When Louisville-based accounting firms Chilton & Medley, LLP and Mountjoy & Bressler LLP completed their merger last fall, they gave Kentucky something it has never had before – an accounting firm approaching the size of the nation’s “top 100.”
The combined firm, which is now based in downtown Louisville, employs a total of 231 employees and 121 certified public accountants. The staff is divided among five sites: 192 in Louisville, 16 in Lexington, 13 in Covington, nine in Frankfort and one in Bowling Green. The merged firm is now twice as large as its nearest competitor, Dean Dorton and Ford of Louisville, with 63 accountants, according to the Kentucky Board of Accountancy.
“Most of our competitor cities have a large local firm with lots of resources. But up to now, Kentucky really didn’t have that. We had outpost offices of major national firms, but not a major, homegrown firm. This merger will bring that capability to the state – with accountants that really know Kentucky,” said Diane Medley, the former managing partner for Chilton & Medley who is now co-founder at the merged firm.
Sometimes, more really is more
Both partners said they felt they had taken their companies as far as they could go, and needed a big change to stay competitive. Specifically, they cited their customer’s needs for more industry specialties and more depth of services than their former staff was equipped to provide.
“At many points in both of our companies’s development, we had the opportunity to merge up into another large, national firm. We didn’t, because we believed we needed to focus on local talent, because they provide more value for our clients. Both of our businesses had topped out in our current structure.
So the merger allowed us to get to where we needed to go,” Mountjoy said.
Mountjoy said that when the companies started negotiations last year, they knew they had the right fit. The two organizations had very similar corporate values, had grown up locally, and had complementary skill sets and industry expertise. The merged company not only kept all the existing employees from both firms, but they have hired an additional two partners, Frank Farris and Kevin Heyde, who started February 1.
A rising tide lifts all boats?
A merger of this size in an accounting firm has the potential to have a tangible effect on the Kentucky economy, even for competing firms.
In a recent Business First article, Jerry Hurt, president of Deming Malone Livesay & Ostroff, one of Kentucky’s five largest accounting firms, predicted the merger would be good for his business too. When the merged company has inevitable conflict of interest issues between competing clients, there is bound to be “some fallout. So we’ll pick up some business from the natural progression,” Hurt said.
Saying there’s room for everyone to succeed in the accounting services marketplace, Hurt said he has no plans for major expansions, or for DMLO to merge with another larger firm. “We know the people at Mountjoy Chilton Medley. They are good competitors, but they’re also friends. We wish them well,” he said.
Mountjoy said their merger was made possible partly due to a change in the landscape of the accounting services market, which up until a few years ago, was dominated by satellite offices of major firms such as PricewaterhouseCoopers and Deloitte Touche Tohmatsu. These big firms have retreated from many second-tier cities like Louisville, leaving the field open for a more nimble and local breed of competitors. In addition to the Mountjoy merger, Springfield, Mo.-based BKD LLP has expanded into Kentucky.
Medley said Kentucky firms have a real advantage, giving clients insider perspective when it counts the most. They know where to advise a client to get the right permits, can steer them to the right people to call for special services, and have relationships with the local banks that help smooth transitions through necessary paperwork, she said.
“For instance, our senior people are active with the state of Kentucky, working to get our client’s point of view known during the current debate on tax reforms that are now in legislative committee. We know where companies can go to get state incentives and apply for other kinds of grants. We understand the state political climate, history and the local trends that can affect your business. It takes resources to do that. And out-of-state firms just can’t do it as well, because they’re not living it every day like we do.”
With a lower cost of living in Kentucky, the partners also stressed their ability to offer top-flight CPAs to clients for less.
Leading the way through hard times
Accounting services firms such as Mountjoy Chilton Medley go far beyond traditional “bean counting” accounting services, helping clients get to the heart of their biggest business problems. A staff of CPAs offers audit and assurance, tax compliance and planning, estate planning, and every manner of business consulting, from growth planning, to business valuation for sale, to corporate wealth management, to risk and fraud management. If anything, CPAs see more activity during hard times, as clients work to clean up their balance sheet and weigh their financial options.
Those options are strained not just by a down economy but by the regulatory fallout from the banking crisis in late 2008, Mountjoy said. “Our clients can still get credit at banks, but what used to take two months to approve is now taking 10 months, because they have to jump through so many regulatory hoops to get things done. For a company that needs a loan to expand or pay for essentials, this can be very hard on them,” he said.
Mountjoy also noted that banks are getting a bad rap for making bad loans, when not all of them may have been bad when they were originally made.
“Companies had projections and balance sheets that were based on times staying good. When the economy went bad, all the company’s financials changed, they were no longer a good credit risk. They defaulted, and in many cases, it was no one’s fault,” he said.
While certain realities of business are inevitable, Mountjoy said he hopes to use the size and collective expertise of his new merged firm to speak loudly for the interest of business, both on the government side, and in the local business community.
“One of the state’s biggest problems is thinking of itself as two separate worlds – Louisville and Lexington, and then the rest of the state. When we market the state, we need to market it as one big, interdependent business environment. When we talk to new companies about locating here, we need to show what a network of cities can do for a company,” Medley said.
Meanwhile, the partners agree the strong, unified CPA network they are creating may help the state take a step toward that goal. “We may not quite be a top 100 firm yet, but we’re within striking distance. When we look to the future, we can see it from here,” Mountjoy said.
Susan Gosselin is a correspondent for The Lane Report.