Published 2012: After months of speculation, Roseland, N.J.-based J.H. Cohn (FY11 net revenue of $235.6 million) and Bethesda, Md.-based Reznick Group (FY11 net revenue of $202.5 million) announced plans to merge, which will result in a $450 million firm when it takes effect later this year.
“This is truly a merger of equals and decisions will be 50/50,” says J.H. Cohn MP and CEO Tom Marino. In a joint interview with IPA, Marino noted that it was “remarkably easy” to discuss issues as equals with Ken Baggett, Reznick Group’s MP and CEO. Baggett agrees. “These guys feel like our partners already – like someone we grew up with.”
The two firms found an affinity for one another early on, and decided against a three-way merger with Baker Tilly Virchow Krause. Although both MPs underscore their respect for BTVK and its CEO, they acknowledge that Cohn and Reznick were much more aligned from the start. Baggett says Reznick looked at 80 firms in investigating its merger prospects. In the Northeast, J.H. Cohn stood high above the rest.
Baggett says people have all kinds of ideas on what it means to ensure the cultures of two firms match, but what it really comes down to is, “Is this someone you want to continue to go out and have a beer with?” Partner groups at both firms believe the blend would be a natural fit. “It was almost a no-brainer,” Baggett says. “We had to get through issues, but they weren’t insurmountable.” Cohn is a member of Nexia International and Reznick is a member of IGAF Polaris. The firms are not ready to announce which association they will remain with after the merger.
Marino and Baggett will serve as co-CEOs and after three years, a vote of the members will choose the next CEO.
Another choice, which will have to be made soon, is the firm name. Both MPs say the plan is to market-test various options, although Marino notes that after all the investment in market testing it will likely end up being Cohn-Reznick. “How creative can you really be,” Marino jokes.
Both MPs are enthusiastic and eager to get started. The combined firm will have more than 2,000 employees and 25 offices nationwide. In 2011, Cohn ranked 18th on IPA’s 100 list; Reznick ranked 20th. Both firms have their own strengths and specialty areas, which complement each other and will help the combined firm gain more clients. Marino and Baggett are aiming for double-digit annual growth. Even during the last few recessionary years, both firms experienced organic growth of about 8% annually over the last 10 years, Marino says.
Reznick is strong in the affordable housing and commercial real estate industries, as well as the tax credit and governmental arenas; Cohn has specialized knowledge in manufacturing, entertainment and not-for-profits and has very diverse clients across a wide array of industries. Marino says the combined firm will offer “an unprecedented concentration of industry experience in real estate.” It is expected to dominate the East Coast with offices from Boston to Atlanta, but it also will be a truly national firm with expansion in California and additional offices in Texas and Chicago.
While Marino notes that “bigger isn’t better, better is better,” he also acknowledges that mergers are “where the profession’s going, to be honest with you.” He says he used to downplay the necessity of a geographic presence in a particular area, but no longer. “This will not be the last mega-deal that’s going to happen.”
Markets are demanding that firms have “boots on the ground” nationwide, that they have specialized, top-quality industry expertise and that they be of significant size, says Marino. “Private equity firms want their big clients to be serviced by one firm,” Marino tells IPA.
Baggett gives an example of a real estate client Reznick has been wooing for years, trying to offer more services. Once a health-care specialist from Cohn attended a meeting, two other firms in the running for the work were asked not to make a presentation. The company decided to go with the combination of Reznick and Cohn.
“We’re already putting in and winning joint proposals together,” Baggett tells IPA. “We have more doors we can walk through now.”
“Market permission is greater for large practices,” Marino says. “We’re getting more referrals from private equity firms, and we can attract more high-quality lateral partners.”
The next step is integration of the two firms. Committees have been working on go-to-market strategies in the industry specialties since December. Baggett says he expects the typical barriers – leadership, HR systems or other integration issues – won’t be barriers at all. Only one duplicate office, in Los Angeles, will close, but no employees will be let go. Even though some leadership positions will overlap, when a firm doubles in size, more senior leaders will be needed, both MPs tell IPA.
Down the road, the combined firms will consider further acquisitions. South Florida, Texas, Chicago, Denver and the San Francisco Bay area are particularly attractive. However, both Baggett and Marino emphasize that they are not looking at expansion now, and are focusing on their existing clients and the work ahead of them with the newly merged firm.
“Our clients come first,” Baggett says. “We don’t want to look like we’re too big for our britches and forget the clients that brought us here.”