Doing Private Equity Right with Nishaad Ruparel of Ascend

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Hello and welcome to the Big Four Transparency Podcast. Today, I'm joined by Nishad Ruparel, the president of Ascend, a private equity group backed platform that invests in accounting firms and is a kind of conglomerate of accounting firms. Welcome to the pod, Nish. Dom, thank you for having me. Excited to be here. My pleasure. So we were introduced by Tim Petri, so the founder or the CEO of HD Growth Partners, who were actually acquired by Ascend and he said, you know, I think Nish would be a great person to speak with. And so far, that has absolutely been true. So yeah, I'm really excited to have you on. It's a really kind introduction from Tim and he's definitely one of the most dynamic and thoughtful, high energy leaders that I've come across in public accounting. So he was he was a great guest for your pod and just a great person to get to know in general. Yeah, yeah, absolutely. I really like what what Tim kind of represents in general. And yeah, the energy he brings to the table is really, really nice. So to kick us off, yeah, you don't have the typical background of someone that I have on the pod. So you're actually, I mean, you're indirectly involved in the accounting space, but that's not your background, really. So you started off in private equity or sorry, an investment banking and then into private equity. And so I'm curious, kind of like the journey that's led you towards where you are today. Yeah, thanks for asking. I get this question a lot, like, you know, you're not a CPA, therefore, what do you represent? Like, you know, this whole influx of private equity capital into accounting is a fairly new thing. It's only been around for three years. You're starting to see more people that have a background that's similar to mine, but they show up differently depending on the firm that you're talking to. So I'll just speak about me for a second. So you're right. I started my career in New York working at J.P. Morgan as an investment banker covering the private equity space. And that gave me a very good lens into what are the different flavors of private equity firms that are out there? You know, what thesis do they tend to invest in? How do they create value? And actually, from there, I chose to go work for one of them. The firm was called AEA Investors, based in New York. It's, if not the oldest, certainly one of the oldest institutional private equity funds in the country. It was started by the Rockefellers and has sort of grown in a big way since then. And that was a great experience. Like, I, you know, through the combination of J.P. Morgan and AEA, I, you know, gained a transaction skill set, started to, you know, really understand the nuts and bolts of corporate finance and how to apply it. But much more important than either of those two things, I learned how value was created at companies, right? You know, and that's deciding what problems you want to solve, recruiting great leaders to help you go solve those problems, designing a system of processes and incentives that motivate the type of outcomes that you're trying to generate. And I saw it work well, and I saw it work not so well. And, you know, five, six years into the journey, thinking about how do I put a finer point on my career? I love investing. I love allocating capital. I love partnering with companies to create value, create great employment experiences, bring new products to market and new services to market. But like, how do I, as an individual, view my unique contribution to this field? And the thing that I kept coming back to was that success and investing is really all about people, picking the right set of leaders, making sure that they're going to recruit followership that drives towards those outcomes. And then as you're making progress, recalibrating and constantly re-underwriting. Do I have the right people on the bus? Am I defining the seats correctly? Are we headed to where we need to be headed? And as I sort of like reached that point of clarity and played it back to the folks that I knew in investing, I wasn't totally sure that this sort of traditional New York, Wall Street way of thinking was where I should spend the next chapter of my career. And that was many years ago. And I think there's been a big evolution of thinking across the industry around this topic. But that was the genesis of me taking a step off of that path, going to business school on the West Coast, which is where I met the founder of Alpine Investors, Graham Weaver, and was really inspired by his vision of how can you do private equity in a people first way? How can you pick the market that you invest in based on the leadership that you're able to attract? How do you build an investment thesis around a common set of problems that are all people problems? And so that was very inspiring to me. It made a lot of sense to me. And so my sort of touch point with Alpine came right after business school, Ascend, the company that I'm the president of and have had a lot of fun. We're now a $400 million company with 17 CPA firms under our belt in two years. We are an investment of Alpine Investors. And my journey to Ascend was a continued exploration of that same theme. So I saw people problems in the accounting space that really motivated me. Is the partnership model the right way of organizing talent to solve the problems that the accounting industry is facing? There's a labor shortage. What are we going to do about that? Are we going to go offshore? Are we going to use technology? There's a compensation shortfall. People work really long hours. They don't feel necessarily rewarded for those long hours until much, much later in their career. Can you innovate upon that? It's been a great joy, a great privilege, and a big source of energy for me to be in the seat that I'm in right now, attracting some of the best firms in the industry to come join what we're doing and really help solve some of those problems. Yeah, awesome. Awesome run through of it all. And I've got a bunch of questions