FT published an interview today with Brian Becker, RSM US CEO and managing partner since 2022, in which he states RSM will not be jumping on the private equity train that some firms have embraced this decade. Who says the old partnership model is dead?
The $3.7bn-in-revenue firm had no need to bring in private capital to fund expansion or to allow partners to cash out early, he said, and he expressed scepticism about the business models being pursued by US rivals.
“We deal with private equity a lot and their goal is to get a return on their investment,” he said. “You have to realise that, when you take that type of capital.”
It was only a little more than two years ago that EisnerAmper became the first top 20 accounting firm to bring private equity into the mix. Since then, “private-equity investors have been buying their way into the world of accounting, planning, and advisory services” or so Journal of Accountancy wrote in February 2023. “The profession has been moving toward consolidation for a lot of years now. The pressure and intensity on mergers have been growing for the last four or five years. This is a continuation of the trend,” said Charly Weinstein, CEO of Eisner Advisory Group LLC, for that JofA piece.
We expect the next five years to be awash with private equity cash (and perhaps some scandals to follow as firm ownership slips out of the hands of CPAs) as more boomers retire en masse and talent-strapped firms combine forces to better compete. Someone mentioned the private equity trend in our open survey on issues affecting the profession in 2024, writing that the future of the profession “actually existing vs it all being PE owned and for tax and consulting” is a conversation that needs to be had.
Anyway, RSM. Becker referenced RSM’s past as a reason he wants to keep RSM in the hands of its owners.
Becker cited RSM’s own history as a reason for not wanting to follow suit. For 12 years until 2011, the firm — then known as RSM McGladrey — was part of the publicly listed tax preparer H&R Block.
“It made us into a national firm, which was great. Not so great is that [owners] look for an exit. We don’t want to be put in the position where we are trying to drive [earnings] after a certain period of time.”
The firm’s history is actually interesting. And a bit messy. In 2011, H&R Block sold RSM McGladrey to McGladrey & Pullen. Oddly, then-managing partner at McGladrey & Pullen Dave Scudder said in 2009 the “operational and financial model” with H&R Block that had been in place since 1999 “wasn’t working and “does not serve us well as we address our future goals of client service, opportunity for our partners, and continued growth.” See? Messy. That happens when you start chopping firms into pieces and passing them around.
Thing is, H&R Block later said it was RSM McGladrey that was a drag. You’re not breaking up with me, I’m breaking up with you!
Wrote Going Concern founding editor Caleb Newquist of the RSM McGladrey trade in August 2011:
This morning we learned that H&R Block would be selling RSM McGladrey to McGladrey & Pullen for $610 million. This reunion of the two firms is interesting because just a couple of years ago they couldn’t stand the sight of one another. These days, you might conclude that since they opted to rebrand under the name “McGladrey” that everyone has kissed and made up but we all know better. In all likelihood, there are partners on both sides who would rather set their CPA certificates on fire than work with the other side. The problem for the partners in these firms is that they probably had little choice in the matter, as H&RB seemed intent on cutting off the weak link:
[T]he top U.S. tax preparer looks to jettison the underperforming division and focus on its core business. H&R Block will finance about $65 million of the deal value as it looks to push through the sale of RSM McGladrey. […] In June, H&R Block’s new Chief Executive William Cobb told analysts that RSM’s falling profit and revenue were a drag on the company’s earnings, and that the unit and its troubles were on his “radar screen.” “(The sale) should improve overall corporate margin, as Tax Services margin in FY11 was 27.1 percent and RSM McGladrey’s was 9.3 percent,” Oppenheimer analyst Scott Schneeberger said in a note to clients.“H&R Block Was Pretty Eager to Dump RSM McGladrey,” Going Concern August 23, 2011
We’re going to need a heist board to keep all this straight. Or Wikipedia.
No wonder Brian Becker wants to avoid messy dealings with outsiders.
He also said RSM won’t be copying BDO’s ESOP either. “Any strategy that is dependent on saving taxes can be very short lived,” he told FT. “We don’t need capital and we don’t need a method to distribute income any differently.”
We get it, Brian, RSM has money. Even with nearly $4 billion in revenue the firm is quite a bit behind smallest Big 4 firm KPMG but secure in its place as the fifth largest firm for now. We hear FORVIS is gunning for them hard, they might want to keep their options open.
RSM rules out radical changes to accounting partnership model [Financial Times]