What Happened to Regional Accounting Firms?

When I was starting off my career in public accounting, I had the choice of pursuing careers at firms of varying sizes. Obviously, the big four have a large enough footprint to provide opportunities to students in most areas of the country, which was one option for me. On the other end of the spectrum, smaller firms of less than 30 people were also an option. I found myself choosing something in the middle, a regional firm that had between 150 and 300 people. Back in 2016, that was not an uncommon occurrence, and I can confidently say that there was two to three of those firms within a commutable distance of my home. Today, none of those three firms exist as they did in 2016 and today, I'm going to briefly tell you why. 

What Happened? 

Mergers and acquisitions. All three of these regional firms where I could have started my career have since merged with or been acquired by another accounting firm. If you're interested in some of the benefits that these mergers bring, check out my other blog here. In some cases, those firms have had even more acquisition activity after the initial change. 

Who Makes These Decisions? 

Like any other decision in the business world, the owners of the business (in this case, the partners) are the ones responsible for holding a vote and following the trigger on whether or not to merge with another firm. This is important to remember because they will act in their own interest and not the interest of you, the young professional. There may be some corporate communications or rationalizations that come out saying why a certain merger is a great opportunity for people, but just remember that the decision was made because the partners thought it was in their interest to do so. 

Why Would They Do This? 

Money. Under the partnership model that many professional services firms use, these partners are a part of a system that allows them to buy into the firm and share in the profits. When it's time for them to retire, they can sell their share to a new partner and may even get some kind of retirement benefit like a pension (although this is not as common nowadays). However, changes in the profession as well as the general economy have made it challenging for the existing partners to sell to the next generation. These partners have figured out that their share in these firms will be more valuable if they join to become bigger. Even a smaller share in a bigger firm with more partners, more resources, and more access to capital (including private equity investments) would be more valuable than a bigger share in a regional firm. In the process of these mergers, some partners are even able to cash out and retire early! 

Why Do You Care? 

I fundamentally care about firms this size because it's where most of my experience comes from and they provide a healthy balance of training, work-life balance, and diversified client exposure that has allowed me to become a successful professional. Everyone has different career priorities and therefore a different career path, and these firms offered the things that I cared about most. While most of the benefits are still there, I know for a fact that some of these firms have done away with the things that made them special. For example, the firm where I started my career had a formal program that allowed me and all the other people, I started with to rotate between industry groups and choose where we wanted to specialize in the next step of our career. That program is no longer in place and I'm sad to say that if I refer someone to that firm, they won't get the same opportunity that I did. 

In addition to the small firm culture, it's important to understand that this is a natural evolution of firm structure because I don't think there were enough people who wanted to become partners in the same way that the generation before had. These changes to firm structure have a cascading impact on the career trajectories and compensation philosophies that need to be employed to to train and retain the best talent for working with small and middle market businesses. Only time will tell if these changes in firm ownership represent a significant adaptation in the industry or are just a fresh coat of paint on an already existing section of the market.