Podcast

Episode Round-Up

In this episode of the Growing Your Firm podcast, host David Cristello speaks with Todd Steinberg of Thrive Financial Group. 

David and Todd delve into the current state of accounting firm mergers and acquisitions (M&A), discussing the increasing presence of private equity (PE) firms as buyers. They also explore the strategic reasons for acquiring firms, including the desire for human capital, geographic expansion, and the ability to cross-sell services. 

Additionally, they touch on deal structures – highlighting the prevalence of rollover equity and earnouts (and how these can vary based on the buyer’s profile). Todd also provides valuable insights into current valuation multiples and the factors influencing them, including profitability and client retention.

This episode is packed with actionable insights – both for accounting firm owners considering growth through acquisition, and for those preparing for a sale. 

Guest Bio – Who Is Todd Steinberg?

Todd Steinberg is the founder and managing partner at Thrive Financial Group. With over 27 years of experience in the accounting and tax industry, Todd brings a wealth of knowledge, particularly in succession planning and business development.

A graduate of Rowan University (with a degree in Business Administration), Todd is also Series 7, 66, Life, Accident & Health Licensed. He’s been leading Thrive Financial for over 10 years – and he’s engaged with nearly every aspect of the M&A process, including:

• Preparing a practice for sale
• Valuations
• Marketing
• Negotiating deal structures 
• Facilitating financing
• Buy/sell agreements
• Transition assistance

In his role as Thrive Financial’s managing partner, Todd has been involved in hundreds of accounting firm transactions nationwide.

Episode Synopsis: The Latest in Accounting M&A

The Evolving Landscape of Accounting Deals

David and Todd open the conversation by discussing how the accounting firm market is changing. Todd highlights the influx of private equity (PE) investors who view accounting as a recession-proof and scalable business. Traditionally, accounting firms have acquired one another – but now, non-accounting firms are entering the market, which drives up valuations and competition. In many cases, these PE firms have a national strategy where they seek to establish “regional hubs.”

How Revenue Determines Acquisition Targets

The conversation turns tactical as David asks Todd about the minimum revenue threshold for firms to become attractive acquisition targets. Todd explains that while firms generating around $100,000 can be appealing to some buyers, at least $500,000 in revenue is generally necessary to attract serious interest. Private equity firms, in particular, typically focus on larger firms – often seeking those with revenues exceeding $2 million.

Strategic Reasons for Accounting Firm Acquisitions

Why would one accounting firm want to buy another? Todd explains that there are several reasons, including gaining access to talent, expanding client bases, and enhancing service offerings. He emphasizes the importance of cultural fit and client mix when considering potential acquisitions, as these factors can significantly influence the success of the integration process.

Why Human Capital Matters 

A significant portion of the discussion centers on the value of human capital in acquisitions. Todd explains how buyers assess the quality of staff within a target firm, including their tenure, roles, and compensation. He notes that retaining key personnel post-acquisition is crucial for maintaining client relationships and ensuring a smooth transition.

Deal Structures and Valuation Trends

The episode also delves into the structures of deals in the accounting industry. Todd discusses the prevalence of cash deals, often comprising 70% to 90% of the purchase price, with the remainder structured as seller notes. He provides insights into current valuation multiples, noting that traditional brick-and-mortar practices typically range from 1.0 to 1.35 times revenue, while virtual firms can command higher multiples due to their profitability and operational efficiencies.

Integration Challenges With Rapid Acquisitions 

Todd addresses the challenges private equity firms face when acquiring multiple firms in a short timeframe. He explains that successful integration requires dedicated teams to manage the process, and then he emphasizes the importance of maintaining client and staff morale during transitions. Todd also shares that many PE firms adopt a gradual approach to integration, allowing acquired firms to retain their identities before merging operations.

In closing, Todd encourages listeners to consider the long-term implications of their business strategies, whether they are looking to buy or sell. He invites those interested in exploring M&A opportunities to connect with him through Thrive Financial Group. 

Actionable Tips for Accounting Firm M&A

• Assess Your Firm’s Value: Determine your firm’s revenue and profitability to understand its market value and attractiveness to potential buyers.
• Focus on Client Mix: Diversify your client base and services to enhance your firm’s appeal, particularly by incorporating business clients and ancillary services.
• Consider Strategic Acquisitions: If looking to grow, evaluate potential acquisition targets that align with your firm’s goals and client needs.
• Plan for Integration: If acquiring another firm, develop a clear integration strategy to ensure a smooth transition and maintain client relationships.
• Engage in Succession Planning: Start planning for your firm’s future early, considering how to position it for sale or transition to new leadership when the time comes.

Minute-by-minute

00:00:00 – Introduction to Todd Steinberg and M&A in Accounting

00:01:06 – Current Trends in Accounting M&A

00:04:03 – Minimum Revenue for Acquisition Targets

00:05:51 – Reasons for Buying Accounting Firms

00:08:07 – Strategic Acquisitions and Niche Markets

00:12:05 – Rollover Equity vs. Earnouts in Transactions

00:14:10 – Valuations and Multiples in the Market

00:17:15 – Assessing Human Capital in Acquisitions

00:19:12 – Evaluating Staff Quality Before Purchase

00:22:11 – Outsourcing and Its Impact on Firm Value

00:24:10 – Integration Strategies for PE Firms

00:27:38 – Value Creation Strategies Post-Acquisition

00:30:00 – Cross-Selling Opportunities in Acquisitions

00:32:44 – Conclusion and Contact Information

Want to Learn More? Check Out These Related Articles

From Launch to Exit: Navigating the Acquisition Process w/Pawel Brzeminski

What This Owner Learned After 10+ Acquisitions and Divestitures w/Marcus Dillon, CPA

7 Accounting Firm Acquisitions in Nine Years w/ Cory Gayman, CPA

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