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2022 M&A Trends: CPAs and Accounting Firms

By March 24, 2022No Comments

“Upward mergers,” or smaller CPA firms merging into larger firms, reached record levels in 2021, and the trend has continued into 2022. The desire of small- and mid-size CPA firms to expand their advisory services, a shrinking professional pipeline, and the increasing cost of tools have fueled the increase in upward mergers. However, The CPA Journal notes that the 2021 growth rate of mergers and acquisitions was uneven. Firms with net fees greater than $20 million saw merger growth decrease by five percent. In comparison, firms with net fees of $5-10 million saw a five percent increase, and firms with net fees of $2-5 million saw a dramatic 53 percent increase.

Why Merge Upwards? 

The Rhode Island Society of Certified Public Accountants interviewed some of its members about the trend to merge upward and the reasons they gave are common among their counterparts nationally. The RISCPA article notes, “These days, it’s not just about tax returns and audits. Clients are looking for consulting services, wealth management advice, and international trade and cryptocurrency expertise. A small firm would be spread too thin to provide it all.” The article also cites the expense of data analytics software and the challenge to keep up with tax laws that frequently change among the motivations to merge. Even a small CPA firm can no longer get the job done with a pencil and a calculator as was possible only a few decades ago.  

Expanding advisory services can also be a strategy for dealing with the issue of a decreasing pool of CPAs. Firms can increase revenues from their existing client base by offering related services. Merging upwards with a firm that already has a full suite of services may be more appealing than developing it from scratch.  

Succession issues can also figure into the calculus—aging leadership with an inadequate succession team and a dearth of new talent in a firm’s pipeline can threaten the firm’s viability. Merging upwards with a larger firm that has the desired resources and personnel can make good business sense. In addition, it helps secure the retirement of the firm’s senior leadership. The succession issue has reached a boiling point for many firms, accelerating the trend to merge upwards.  

Banks Respond to the M&A Trend Among CPA Firms 

Bankers have responded to the trend. For example, last November, Oak Street Funding doubled the lending limit for its customers, including certified public accountants. The increased lending limits are meant to support mergers and acquisitions, successions, technology investments, and growth-focused initiatives.  

The Challenge of Attracting New People to the Field of Accounting 

Underlying the trend to merge upwards is an issue that faces the accounting profession overall: fewer people are becoming certified public accountants. In The State of the Profession: Predictions for 2022, The CPA Journal interviewed several professionals in the field. Richard C. Jones, Ph.D., CPA, a professor at the Hofstra University Frank G. Zarb School of Business, focused on this issue. Professor Jones identified attracting young people to the profession as the biggest challenge. He cited the competition with career options that are more lucrative, such as the related financial services industry, or had higher brand identification, such as information data analysis. In addition, he noted that college enrollment has been declining for the last several years because of the cost of higher education. This decline will accelerate in the next few years because of the declining birth rates in the United States.  


Michael Callam is president of Gertsburg Licata Acquisitions. He can be reached at [email protected] or (216) 573-6000 x7003. 

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