OFFSHORE TEAMS AN IMPORTANT CONSIDERATION TODAY FOR M & A IN ACCOUNTING INDUSTRY

01 Mar 2021  |  1641
OFFSHORE TEAMS AN IMPORTANT CONSIDERATION TODAY FOR M & A IN ACCOUNTING INDUSTRY

Mergers and acquisition activity accelerated from 2000 to 2010 in the tax & accounting industry as accounting firms sought growth by expanding their geographical territories, acquiring and developing service line specialties, or increasing their dominance in specific industry segments.  

It seems that every week, there is news of another mega-merger within the accounting industry. This pandemic has caused everybody to reflect upon who they are, what they want to be, and how they do their business A merger is more properly defined as a combination of firms whereby at least some of the owners of both firms become owners of the combined firm.
Mergers and acquisition activity accelerated from 2000 to 2010 in the tax & accounting industry as accounting firms sought growth by expanding their geographical territories, acquiring and developing service line specialties, or increasing their dominance in specific industry segments. 

Another interesting aspect of the current M&A environment is that larger accounting firms, especially those in the Top 100, are also looking at deals outside the accounting profession, such as in client accounting services, offshore staffing, wealth management, and even cybersecurity.


Below are the major mergers/acquisitions which happened recently in the Accounting Industry.

  • Aprio buys cybersecurity and IT staffing companies
  • EisnerAmper merges in St. Clair CPAs
  • UHY merges in PKK in Michigan
  • BDO merges in MBAF, FL
  • Citrin Cooperman merges in LGSH
  • Baker Tilly merges in Squar Milner 

What makes a firm attractive for M & A strategy?

We have found that firms looking to grow through a merger look favorably on the following characteristics:

  • High technology adoption.
  • Strong operating metrics, such as billing rates, productivity, realization, and profit margins.
  • Clients that pay and provide information on time.
  • Strong staff, and especially staff with long-term partner potential.
  • Good time records, even for owners.
  • A service model wherein owners are not the only ones who deal with clients.
  • Diversified Client base.
  • Monthly Recurring Revenue.

What is driving this M&A? 

  1. Client: Firms looking to expand their client base and leverage the current strength of their services, talent and expertise normally would always be open to M & A opportunities. Many larger firms have a geographic growth plan; for example firms in Manhattan may seek to expand into Long Island, New Jersey, or Westchester. In addition, some firms believe a presence in certain markets is necessary for their brand’s prestige. Advances in technology have made it easier for firms to operate in a multi-office environment; for example, Arthur Andersen recently helped a firm in the Washington, D.C., area merge with a firm in Florida.
  2. Competition is tight among the largest accounting firms as they look to set themselves apart in an industry dominated by six big brand names (Arthur Andersen, Coopers & Lybrand, Deloitte & Touche, Ernst & Young, KPMG, PWC)
  3. Technology that makes accounting more efficient and state-of-the-art business tools that wow clients are increasingly the differentiator.  It’s a technology and audits moving to artificial intelligence and machine learning and robotics, and concern about a major reduction in audit fees. Also, this next wave of technology won’t be cheap, and firms will need to make much more significant investments than in the past. So this fixed tech investment can be absorbed over a larger entity and definitely have some synergic advantages. The long-term strategy for your firm includes the possibility of a merger, you should continue to invest in keeping your technology up to the best practices in the profession — or you need to at least be open to adapting to the more robust technology environment your future merger partner uses.
  4. Talent is in short supply in the accounting profession; therefore, firms are increasingly using mergers to add talent for growth. The merger not only adds depth of staff and partners, but it can also create opportunities for growth, leading to better opportunities for internal promotion of talent.
  5. Increased Billing & Revenue:  For instance, partner billing rates in smaller firms tend to be lower than in larger firms. Many acquiring firms assume this reflects an overall problem with pricing for services in that firm. However, we have found that lower partner billing rates often are the result of partners' performing tasks that larger firms would assign to lower-level staff. By taking advantage of the better leverage a large firm possesses, the smaller firm's partners should be able to raise their billing rates without a dramatic impact on fees for that firm's clients.
  6. Offshore offices in India reduce down your operational cost to over 50%  and gets access to a global talent pool. All of the above firms, EisnerAmper, Aprio cloud, BDO, Citrin Cooperman, Baker Tilly, UHY, MBAF have their own delivery centers in India. This can benefit merged firms in three ways:
  • If the seller firm has offshore offices, then the buyer firm would expand on the strength of the Seller firm’s offshore offices.
  • If a buyer firm has offshore offices, then it would further leverage their offshore strength post-merger by pushing lots for work from the Seller firm, offshore and thereby driving cost down.
  • If both firms have offshore offices, then it will only help them to optimize and expand their offshore presence.

