we're looking at the end of the depreciation schedule and saying, how much game do they have left?

(21:34):

And we're waiting the stars a lot easier than maybe the contents. I think that's a spreadsheet we never see, but I think it's something that they look closely at. So you're absolutely right. Next gen talent. Absolutely. Leadership skills, absolutely. Good market. Absolutely. But that's a key one. And for you, 55 year olds out here that say, I don't want to have a boss, so what I'm going to do is I'm going to ride this horse till I'm 62 or 63. Then don't do anything because the depreciation value of all the key players, it's expired too late. It come when you have game,

Bob Lewis (22:19):

Don't wait.

Philip J. Whitman (22:21):

I would like to just add one thing you mentioned about having a boss. So years ago, pre pandemic, I did a podcast with Dan Hood. It was called the Fearful Mindset. And in the CPA from professional profession, there's such a fearful mindset. You're not going to have a boss guys, you're going to have a new partner, you're going to have a capital partner, you're going to have someone that's going to work with you that wants to build a successful business together with you. Chances are they love what you've done. They have ways that they're going to enhance it. Will you have reporting? Yeah. Charlie Weinstein told me he's got a board meeting every month. He presents to the board. And you know what? For 35 years he didn't have to do that. He was the king. You know what? I think you heard Avni say it as well earlier in the day where yeah, she, she's got to put together all these reports and the first time it's tough, but she's automated that process. No bosses, partners. That's what you're getting.

Daniel Hood (23:24):

Excellent.

Audience Member 3 (23:28):

Just a question. How would you advise accounting firms to think about transactional leverage?

Bob Lewis (23:34):

Can you repeat that?

Daniel Hood (23:34):

Sorry? How would you advise accounting firms to think about,

Audience Member 3 (23:37):

Transactional leverage,

Daniel Hood (23:39):

Transaction Leverage.

Audience Member 3 (23:40):

In the context of a PE recap.

Daniel Hood (23:42):

Gotcha. How would you encourage a firm to think about transaction leverage in the context of a PE firm deal, right? Yes.

Allan D. Koltin (23:53):

So I think we need a little help on that one. The three of us graduated in the grammar schools, city schools, P one, upper 2% of the bottom 10% of our class. So just a little more. Yeah.

Philip J. Whitman (24:06):

What do you mean by transaction leverage?

Allan D. Koltin (24:07):

Yeah, there you go.

Bob Lewis (24:07):

Thank you. I thought it was just me.

Audience Member 3 (24:09):

I'm like how much debt? Yeah, because I think from a PE perspective,

Allan D. Koltin (24:14):

well why didn't you say so you're advocate for,

Bob Lewis (24:19):

Let's redefine that question with the debt. You hit it again. Hit it again. Whole audience got this question.

Daniel Hood (24:24):

How would you advise an accounting firm as approaching a PE deal in terms of the debt that partner would be taking on potentially?

Allan D. Koltin (24:31):

So most four to one, sometimes up to five to one, sometimes not as much. Three to one. I mean in New Mountain was Citron, it was their money, but four to one.

Philip J. Whitman (24:44):

And some of them are doing nothing. As you said, it's their money. It's family office money. You got plenty of money. They're not bringing on debt.

Daniel Hood (24:52):

Right? I mean they do talk. There is a lot of talk, right? There's a lot of dry powder out there. They're constantly looking for places to place it.

Allan D. Koltin (25:00):

It is a fascinating discussion. Accountants don't like that. So when P says, do we do something wrong? Why are you doing that? That's like us going to the bank and borrowing money to pay partner comp that we don't have and hope we get it back next year. Why do you take, it's such an illogical thing, but then when you explain it and talk about what we can do with it, oh, okay, now I get it.

Daniel Hood (25:25):

It's resources. Excellent. I see Heather is up and about. All our questions have to come from this narrow slice where I can see what Heather's talking about.

Audience Member 4 (25:36):

Just a quick question on where do you see things going from a talent perspective? With all the money coming in from private equity, the lateral hires from other firms, and the supply of talent coming from the US side of things, how do you think the cost of talent's going to go up on this side?

Bob Lewis (25:57):

Can you in the US?

Daniel Hood (25:58):

Yeah, sorry, the echo up here is a little hard. Can you repeat that again?

Audience Member 4 (26:04):

What do you think the effects of private equity money in the CPA world is going to have on the cost of talents?

Daniel Hood (26:12):

And the cost of talent? What effect will it have on the cost? What effect will a PE entering an accounting profession have on the cost of talent, right? We've already seen it's had an impact on how much firms are being valued at when it comes to non-PE deals. How is any thoughts on how it might affect the cost of talent?

