Rankings Report: US
Unprecedented demand for transactional advisory services for US accountants
While industry experts are optimistic that the US accountancy industry can be confident of growth in 2022, inflation rates, recruitment problems and a hot M&A market are causing some growing pains. Che Golden reports
lient demand for accountancy services in the US is higher than ever but this does not mean the US market is an easy one to navigate. Interest rates are at the highest point for 40 years, while a skills shortage could last for some time due to a lack of accountancy graduates. A hot M&A market is leading to consolidation in the industry and a diverse approach to the pandemic state by state means that not every business is operating on a level playing field when it comes to getting back to growth.
New areas for growth in the US market still continue to be legalised cannabis and ESG related matters. David Kessler, CEO for CohnReznick, a Nexia member firm, predicts that as more US states legalise cannabis this will continue to benefit entrepreneurial businesses that enter this industry and provide new service opportunities for the accounting industry. While the renewables market is still emerging, Kessler says the US market continues to see steady growth in both community development and renewable energy, driven to some extent by US businesses adopting new ESG strategies to address stakeholder demands.
"Our firm is in the process of launching services to help investment firms and other businesses develop and enhance their ESG plans going forward," he says. "We are experiencing unprecedented demand for transactional advisory services as investment firms look to secure deals involving companies in many different industries. We are also seeing higher demand for outsourced and managed services for data and technology solutions, day-to-day tax services and operational support, and a range of risk management services. Finally, we have seen unprecedented growth in services for government agencies – many driven by federal programs designed to provide businesses and individuals with Covid related financial relief."
However, while cannabis and ESG are the hot topics in the US, demand within these markets differs from region to region. David B. Yeghiaian, chief strategy officer for KerberRose, a PrimeGlobal partner with offices in the Midwest, has not seen much demand in these new areas. Instead, his firm has concentrated on areas such as wealth management, human resources, and succession planning. He has also seen a boom in human resources services, due to customer growth and increased HR policy complexity. For Calvetti Ferguson the busiest market over the last 12 months has been in transaction services. "There is a lot of capital out there and people are trying to use it," says Jason Ferguson, managing partner. "There is a lot of fatigue with entrepreneurs. After facing the pandemic some are ready to divest so there are many willing sellers and hungry buyers driving the demand for this service."
If you measure the health of the accounting industry by revenue growth driven by client demand, then the US appears to be in a very good place.
"The good news is that fees for these advisory services are generally higher than those for traditional assurance and tax services," says Kessler. "But fees are increasing across the board as firms look to offset some of the rising cost of implementing new technologies. Recruiting and retention continues to be the primary issue for the industry in the US with intense competition for talent among public accounting firms and with private industry. This has caused salaries – even for more junior level personnel – to increase significantly along with the need for firms to provide more comprehensive employee benefits including work- from-home options."
Calvetti Ferguson, a Prime Global firm, has actually been able to increase fees by 20 per cent over the last 12 months, due to higher demand from clients. But Jason Ferguson, managing partner, agrees with Kessler that recruitment and higher salaries is putting a strain on accountancy firms. "When it comes to retention in the accounting industry, it differs by region and level," he says. "We’ve noticed that it has become more difficult to retain managers and above and comparable for seniors and staff. There is a shortage of talent."
co-managing shareholder of Hellam Aron & Co
The lack of students taking up accountancy majors is also a worry as it means the shortage of talent will be something that continues to dog the industry for years. "There continues to be a decline in the number of accounting majors in college along with accountants burning out in public accounting and moving to industry," says Lisa Hayward-England, co-managing shareholder of Hellam Aron & Co, an MGI member firm. "The interesting thing to me is that everyone talks about how remote working expands the available talent pool. It is true that you can now find great hires outside your regional area but there is still the same number of qualified CPAs out there but now even more firms are competing for them. While we as a Seattle area firm have been able to add remote staff from other areas of the US, that means a firm in that area has had their pool reduced. That is not good for the overall industry."