based off of that. But to start off, I think you said 17 firms. I think when we started speaking, it was 14 firms. And so how quickly are these acquisitions happening? And what does that process look like from inception to close? It's a great question. So you're catching me forecasting a little bit. We have 14 firms that have closed and are part of Ascend. As of today, we have three more that have made a commitment to join in the next couple of months. So if you sort of roll the clock forward to the end of busy season, we'll be 17. You're right, though. It's a fast pace of growth. And it's also accelerating, which is really exciting. The timeline to make this happen, once a firm decides that this is something that they want to do and that Ascend is the partner for them, there's the assembly of the transaction and making sure everybody's taken care of and defining what everything looks like post-close. And that's actually pretty quick. That process takes three months. But the much more interesting part is, how does a firm arrive at that conclusion? What sets of things do the leaders of the firm, whether it's the managing partner or the executive committee, what do they need to be participating in? Who do they need to be speaking to to stay on the cutting edge of what's happening in the industry? Once they develop a point of view, how do they cascade that point of view to the people that they're closest to and then furthermore to the full equity partnership and then furthermore to the full firm and some of the best talent that's at that firm? And that can feel daunting. And I think that firms that really think that through and get good advice and put a good process in place of how to answer those questions in the right order can do it in less than a year. And then I have seen other firms that take more of a piecemeal approach to it and perhaps more of a back-footedness disguised as deliberateness or deliberation. And that can take over a year. It can take sometimes two years. And so I view part of my role at the company as helping to clarify, helping to inform, helping to clarify, and helping to partner with firms to design a process that's going to work for them to reach that conclusion. Yeah, that's interesting and it's cool to hear because a lot of the time I think like private equities involvement and or even the firm owners who opt to work with private equity get kind of villainized to a degree. Like when you're on, I mean, it depends where you are, but if you're on, you know, fishbowl accounting subreddits and stuff like that and having met some of these people like Tim, for example, is not that kind of guy. He's not like, oh, gotcha. Like I'm going to go make my bag and like forget about everyone else. Like that's not him. And it really seems like what's been achieved with kind of the support of Ascend is really not that. It's a firm where, you know, it seems very, very functional. There's investment going into all of the right areas. Whereas again, like there was probably some sort of payout, but again, he remains invested in the overall entity. So it's not like it's just like a quick like cash out and leave. It's really kind of continued growth. And so like what's the common thread there on like why these people are deciding to do it if not to cash out, right? Because that's often the kind of scenario that gets looked down upon is, you know, the boomer partner who just wants to buy a new boat and retire and so pulls the rug on everyone else. And that's not my view of private equities involvement. Like I've really been like, listen, maybe an ideal scenario is that this is wholly owned by partners and they're willingly reinvesting everything into the growth and technology and people of the firm. But that's not the reality is like people are kind of optimizing for distributions a lot of the time. And so private equity becomes a good answer to help, you know, keep those distributions to degree while also then reinvesting in the firm and the people in the technologies. And so, yeah, like what's that kind of common thread of like the people that you want to be buying firms from and like the people who do decide to kind of work with Ascend? Such an awesome question. Thank you for asking it. You're right. You know, there's no like grab the bag energy of the firms that are that are joining Ascend, which is a really important thing, right? Like people that take outside capital, they're all trying to solve some problem. So the firms that are joining us are not trying to solve that. How can I grab the bag problem? They're also not trying to solve the how can I have my cake and eat it to problem, which is what, you know, a lot of people say, great that Citroen sold to Blackstone. There's validation that the flip is real. And so that's de-risking in a way I can take my money today. I can retain some ownership and that ownership is going to be worth something tomorrow. And like, yes, that's true. That's true. But that's not the primary motivation of the firms that are joining. I would say the primary motivation of the firms that are joining, they are taking stock of what makes them special. And they're saying, wow, I've got great relationships with my clients, 50 years, 100 years serving the same community, the same market, families, closely held businesses, you know, multi-generational assets. And I want to keep doing that in a way that's synonymous with excellence. Then they look at their people and they say, wow, I've got a deep bench. Like my bench has a bench. And there's multiple generations of leadership who I as the managing partner or we as the executive committee feel like we're the custodians of. And we want them to have a great future in public accounting. And then they look at the environment and they say, my gosh, like if we want to ramp or, you know, remain independent, that independence has a cost. We've got to invest in technology. We've got to keep our finger on the pulse of AI. There's fewer and fewer people domestically that are sitting for the CPA exam every year. So we probably have to figure out some sort of domestic solution. And then they