As seen in Inside Public Accounting
By Mark Loehrke

According to many veteran observers of the accounting profession, the infusion of private equity has the potential to be a game-changer. In this second installment of a three-part series, IPA interviewed Citrin Cooperman Co-Founder and Executive Chairman Joel Cooperman about how he drew on Citrin Cooperman’s long history of dealmaking when private equity came calling.

FINDING THE RIGHT FIT AT CITRIN COOPERMAN

While he had heard plenty of rumblings about the newfound interest of private equity firms in the accounting profession by early 2020, Cooperman hadn’t given the prospect serious consideration for New York- based IPA 100 firm Citrin Cooperman & Company (FY21 net revenue of $351.8 million).

“We had our reservations about it like everyone else at that time,” says Cooperman, the firm’s executive chairman.

Even so, by late spring of that year, a West Coast private equity firm approached the firm, sparking months of serious discussions and what Cooperman calls a “significant” offer. But if there’s one thing that he and his team learned over years of completing their own M&A deals, it’s that there’s more than just money at stake — everything has to fit.

“One of the things we really paid attention to in those negotiations was what level of autonomy we would end up having, because that’s always a big question,” Cooperman explains. “And everything sounded good until we started to get into the nitty gritty and we found that they were somewhat inflexible and controlling. So even though the money was significant, our team didn’t feel that it was a deal that would ultimately work well for our company and our people. That’s the reason we pulled the plug.”

That derailed deal wasn’t the end of the firm’s private equity journey. Very shortly thereafter, discussions were underway with a new potential partner — one that Cooperman had personally known going back almost a decade — New York-based New Mountain Capital. With several issues that had plagued the previous deal resolved painlessly in just a few meetings, this negotiation featured the kind of easy give-and-take that led Cooperman and his team to strike a deal in October of 2021.

Since then, Citrin Cooperman has seen the kind of substantial liquidity infusion that is inherent in these private equity transactions. (Also inherent, Cooperman says, is a valuation higher than the standard number for a CPA firm). The deal also afforded the firm an opportunity to borrow money and seek out more M&A possibilities. Citrin Cooperman has acquired 10 firms since late 2021, including its recent blockbuster acquisition of fellow IPA 100 firm Berdon LLP (FY21 net revenue of $132.5 million) in early February. The firm has also upgraded its technology dramatically. But there’s even more to the transaction than those headlines, Cooperman says.

“The hidden thing that the deal gives us is more strategic thinking and more strategic structure,” he explains. “New Mountain has these half-hour meetings once every few weeks to discuss how to move the company forward. Their team is really varied in their skill sets and very collaborative to work with. And that has given us a lot more structure. They’ve given us a lot of opportunity moving forward.”

While Cooperman says the alternative practice structure required by the deal — which separates the attest and non-attest sides of the business and sets up independence checks and client acceptance procedures — doesn’t affect the firm’s ability to grow the advisory business, he admits that it does present challenges. And in terms of growth objectives, he says that while New Mountain certainly appreciates Citrin Cooperman’s organic growth, it’s clear that private equity is interested in the accounting profession for other reasons.

“What they’re really looking for is acquisitive growth,” he says. “To that end, they want M&A in both the accounting and advisory spaces. And thus far, they’ve been very happy with that.”

That said, while New Mountain may have been happy right from the start, it wasn’t always a similar scene inside Citrin Cooperman. Like any other major change, Cooperman says the deal wasn’t an immediate slam dunk for everyone.

“Initially, I had a head of black hair and a full beard,” he jokes. “Look, accountants are what they are — they’re typically very slow to change. And for that reason, there was a lot of hesitance to doing a private equity deal based on what people had been hearing throughout the profession. There was a certain level of fear. But we ultimately were able to convince our executive committee and then all the partners. I wouldn’t say that everybody initially — or maybe even to this day — embraces it, but when you weigh risk versus reward and good versus bad, this deal has turned into a tremendous opportunity, not only for our partners but for the future of the firm overall. That said, there was a lot of work to do — I won’t pretend that there wasn’t.”

For other firms looking to put in that work and explore the possibilities of private equity, Cooperman says the most important aspect of a potential deal is actually very similar to what it would be in any other M&A transaction — the rapport between collaborative and cooperative partners. Fortunately, that’s one area that Citrin Cooperman knew very well coming in.

If you pick the wrong private equity firm, it’s a nightmare waiting to happen,” he says. “We were fortunate to pick a very good partner for us and I’m really appreciative of that, because I know things could have gone the other way. In my history here, we’ve probably entered into more than 50 deals with accounting firms— and over that time, we actually rejected many more deals than we did. So when it came time to talk to private equity firms, we were able to see through all of those negotiations how people behaved, which definitely helped us. In the end, we stuck to what we’ve always believed — we chase people, not profit or revenue. We want people who want to work well with us.”