The rumor mill was buzzing last fall with news of “the letter.” A Big Five accounting firm was said to be circulating word that all clients with annual billings below $100,000 would be gently shown the door.
“In this town alone,” said one senior dealmaking attorney, Chuck Emrick of Calfee, Halter & Griswold, “that cuts out 20,000 small clients. That’s a bonanza for smaller [accounting] shops like Ciuni & Panichi, Meaden & Moore and Cohen & Co. And Ernst & Young won’t be far behind” in chasing middle-market clients, he predicted at the time.
After all the dust settles, though, some insist the accounting landscape won’t really have changed all that much, letter or no letter.
The natural parallel is to the situation after the KPMG Peat Marwick merger of nearly a decade ago, says one observer. The larger firm promptly began shedding its middle-market clients, either by intentionally pricing itself out of the market or by advising clients to go elsewhere for accounting services.
“When they did that, there wasn’t a big shakeout,” recalls Gary Zwick, a former Cohen & Co. tax attorney who now hangs his hat at the Cleveland law firm of Walter & Haverfield. Besides, even if the smaller accounting firms want to acquire that business, he predicts, they may have to grow larger themselves through acquisition to properly service the accounts.
In any event, at least one industry veteran believes the Big Five would be short-sighted to focus all their energies on the largest clients. What about developing their pipelines of future large public company clients? Forrest Hayes, formerly head of Arthur Andersen’s Cleveland office, and now a private investor, predicts that, in time, the large accounting firms will come to their senses and change their minds. “If you don’t serve the middle market when they need you,” he says, those clients won’t come back when they grow larger.
“There are New York Stock Exchange and NASDAQ companies in this town today that wouldn’t be around if we hadn’t served them” in their early days, he says.
Aside from that, though, he has deep reservations about the wave of consolidations rolling across the profession, with small- and medium-sized accounting firms being “rolled up” into much larger regional and national organizations.
“I really have my suspicions about accounting firms being part of a rollup. It’s such a personal business. You serve these clients one by one.”