say, who's going to do it? And, you know, either the CPA leaders of the firm will try to do it themselves or they'll try to recruit functional talent to head marketing or head growth or head offshore, head technology. And it's like a very worthwhile endeavor to add up how much all of those things cost. Ask yourself who's going to be doing that set of activities and then put rubber to the road and say, can we attract the talent that's needed to actually do that in a successful way? Some firms are doing that. But then those firms realize that, hey, let's assume success on all of that stuff. Let's make the investments. Let's pick the right set of activities. Let's recruit leaders who can be successful. How are we going to monetize? And even if you get to that point where you're successful at all of those things, the monetization, not just for today's generation of CPA professionals, but for tomorrow's, looks very different in the partnership model than in the open market, right? In the partnership model, you can only sell your ownership interest to somebody inside of that partnership. And so there's a necessary price ceiling, right? Just based on liquidity. But if you open it up, you take outside capital. And in particular, if you take outside capital from somebody that's willing to let you share in that ownership in a meaningful way and start compounding earlier in your career, you can get to the end of that logical decision tree and say, wow, there's a really special opportunity out there that exists. It's the right answer for my clients. It's the right answer for my people. And it kind of promotes a newfound longevity that the partnership model may not have right now at this point in time. And so the 17 firms that have joined one way or another, whether it was in 60 days or 360 days, they all got to that conclusion. Okay. Interesting. And then when we talk about the firms that you're acquiring and you brought up the Citroen deal, Ascend seems to be doing things very differently. You, with the size of your fund, could very well have been a buyer of that top, I don't know, maybe 50, that top 50 accounting firm and just kind of focus everything on that. But instead seem to be buying kind of numerous firms at like the 10 or 20 million to 40 million dollars in revenue sizing. And then not only are you doing that differently, but you're also keeping the branding of each of these firms, right? So you're not, this doesn't become your Alpine or Ascend LLP, this becomes just a continuation of the firm it was before. Can you talk about kind of like the combination of those strategies as well? For sure. For sure. Guess what? It goes back to people in case that, yeah, that theme isn't coming up enough. But so first, like why pick that part of the market? I think we pick that part of the market because, you know, you look at the clients that sit in the American middle market and it's kind of what I was describing, small and medium sized businesses, high net worth individuals, they're closely held entities, they're family planning considerations. And a lot of the really talented CPAs in this country love serving that part of the market. Not only is it the biggest part of the U.S. economy, but it's also the part of the U.S. economy that like brings fulfillment to trusted advisors in the space, right? They don't want to be, at least the people that I talked to, don't want to be, you know, one of a big team doing a public company audit. And that is a really important service. And, you know, we as a country should be thankful that like we have that clarity of, you know, economic activity in our financial system. So that's not a, that's not a knock, right? There's great opportunity that comes from that. But I think that the professionals that we're interested in partnering with get a lot of energy and passion from serving those middle market clients. And it happens to be a really big swath of the public accounting market. So you put those two things together and you say, wow, you can create a really exciting talent led value proposition by focusing on this, right? By bringing big company infrastructure and investment to the way in which you serve those mid market clients. And you can give people that are really passionate about serving that market, a whole set of new tools, bells and whistles with which to like deliver excellence. Then your second question was, why do you keep the firm name intact? And I get this question a lot, a lot, you know, some people think that, oh, if the, if the firm name is intact, that means you're running a fiefdom of decentralized companies. And just to like nip it in the bud, that's, that's not true. There are some really important parts of what we're doing that are centralized, you know, cybersecurity as an example, offshore as an example. But why we choose to keep the name independent and why we will always make that choice is because clients decide to work with those firms because of that heritage, because of that culture, because of that brand. And people choose to join those firms for the same reason. Um, so when you get back to like, what motivates the leaders of those firms to set a big goal, you know, deliver a great outcome for their people, dream big about the future. It's the association of, I can do this as an independent leader and I can do this for the firm that I grew up in and I can do this for the firm that my community knows. And, um, I find that really exciting. I don't, I don't think the world needs another monolithic consolidator and it's fun for us to kind of present a new option to the market. Yeah. Yeah. I think, uh, I think the things that you have chosen to centralize seem to me a lot like the right things, right? Like if I were to picture myself running a firm, like I'm doing it because I love serving the clients. I love interfacing with them. And, you know, maybe I really geek out on like the actual technical parts of all of this, but then having to get caught up in the cybersecurity is like just anxiety inducing. Having to figure out offshoring is like super daunting or you end up doing it through an agency and