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Friday, Jan 27, 2023
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Accounting Firms Feel ‘Era of Consolidation’

By ANDREW FOERCH Staff Reporter Certified public accountants identify a surge in merger and acquisition activity as the defining theme of the Valley’s accounting industry in 2020. Drew Grey, co-managing partner at Irvine-based Squar Milner’s Valley office in Encino, went so far as to call it an “era of consolidation.” Grey himself joined Squar Milner in November when it merged with Encino-based SRG, where he was formerly a managing partner. Now with 42 CPAs in the Valley region, Squar Milner has jumped one place from No. 7 to No. 6 on the Business Journal’s list of Accounting Firms. “There’s more consolidation of national firms with regional firms, and regionals with locals. It’s a countrywide process that’s been going on for the last year and will continue for three or four more years,” Grey said. He explained consolidation within the management accounting vertical has been driven by the initial public offering of the Bay area’s Focus Financial Partners in July 2018. He mentioned several firms with Valley presences have been scooped up by Focus, including Nigro Karlin Segal & Feldstein LLP, which owns David Weise & Associates in Encino, and Gelfand Rennert & Feldman, which has offices in Encino. As for the SRG-Squar Milner merger, Grey said it simply expanded the services both entities could offer to their clients. “Client service is the lifeline of a CPA firm,” he said. “(Squar Milner is) a single shop location that can handle a company’s bandwidth from inception to going public.” He added SRG lost “probably 20” significant clients over the years because it wasn’t licensed to do work for public companies. It lost its account with Rubicon Project Inc. when the digital advertising giant went public in 2014. That won’t happen with Squar Milner. Being with a bigger firm also means Grey can offer prospective clients more in-house specialty services including estate tax, international accounting and cost segregation – functions that used to be outsourced by SRG and that are typically too expensive to be offered by most small firms. According to Alan Kazden, a partner in the tax, audit and SEC departments at Rose Snyder & Jacobs in Encino, acquisitions today increasingly revolve around the buyer’s desire to enter certain geographic markets. And big accounting players are starting to see the San Fernando Valley’s value. “It’s kind of an entryway from the west Valley all the way up to Santa Barbara,” he said. “A lot of companies are moving out there. There’s a lot of biotech because Amgen is out there, a lot of technology companies.” With 32 Valley-area CPAs, Rose Snyder & Jacobs ranked No. 9 on the Business Journal’s list. Also driving consolidation, Kazden said, is the issue of succession. “Baby boomers that started firms in the ’60s and ’70s need to get out and retire, but they don’t necessarily have people inside their firm that want to buy their interest, so they’re forced to sell to bigger firms,” he said. Kazden said RSJ is one of the few firms that won’t buy or sell any time soon. “We’re not looking for that. Our goal is to be independent,” he said. “Not all clients want to be with a big firm.” Fintech factor At RSJ, financial technology, particularly artificial intelligence, is reframing the role of the CPA. “As machines are doing more of the traditional accounting work, people are looking to (accountants) to provide other levels of consulting that help with marketing and cybersecurity and growth,” said Kazden. “We become more like advisors to our clients.” He explained RSJ uses algorithmic programs for lower-level tasks such as searching a firm’s general ledgers to identify inconsistencies for audit purposes, as well as automatically entering data on tax forms. For CPAs, that means “less manual data input and more reviewing of tax returns and dealing with clients.” A similar shift is happening at technical advisory firm CNM LLC in Woodland Hills. “The two primary areas where CNM is using (fintech) are process automation and data analytics,” said CNM Partner Sanjay Sheth. “It’s certainly making things more efficient for us and for our clients.” By relegating mundane, repetitive tasks to an algorithm and elevating CPAs to perform more complex analysis work, CNM sees an opportunity to develop internal talent at an increased clip. With 47 Valley-area CPAs, CNM is ranked No. 5 on the Business Journal’s list, up one place from 2019. Grey and Kazden both said CPAs are preparing to contend with a possible tax law overhaul following the presidential election this November. “We’re nervous,” Kazden said. “If there’s a change, there’ll be a whole new set of tax laws coming out. Whenever that happens, it has a huge impact on the clients.” Grey added: “Change is a very profitable element for a tax-oriented CPA firm. But it’s not particularly good for the clients.”

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