The CEO of private equity-backed Ascend, which has invested in three regional accounting firms this year, says he operates in opposition to the “big-to-big” model of large private equity firms pouring capital into large accounting firms.
“What private equity is generally doing – and this is what they do in any industry – is they look for a big business with scale that they can invest in that has a leadership team that they can back,” CEO David Wurtzbacher said in an interview with INSIDE Public Accounting (IPA). “And the private equity firm’s role is to sit in the ivory tower and call some plays down every now and then.”
While these large private equity firms are good at developing budgets, arranging debt financing and analyzing financial statements, “they don’t really care about the people,” he says. “They’re just looking to squeeze out a return for themselves.”
Wurtzbacher, who says he is fascinated by essential professions that are considered boring, such as accounting and dentistry, spoke with IPA about why he believes his firm’s model is different. He also discussed the goals of Ascend, which is backed by private equity firm Alpine Investors.
So far, Ascend has invested in the non-attest businesses of Vancouver, Wash.-based Opsahl Dawson, San Antonio-based ATKG and IPA 300 firm LMC of New York (FY22 net revenue of $19.2 million). Wurtzbacher says he is targeting additional entrepreneurial firms with revenues of roughly $10 million to $50 million that concentrate their services within one region. His goal is to add five more firms in a year and 25 cities in five years, all while focusing on the employee experience.
Numerous studies show that the vast number of employees are disengaged, he notes, but Ascend helps firms create a mission that matters to employees by challenging them and keeping them excited about their jobs.
One of Ascend’s main goals is to give smaller firms big-firm resources without merging up. To do so, the firm implements leadership training that leads to a five-year vision, adds a sophisticated recruitment program, analyzes technology and makes the investment to improve it, and puts in place a more corporate business model led by the firm’s MP, who becomes CEO, and a chief growth officer selected by Ascend.
“We are swooping in and surrounding them with our team members to actually give them all this extra bandwidth to get where they want to go.”
Not surprisingly, the talent shortage is the No. 1 problem the Ascend firms are facing. Wurtzbacher notes that the pool of candidates will only shrink in the future for firms that are not associated with private equity. In the bigger private equity deals, employees in their 30s and 40s are going to make some serious money within a few years. “That has never happened before in the middle of your career in this profession.”
Young professionals are going to start making demands of their accounting firms that few can fill. Ascend offers a quicker path to partnership and the promise that the firm will never be sold to a larger firm. Each of the three Ascend firms plans to hit the $50- to $100-million revenue mark within five years, bringing more opportunities for their professionals.
That’s why Ascend focuses its resources where it does – because bigger deals are leaving behind entrepreneurial firms that have been successful so far but face numerous challenges in trying to get to the next level. “They have a good thing going, but nonetheless they’re at a crossroads just like the rest of the profession and they want to stay independent. Then you’ve got tens of thousands of small firms that don’t have a succession plan at all, and there needs to be something for them too.”