you're paying twice as much as is necessary. So I do kind of like, I do think that that kind of shared resource model is really valuable. And I've been having a lot more conversations with like firm alliances and stuff like that too. And I'm a pretty big believer in, in having access to these kind of shared resources. And again, I mean, uh, what I offer too, like the, the data that I offer, like I've done some bundle deals for groups. Everyone ends up paying like half or two thirds that they would have otherwise. Right. And so it's obviously super beneficial. Um, so it's, it's cool to hear that for sure. Um, you talk a lot about kind of firm succession being in trouble and like, you know, the current partnership model, not working super well. Do you think that's like largely based off of like the state of the talent pipeline or do you think there's just a lot more at play than that? Yeah. Let me, um, let me like paint the picture broad strokes and then I'll make it really real. Um, so I was just doing this window into my life. I was just doing this for fun a couple of days ago. I was looking at, you know, if I were to project industry supply for the next 10 years. So that's, you know, how many partners are, how many professionals are retiring? How many people are sitting for the exam? There's all kinds of data that you can use that's publicly available to just drag that out for the next decade. Um, and then you predict growth next to it. So like how big is the market? What's the annual growth expected to be? Those projections exist too. And you put them next to each other. What you see is that the revenue per employee of this industry is going to three X in 10 years, 2.7. So any individual in this industry is going to be doing three times as much as what they're doing today. Um, then there's another analysis that you could do, which says how old are those people? How many years have they been in the profession? Cause as folks retire and new folks come in, you're shifting mix towards a less experienced industry. And the thing that blew my mind was by 2035, 87% of this industry will have less than 10 years of experience. So you take those two things together. You have people doing three times as much. 90% of them have less than 10 years of experience. So how is that going to happen? The question is not, is it going to happen? Because this market is growing. There's all kinds of capital that's coming to bear on the market that wants to solve this problem. So how is it going to happen? Technology will be part of the answer. Automating really monotonous workflow that people don't enjoy doing will be part of the answer. And then when you strip away those parts of the job that are manual and are not critical thinking and don't have to do with sort of human to human connection, you also have to re-scope what the career path looks like for somebody that comes into public accounting. And how can you make somebody like an experienced equity partner in a condensed period of time? Like there's a new learning and development mandate that's going to be needed to solve that. So when I talk about succession, there's kind of a few different questions. One of the questions that a lot of managing partners ask is, do I have a good group of people at the 35-year-old range and do I have a good group of people behind them? And if both of those things are true, chances are I'm going to get bought out and chances are I can tell that group of people that's 35 today that they're going to get bought out. And that sounds really compelling. It feels good to work at a firm where that's true. Like in this moment, you're definitely playing from a position of strength, especially so because there's so much capital that exists in this industry that wants to partner with you. But if I'm the 35-year-old that's being asked to buy out the 65-year-old and I know this, I know that I'm staring down the barrel of needing to 3x revenue per employee, that's an investment that I'm going to have to make. So if I'm like really smart and I'm playing with all the information, I don't know that I'm saying yes to that. And now if I'm the 22-year-old, I really don't think I'm saying yes to that if I have all that available information. So the sort of like table stakes, tip of the iceberg on succession is do the people exist? But when you get underneath the iceberg, it's do the people that are going to be making that purchasing choice with their own capital, their own money, how they want to spend their career, do they have all the access to information of what it's going to cost to remain independent when those trends come to bear? And I think that that's where we spark a lot of interesting discussion and help firms make the right choice for them because I'm not here to say that everybody, there's a one-size-fits-all solution for what everybody's going through. But I do think we as a profession will benefit from talking about collectively problem solving and sort of underwriting a new reality as to how some of these new tools and forces can be helpful. No, that's like a super interesting perspective to me. And then, so I mean, your own background being, you know, IB and private equity, those are some careers that people kind of like to compare to sometimes where it's like, wow, like starting compensation for someone going into the market is, you know, astronomically higher than it is in accounting on average. And so we're talking about, you know, productivity expectations from early accountants graduating or within the first 10 years of their career being 3x what it was. Do you think that like the accounting? Like as an industry as a whole or like as a profession can do some catching up to these other kind of service lines and openings like you know IB or PE because again like if there's going to be so much more succession and then now there's no longer as much guarantee of that kind of like partnership opportunity down the line like what are people getting into the profession for and like what like how does that kind of balance itself out? Yeah first I just want to say like I'm a huge fan of yours and