Philip J. Whitman (26:29):

So if I could share, we have a talent acquisition group. We call it our talent solutions team, and we're involved in talent quite a bit. And the way I see it is, number one, if you're not doing offshoring, they're going to bring offshoring your costs of talent and your margins are going to increase. If you're already doing offshoring, they're going to do additional offshoring. Now what I will say is private equity backed firms have deeper pockets. So if I go out and I meet someone like Tony over here and he's a talented director, a tax guru, you know what? I can spend a lot more money than any of you independent firms, and it's not going to hurt me because now it doesn't feel like it's coming out of my pocket. I've got someone that's a 60 own 60% of the equity. I'm being subsidized everything. A year ago, a firm that was not private equity backed to do a transaction with a $200,000 plus person with no book of business, forget it was never being done. Now they're private equity backed. They're hiring 3, 4, 5, 6 of them and they're winning the talent war. So I think it is going to push talent up. The cost of talent. We can't say how high,

Daniel Hood (27:53):

Not high enough ever. We already know that it's super low tight. Allan was going to jump in on this and then Bob.

Allan D. Koltin (27:58):

So two things. One, I'd give the same answer to the staff or senior or manager that I just gave to the partner. Do you want to be an owner? What did Richard say? Copeman earlier. He's got 250 new owners. So do you want that kind of environment? Do you want the risk with the reward? Yeah, at the firm down the block, your peer is maybe making salary, I don't know, 10, 15, $20,000 more. How do you feel about that? But I would backstop it that we have sort of a family approach with partner comp. We try to treat everybody. Everyone gets a trophy. And I would tell you that the hard line, that private equity, the discipline they will be is that your A players will do incredibly well. They will game the system. And PE is smart enough to know that people over there can't be flight risk. So we're going to make it so painful, we're going to pay him at the top dollar, the C player, it's going to do okay, but if the C player left, it's not the end of the world. It's a little tougher love in the culture going forward.

Bob Lewis (29:08):

And I think you're going to start to see higher level talent coming at a higher cost to manage the entire operation because the operation's going to have a lot more offshoring and a lot more artificial intelligence backing it up. So people's skill levels should rise up more as a result of that. They're going to get paid more and they're going to be more highly valued. The labor shortage is not going to go away. So we have to figure out how do we use the domestic help that we have and use them smarter than we have been in the past. And that's going to come from other tools that are in place and those people have to be rewarded. Or Allan's point probably fills too. They're going to leave, they'll go to somebody else who provides that opportunity. If I was in an accounting firm right now, I would be happy to see private equity come in or anybody making an investment because this is going to provide a lot more resources for these people to get stronger.

Daniel Hood (29:58):

And there's a great deal of talk about the need to raise accounting salaries absent separate from PE just because they're not particularly at the lower levels, not getting paid enough. So if you've got very young talent, you're like, yeah, we want these people to stay around for 20, 30 years, you're already underpaying them. I mean you look at the report from the nag and all the other information there suggests that there's a serious at the lowest level serious underpayment going on. So as salaries rise, it would be interesting to see what part of that is PE money pushing salaries up, and what part of it's just firms saying we have to start paying our youngest staff reasonable salary salaries that match what we're getting from them.

Bob Lewis (30:38):

Look at private equity firms in general. They're composed of extremely, highly paid smart people. They want to be surrounded by people that are highly paid and smart people to help them make more money. I mean, you don't want the C and D, you want the A's and B's inside that firm and you got to pay for that.

Daniel Hood (30:54):

Makes sense.

Philip J. Whitman (30:55):

But let's not forget in public accounting, there was a time where our client said to us, if he has a heartbeat, if she can fog a mirror, we need people. And then offshoring came in. So I mean, I don't think we should ever see ourselves going back to those really, really critical times like that because I don't know about any of you, but I don't want someone that could just fog a mirror and someone that just has a heartbeat. One talent.

Daniel Hood (31:29):

Fair. Fair. Heather, how are we doing?

Heather (31:32):

We got one over here. Alright,

Audience Member 5 (31:34):

So I serve a firm in Western Canada and I appreciate, I may be the token Canadian in the room. So this is a question of one, has PE started to cross the border?

Daniel Hood (31:46):

Has PE started to cross the border? Yeah,

Philip J. Whitman (31:48):

Absolutely.

Bob Lewis (31:49):

A hundred percent.

