Cohen & Co.’s acquisition of Baltimore-based Arthur Bell in October moves one of Cleveland’s premier accounting practices to the forefront of accounting firms that work in the rapidly evolving, lucrative landscape of fund managers. It also creates an opportunity to compete in the rarefied air of the nation’s Big Four accounting firms.
“We’re one of only 11 accounting firms in the country to have more than 100 public company clients and they’re all related to this mutual fund practice that we really built and established out of Northeast Ohio,” says Chris Bellamy, co-president of Investment Industry Services at Cohen & Co. “We’re importing revenue into the region and exporting our labor.”
It was about eight years ago when Cohen & Co. had its first experience collaborating with Arthur Bell, which focuses its practice on the private fund space, including hedge funds, commodity pools and now cryptofunds.
“We liked the people and their approach to client service,” Bellamy says. “About four years ago, we started the ‘what if’ game. What if we came together? What would that look like? There’s really no other firm out there in the country, outside of the Big Four accounting firms that would have the depth and breadth of expertise we have in this narrow niche space.”
Here’s a look at how the deal brings Cohen & Co. closer to being a $100 million business, strengthens its position in the fund manager market and opens the door to future growth in the space.
A substantial opportunity
One bit of housekeeping before we continue with this story. While it was billed in most circles as a merger, Cohen & Co. CEO Randy Myeroff says his firm actually acquired Arthur Bell.
“You hear more about an acquisition when it's a larger firm and a smaller firm and they're scared to death about being perfectly correct legally when talking about what happened and how it happened,” Myeroff says. “In our case, legally, we acquired their business. If you look at governance and how we're going to work together, and literally how we're going to be net smarter, it was a very, very mutual deal. So it's one part legal deal structure and the other part is kind of business process.”
Whatever you want to call it, the deal was a direct response to the evolving mindset of investors, Bellamy says.
“Twenty years ago, people were either a mutual fund manager or they were a hedge fund manager,” he says. “Today, these clients generally manage both. Having the wherewithal and the skill set inside one organization to service both sides of the equation — both types of investment products — is extremely important as our clients are changing their businesses. We see a substantial opportunity to cross-sell each other’s client base right out of the gate.”
The combined firm will leverage Cohen’s expertise with Arthur Bell’s capacity to provide audit, tax and consulting services for hedge funds, commodity pools and funds of funds, among other investment vehicles.
“It was clear from the beginning that both firms love what they do, and it shows through our mutual dedication to our clients,” Myeroff says. “We are exceptionally proud of the talent and commitment of our combined teams, and the enthusiasm and collaboration that went into this process. The increasing complexity of the investment industry and market factors have placed tremendous strain on those in the investment arena. Combining key service areas within the firms has uniquely positioned Cohen & Co. to address the multitude of issues that can arise, so that each client can feel confident they are getting the best possible expertise and advice.”
It can’t be just about money
Business owners often look for cost savings or efficiencies that can be created through a deal to justify the transaction they want to make. That’s a mistake, says Myeroff, and can often lead to an acquired company that wants nothing to do with the buyer.
“Don’t try to justify a merger or acquisition because you think you’re going to save a bunch of money,” Myeroff says. “You have to do it for the right reasons. Do it because you think it will be net accretive in lots of ways relative to growth, what you have to offer and/or your level of technical expertise. Make sure you define success the right way and have the right timeframes. Patience is really important in this type of situation.”
Myeroff worked closely with Bellamy and the leadership team at Arthur Bell to identify how each side does what is does. How do they set goals? How do they approach the operation of their business? How do they define success?
“If one organization thinks success is how fast you can grow and the other organization thinks success is how smart you are and what a great job you do for your clients, it doesn’t mean you can’t have both as elements of success,” Myeroff says. “By taking the time to get to know each other and talk about our collective best interests, we came to find that we were exceptionally common in terms of culture, values and how we approach the market. We had common ideas of what success looked like.”
Too many headaches
While some dealmakers relish a challenge to step in and turn around a struggling company, Myeroff doesn’t fall into that group. He prefers to avoid the headaches that the turnaround process can create.
“It could be an inability to grow or attract talent or the lack of a succession plan,” Myeroff says. “That’s a typical driver for why these deals happen. None of those things were present here. From our standpoint, we don’t want to do those kinds of mergers because there are things you have to go and fix and figure out. You have to bring a lot of leadership and energy to those types of situations. In this case, these guys were perfectly positioned to be successful independently. From day one, we don’t have problems to solve.”
However, even when you’re negotiating a deal where both sides are excited about the opportunity and have limited concerns, there is still the potential for trouble. And if you’re not careful, it can lead to problems that can cripple the deal.
“Whatever you think the communication, the collaboration and the amount of time and effort that needs to be put into the deal, multiply it times five,” Myeroff says. “You could have all the elements of a great deal. But if you screw up the integration, the merged-in firm feels like, ‘Well, this is awful. This isn’t what we thought it was going to be.’ Chaos ensues and now you have to recover from something that was self-induced because you didn’t plan enough.”
Ready to step up
Fortunately, the joining of Cohen & Co. and Arthur Bell was a relatively seamless integration.
Bellamy is excited about what the future holds for the new firm, which has 10 locations and more than 550 employees.
“We both developed a reputation as the go-to firm for someone that doesn't want to deal with the challenges and bureaucracies of a larger organization, such as a Big Four firm,” Bellamy says. “There has been other M&A activity in the hedge fund space that created a void for someone to step up and fill that kind of premier alternative to the Big Four spots. Together we have a great head start on others to fill that void. The market was demanding a firm like ours to step into that role.”
Bellamy is confident that Cohen & Co. will continue adding 80 to 90 new employees each year and achieve growth ranging from eight to 14 percent.
“We're getting to be big enough that from a scale standpoint, that's a lot of new revenue and a lot of new relationships,” Bellamy says. “We can do that in a way that we'll feel good about it. We won't be hypocrites relative to how much we care about quality, how much we care about delivering client value and all those things that are really, really important to us.”
How to reach: Cohen & Co., www.cohencpa.com