One way of bumping up salaries of new recruits and making the industry more attractive could be re-structuring accountancy firms with private equity (PE). Michael Breit, CEO of EisnerAmper, an Allinial Global firm, claims TowerBrook Capital’s partnering with EisnerAmper last year changed the landscape and future of accounting, tax and advisory firms forever.
"Accounting firms are typically structured as partnerships with capital coming from the partners," he says. "But PE replaced partners’ capital with their capital, giving firms more resources to grow and expand, without going into the partner's pockets every time capital is needed. Our firm now operates under an alternative practice structure, a structure that will become more common in 2022. The PE model has accelerated the ultimate monetisation event, which is incredibly appealing to younger staff. Partners will own stock and options instead of their contributed and accrued capital that typically gets paid out at book value at retirement with no interest."
Merger and acquisition activity continues to be at the forefront of the US accounting industry.
"The first reason there is so much consolidation is that there are larger and larger firms that have holes in their geographies that they are trying to fill in, including the top 25 firms," says Ferguson. "Another reason is that many firms have retiring partner challenges, which happens when firms start acquiring other firms and they must take on the partner’s retirement obligations which causes them to reach a fork in the road. Consequently, the firm must decide if they are going to stop their acquisition activities, pay down their retirement obligations, or have constant M&A to get larger and larger, then have a constant retirement obligation."
Ferguson believes the trend will continue but any time there is over consolidation within an industry, it always corrects itself, allowing smaller firms to grow rapidly and gain market share. "Clients are going to find themselves with huge national and international firms that are not a good fit for them," he says. "Ultimately, there will be lots of opportunities for smaller players to grow."
In terms of future growth, the US economy as a whole is looking at a bumpy road back to growth. Over the next year, there are a number of issues that need to be addressed that will affect businesses and the population at large. Controlling inflation, reducing energy costs, maintaining a strong US economy and continuing to create jobs and employment opportunities for people and businesses are going to be the most critical areas that will have the greatest impact.
chairman of the board at Kreston Global and director at CBIZ MHM
"There are a number of challenges that we face today," says Rich Howard, chairman of the board at Kreston Global and director at CBIZ MHM. "First, businesses have been affected very differently depending on their industry and location. This has been because of varying responses to the pandemic, which have depended on the State, and in some cases, the cities or counties in which the company was located. Businesses that operated in multiple states across the US had to monitor and comply with multiple sets of rules that differed by location, were continually changing and highly unpredictable. Once businesses were allowed to reopen, many faced challenges with finding staff that were willing to come back to work or they incurred increases in wages to attract the talent combined with a variety of supply chain issues. More recently, energy costs and inflation rates are at record levels not seen in 40 years or more."
World events outside the pandemic are also creating their own pressures. Jeremy Jarrell, senior manager of professional and technical services for BKR International, says that firms will be closely monitoring any filing delays with the IRS to communicate with their clients for 2021 tax returns, while providing updates and guidance on the impact of the war in Ukraine and the effects of higher oil and gas prices through the next 12 months. "We will be curious to see if we can expect any return to a semblance of normalcy in a 'living with Covid' post-pandemic business world," he says.
In March, The American Rescue Plan Act was passed but while it promises an economic stimulus of USD 1.9 trillion, Jim Blake, partner and chief operating officer at Mazars US, feels the Biden administration's effect on business has been mixed. "The stimulus bill helped small businesses, individuals as well as state and local agencies," he says. "Since then, in contrast the annual inflation rate in the US is 7.9% the highest in 40 years. The increase in demand is causing supply constraints, labour shortages and other matters causing increase in prices across all industries and is significantly affecting the consumer household. It is expected the Federal Reserve, the central bank of US will increase interest rates several times during 2022 to manage the high inflation rate."
However, despite these clouds on the horizon, Kessler remains optimistic. "We still anticipate substantial growth in the capital markets arena since so many investment firms continue to look for quality deals and need to put their capital to work. The country’s Infrastructure Investment and Jobs Act (IIJA) legislation is pumping USD 1.2 trillion into rebuilding the nation’s infrastructure which could be a boon for the construction, renewable energy, government contracting, and other industries."