Philip J. Whitman (31:50):

Absolutely. Absolutely. We're working with a firm in Canada. Gentleman was actually in the United States and went to Canada. He's a transfer pricing guru, and he's like, you know what? We merged with another firm and now what we want to do, we want to buy accounting firms in the United States. I think there's going to be a global movement. We're working with a number of cybersecurity companies, one in the UK, one in Australia. And the reality is they got great clients, it's great revenue stream, great advisory service offerings. And look, COVID has taught us the world is flat. We can go anywhere.

Allan D. Koltin (32:35):

We have one that's final due diligence in the under $50 million category in Canada. Now that I'm talking about it, obviously it'll die. And then one that's in the over a hundred million, it's a little bit of a different market. The good news is you don't have lots of public companies, but there's a lot of high net worth owner operator privately held. It's a great market.

Bob Lewis (32:59):

And it was at an event with a couple of partners at a pretty high performing firm in the UK and it's all over. It's private equity center that market quite some time ago. So,

Daniel Hood (33:11):

I want to pause on the questions from you guys and take a minute. So I know you've all been paying attention to what's going on and throughout the event, and I wanted to sort of get some of your takeaways, take a few minutes each to talk about your takeaways from what you've heard today, from what you've heard in the conversations in the hall on stage, et cetera, et cetera. Allan, maybe you can.

Allan D. Koltin (33:31):

Yeah, let me go last. This has been a tough day. Some of you know what's going on. So my daughter was in a car accident. She's fine. But that happened this morning. Lunch. Our office, as most of you know, is just across the street. Yours truly fell and fell on my back and my neck. But you know that last piece where you don't bump your head, so I didn't bump my head, so I'm okay, but as if that wasn't all bad enough, I felt like a cold coming on or something. So I took a COVID test and I got COVID, but I didn't want to miss this guys.

Daniel Hood (34:13):

So yeah, you want to sit here?

Allan D. Koltin (34:14):

Yeah,

Daniel Hood (34:14):

I was going to say that.

Philip J. Whitman (34:17):

Sit on your lap today.

Daniel Hood (34:19):

Yeah, well that's when his string of bad luck started when you tried to set up. I'm glad to hear everything's okay. We'll be thinking about your daughter. Hope everything stays. All right. Glad you are. All right. But all right, so you want to weigh in last on this?

Allan D. Koltin (34:34):

Sure. While the brain's still working, who knows where it's going to go here? So a couple of things. I think the four of us and the whole accounting today team, we wouldn't have done this conference if we didn't believe that PE was validated. But what I think every session produced is it validated it for all of you. And as accounting today and other news media talk about this, there's lots and lots of stories. And so I leave here thinking almost it's not the PE summit, it was almost like the PE validation conference, but then I say it's bigger than that. Maybe it's the Accounting Today Transformation Conference

(35:19):

Because your head should be spinning, like our heads are spinning every day, so many different options. You start out with the basic of mothership, roll up, ESOP wealth management, and then you have sub chapters of how each one of them is different. And then you may even say, Hey, I want to be that foundation firm even though I'm not a big firm. I mean it's endless. And I think as we all wake up every day, we all say the same thing. I didn't see that coming. Wow. So we stopped judging. I think the other thing I would offer up, if I could only coin one quote or comment, I think I would take the one where there was a discussion about, sorry, the medical practices and how PE chopped it up. Do you remember there was the From

Daniel Hood (36:17):

The breakfast briefing?

Philip J. Whitman (36:17):

Yeah, the doctor services went like this.

Allan D. Koltin (36:21):

And how that group held court and said, that's not our profession. And then when you're all talking about all these other industries, we knew search wealth management, insurance brokerage, advisory consulting, and then I forgot about architectural and engineering firms. These are all people businesses that have been going on. So yeah, I'd love that. The other thing I would just offer up is we talked about EBITDA and it's all about EBITDA and there's so many creative ways to get to a number. We talked about synergistic savings of the acquirer that weren't there on day one, but now they got to make a deal work. We talked about some of your older partners, age 55 to 64 it they know it and they know, you know it that they're just in cruise control. They're just buying time to get out of there. And now you can show up and say, have I got a deal for you? This is what you get if we do nothing, but this is what you get. Now if we do something, take one for the team. Let us take your million dollar comp, replace it with someone at 400, and let us take some of that and move it into EBITDA.