Phil Whitman, CPA is President of Whitman Business Advisors and has been helping accounting firms with M&A & consulting for the last 25+ years. Phil says:

“Whether staff is working remotely from New York or New Delhi, Boston or Bangalore, Miami or Mumbai; the reality is both are remote, but the latter saves a lot of money and helps you build capacity. And offshore staffing is no different than any of your existing employees working remotely from the US.”


You can watch Phil’s complete video here.

 

Well, the world has gone remote after the pandemic, and accounting firms are no different. So working remotely whether, from ‘Boston or Bangalore’, ‘Miami or Mumbai’, ‘New York or New Delhi’, is all the same, as long as your staff has the right skill set, attitude, and speaks the same language. With Offshore staffing, which may start as a stop-gap arrangement but also a potential long-term solution. It can help to build capacity, gain a competitive advantage, and also reduces your workload.
Why India? 
India is the country to choose for all offshoring services, whether it's accounting, payroll, information management, legal services, or other services. Accounting offshoring has been a rising industry in Asian countries such as India. After all the reasons for this accounting sector, India has been the most preferred destination when it comes to remote accounting work. India being the;

  • A second home to tech giants
  • A second home to fortune 500 companies, 
  • A second home to accounting tech giants.

Most commonly spoken language by Indian workforce, British influence & knowledge-driven economy. Some of the common examples of big shot Indian CEOs in top multinationals.

  • Arvind Krishna, CEO IBM
  • Sundar Pichai, CEO Google
  • Satya Nadella, CEO of Microsoft
  • Shantanu Narayan, CEO Adobe
  • Ajaypal Banga, CEO Mastercard
  • Rajeev Suri, Former CEO Nokia

All the above firms have offshore offices in India. 


Can Small and Mid-sized firms also benefit from this offshore staffing?
For the last 8 years, we at ENTIGRITY have helped 550+ accounting firms in building their dedicated offshore team that works from our secured office in India. 

 

Offshore Staffing Solution helps you save on costs, which you would have spent when hiring in-house employees, and improves service delivery capability.
We have successfully placed 1000+ offshore employees for accounting firms. We exclusively work with accounting firms and help them hire accountants, tax associates, tax seniors, auditors, admin support staff, managers, and all other accounting and non-accounting positions. 


Entigrity™ is a trusted offshore staffing partner to over 500+ accountants, CPAs, and tax firms across the US and Canada. Our flexible and transparent hiring model gives helps firms of all sizes to hire staff for accounting, bookkeeping, tax preparation, or any other task for 75% less cost. As a firm 'run by accountants, for the accountants', Entigrity captures the hiring needs of accounting firms most precisely, providing staff that works directly under your control and management, still, you are left with least to worry about compliance, payroll taxes, overheads or any other benefits.
 

About The Author
Senior Vice President

Mike is a CPA and has over 30 years of experience in thought leadership and mentoring. His experience and constant efforts in solving prevalent issues of accounting industry is his biggest stand out point. He has been instrumental in mentoring scores of entrepreneurial accounting and finance professionals to get up on their feet and convert their practices into successful ones. He has authored a book called 'Principles of High Performance Leadership'

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