Daniel Hood (37:41):

Yeah, excellent. I want to say, I mean, you're correct in pointing out that all of us has everybody's head spinning, but seriously, if your head is spinning, it may have been the full. So just please use the handrail, be very careful. We want you back next year. But all fantastic points. Gentlemen, I don't know if either you want to weigh in with some thoughts on takeaways,

Bob Lewis (38:02):

Takeaway Michael Jordan, Chicago Bulls number 23 as a 23 ounce steak, which is extremely hard to eat. I just want to share that with you. First takeaway, guys, you look at that joke panned out dead completely, not a hit. I thought it was fine. Okay, thank you. Massive division in knowledge and experience in what's happening out there. Again, the larger entities are much more probably groomed in this. They've had more experience in dealing with the transactions, the smaller community out there. When I find a smaller community, I'm going to go with a $40 million on down firm and a 40 million firm is a good sized firm. Often they do not have the right story or the right experience because we've been in meetings with some very large firms that just don't even understand the pieces. I would say another takeaway on this is that private equity is not going to stop.

(38:51):

I mean, we're all in agreement that it's going to continue. The question is, will it take some turns? Will it start to go into smaller markets? I mean, once we exhaust the top 500 firms or the top 1000, will it be other firms that'll merge? Will niches create, that'll also fall into the pe? Not sure economics of a deal is not clear. I think how the structures work, gentlemen, before we've asked about debt and people have asked about the scrape. I've had meetings out in the hallway with people who go, they're not exactly sure how you get to the scrape, which is a basic element in this. And then this seems like working capital and other components in the transaction. The other part is just some market confusion created by some of the players in this industry right now who are learning it. Some of the outside investment groups that are trying to learn the industry are maybe confusing some of the firms with different terminology and or just different deal structures,

(39:47):

Phil.

Philip J. Whitman (39:48):

So first and foremost, whether you're a private equity group or a CPA firm, you should give yourselves a round of applause. You're here, you're here. You've built some amazing things for the PE groups. You're here to make change, positive change for the CPA firms. You're curious. You want to know what's going on. Is it possible? Is it probable? Can we get down the road? Today is a historic day, not only because Bitcoin hit 99,000 today, but when I think about what accounting today has accomplished, this is all about education. And I think for all of you out there, I saw some great discussions going on. I saw a tremendous networking and I think somehow some way it would be wonderful. Okay, if I saw some of you firms taking the steps to get yourself ready for this, to really prepare because I really think that it's not going away.

(41:11):

And as Allan mentioned, whether it's private equity or family office or wealth management, your journey will not be a straight line. And picking up on what Bob said, if you were to climb Mount Everest, you would have a Sherpa. Someone would guide you along the way. Hopefully you'll do this once in your lifetime and you'll do it right. And whether you work with Allan or Bob or us or somebody else that's not in this room, you owe it to yourself to do it right, to explore, to know everything that's out there and available to you. Because I think this conference just gave you a glimmer of what's going on at this very moment. And we will continue to see changing models. Bob talks, he mentioned a couple times, working capital. Okay, well

Bob Lewis (42:18):

What's that?

Philip J. Whitman (42:18):

What is it? Do they take it? Do I keep it? Do I keep my balance sheet? How much of it do I have to give up? There's so many different characterizations of the components that are involved in coming up to, what is that? TEV Total enterprise value. I don't know if anyone saw my post. It wasn't Tevye from Fiddler on the roof. But in any event, this is an opportunity. You are all smart people. I'm a fan of it, but take a multi-pronged approach, explore. And it may not be right for you, it may not, and your firm may not qualify because you might not have enough earnings to do it, but you owe it to yourselves to continue honing your knowledge because they're staying, they're here. Yep. Phil's point about

Bob Lewis (43:26):

Not having enough earnings, one of the things they consider is if you go through the process and you realize your earnings aren't really at the place where it needs to be, what's the next step in how to build the enterprise value of the firm to either get yourself ready, even if you never decide to execute, you should be operating at that level anyway.

Daniel Hood (43:41):

Allan, sorry. I know you wanted to.

Allan D. Koltin (43:42):

Yeah, so just a story. It hits me as I look up at the room and you're all leaders. You're leaders in business, you're leaders in life. You have the courage, you have the conviction, you have the will to win no matter what. And what we all know is if this were so easy, you would've done it already. But you have something called a partnership. And I think for many of you steering the ship, this is going to be the ultimate challenge of what you do. And that's not a pitch for private equity. It's a challenge to take a successful group of partners and to steer them maybe in a direction they haven't even considered. I'll offer up a story from two weeks ago. I was at the Markham CBIZ partner meeting. I guess we called it the celebration meeting. Matt, are you still here?

(44:38):

I can't see. There are. Okay. And I don't know how you felt about this, but we had the fireside chat and we had Jerry Risco and Chris Burillo and Jeff Wiener. Jeff's a bit of a personality. If you know, Jeff and I asked the question of them. I said, in leadership to be successful, you got to get the crap kicked out of you and you got to be willing to come back for more. When someone says to me, always, business is great, what? You're full of it, you're lying to me. Or You're not playing the game or you're not trying that hard. And Jerry Grisel told the story about the darkest moment in his history.

(45:20):

The stock when he got there was trading around 18. It was late 1990s. Stock was supposed to go to 80. The stock went to one. I didn't realize it, but he said the stock actually went below one. And in a public company, when it goes below one, you almost get delisted. And he talked about the resiliency to take that stock and bring it back to life and make the hard changes and how you rally a team around you. And I remember when that stock got to seven, it was a thinly straighted stock. I went to 2011 with Steve Ardi was then the CEO and Chairman and we went to New Mountain Capital. And it's sort of a funny story, Steve Gerard, we ordered breakfast and he said to the new mountain leadership, he said, our stock is seven. If you're not willing to give us nine, we don't even have to bring the breakfast.

(46:15):

Save some money. New Mountain said, well, as long as you're going there, we'd still like to have breakfast. We do, but we think at eight, that's a fair price. We ended up eating breakfast and we all went our own ways. That stock, which was seven in 2014, closed today at 78. Maybe New Mountain should have made that deal at nine. But it's the resiliency of coming back. Jeff Wiener sold all the partners, sold everyone in his firm that they aren't doing a private equity deal. And on July 1st, 2023, the deal's done. We're talking about how to roll it out and all that and that kind of stuff. And then it happened. The regulator's report came out 10 million to the SEC 3 million to the P-C-A-O-B and a scathing letter addressing SPACs and other related things. It almost felt like to do anything, there's like a court appointed monitor looking out over you darkest moment. And you know what? He never verbalized it, but what I'm sure he said is we're not worthy. Private equity doesn't like the fact that we're the fifth largest public company auditor. They don't like that. We do audits in China. They don't like that we do SPACs. They don't like that we do crypto and they don't like that we do cannabis. But other than that, they like us.

(47:49):

And he's in the darkest moment maybe of his professional career. And what does he do? He gets the shredder, he burns the file and he wakes up the next day and says, we're going to do something different. And about two weeks later, one 800 CBIZ is there and 12 months later a record deal, a success for them. So leaders, the message is this is not easy. Getting accountants, getting partners to change is hard, but don't back down. You're leading your ship. Lead it in the right direction.

Daniel Hood (48:28):

Excellent. Alright, we've got just a couple of seconds. Bob, you want to weigh in real quick or

Bob Lewis (48:31):

The only thing I'd have to add into any of this stuff is probably our biggest enemy is time. We let it slip away. We wait too long without making decisions. Some decision needs to be made during that process. It kills me time's my biggest enemy by far, other than many other things like bad food, but that's a whole separate issue. Again, the joke bomb, what can I say? Alright, tired audience.

Allan D. Koltin (48:50):

What happened Bob?

Bob Lewis (48:52):

I appreciated it. Yeah, the guy with COVID is laughing. That's great. Go then.

Daniel Hood (49:00):

I think, unless do we have any more questions? I think on those notes, multiple notes, the leadership point I think is fantastic. This is all the choices. And I think that's maybe one final quick thought is that PE is a solution to a series of problems and that's what leaders need to be looking at is what are problems, challenges, opportunities. P is one answer to them and a great answer. In many cases, the capital they bring, the expertise they bring is fantastic. There are others. What's really required is the leadership to follow through on those and to examine those clear-eyed way in a clear-eyed way to explore all the opportunities and to go from there with that. Again, P is a great opportunity for that, but it's the identifying those issues, opportunities and challenges and then figuring out where to go from there. And with that, I think you've gotten a lot of great advice all through the last day and a half.

(49:50):

I want to thank again our co-chairs. Awesome job gentlemen. Thank you so much. Not just on stage here, but helping us set this up and figuring out what it should look like and how it should work. So this was spectacular. I want to thank all of our sponsors who helped make this happen. Super valuable to that. The list is too huge to mention, but there's a great big poster of 'em outside. I would thank all of them. I want to thank particularly our team, Heather and Anisha and Lizette and Faith, and Becky and all the people who made this work very, very smoothly. Our AV team back there, making sure everyone was micd and that could be heard. And I want to thank all of you for joining us and we hope to join us next year. We hope it to be bigger to be focusing on whatever the space looks like next year. I think we can all agree it will look very different. But with that, thank you all for joining us.