I'm a huge fan of the service that you provide because I think it is really important like if you're tethering your career and more than that your life and your lifestyle choices to the career that you're in and sort of what you're planning for yourself you know you ought to know what's in store if you're successful. And you know what pathways are available and where you may want to work and where you may not want to work and I think you're doing a public service by providing that information to people to make informed choices so you know we value that as a company I value that just as an individual. And if I were to put myself in the shoes of somebody who is a young person choosing a career in public accounting you know there's two ways to build wealth one is through cash compensation and savings and then the other way is through the appreciation of ownership right, could be ownership of the S&P 500 it could be ownership of you know in the case of private equity carried interest and now in the CPA profession it could be ownership of your business earlier. So on cash you know if revenue per person is going up two and a half to three acts like. Demand to get some of that you know like force that conversation in your firm so that your first stays front footed and. So that the compensation in the industry shifts over time and i know that that's not an easy thing to do but it could look like asking questions at town halls it could look like participating in firm wide retreats in a way that. You know brings up a new insight to the firm is a collective like continue to. You know continue to be interested because the surface area is definitely there if you're tripling productivity and then the other thing that's more exciting is. You always build more wealth through ownership then you know then comp as a starting point because of the tax you know treatment but also because of how compounded works and so. And i think many young people at a send firms are really lucky to experience this but. Getting ownership in a in a in an instrument that compounds quickly at a young you know young point in your career. Can be very differentiating and you don't have to hold it forever but even having the option to sell it someday and reinvested in something else. Is a feature that has not existed in the partnership model where your wealth is trapped till you're sixty five and then you get it sort of drip by drip until until you're seventy five. So there are some important innovations that are that are happening and i think you don't do a great job of keeping your your audience in your viewership on the cutting edge of it. Oh thanks thanks a ton i really appreciate it. And then yes so like does ascend to employee stock options then because i think tim mentioned something about that as well and you're talking about. You know the importance of equity and all that and i'm i like i really look forward to the possibility of a future where employee stock options are kind of more prevalent in the industry. Yeah yeah i won't go into it in a ton of detail but we do we do have pathways to equity for people who are really early in their career you know we have a triple digit number of non partners that are owners of a sand. And our stock is compounding quickly just as a result of our growth so we get together once a year as a as a group of shareholders and i get to see a lot of excitement and smiling faces. Just with what we're all accomplishing together and what it means financially for people because that does that does really matter and it's a big it's a big source of pride. Yeah that's awesome and i think like as a differentiator it's it's amazing like. You know i i would have been willing to early career like probably stick through a lot more stuff if i was getting. You know some degree of ownership and what i was doing and then at the same time having this kind of conglomerate of smaller medium firms. I think again like that is its own kind of talent model where i say this a lot but like i might still be at a firm had i happen to have worked at one of those. Because for me like what what was really difficult was i really didn't fit the mold of the typical employee like i was working on selling business as like an analyst level person and. I was involved in this and that but like when you're at a firm as big as the big four they they can't they can't be putting people on like different performance kind of avenues and stuff like that like it's just here's the mold deal with it. And it was fine like i could keep up with it but i was just like i'm not enjoying this anymore so i think the combination of those things creates like a really really interesting talent model and i i i love the thought of that absolutely. Thanks for saying that your story is definitely pretty badass selling you know business in in your first year in public accounting and what i would say is if you decide you want to come back there's a there's a place for you in public accounting i promise. I mean if the borders are open at all you know we'll see we'll see by then saturday is going to be a big day for canada so we'll see um well thank you so much for joining me nish i really really appreciate your input on this. I think again like forming these opinions you know on private equity as a whole without having the conversations without being informed i think it's just going to lead to you know. Less good outcomes for people i think it's really important that you know people actually give it a shot give it do the research talk to people who are at the firms. And just know like not all of them are created equal either like i'm sure there will be private equity back places that are terrible to work for just as there are privately owned places that are terrible to work for right so. I think that there's a lot more nuance to the industry than people you know give a chance to and so i urge people to go into things with an open mind and and you know hopefully consume some of this content maybe. I get a more kind of informed opinion on it but yeah i really appreciate you taking the time nish thank you. For sure thanks for giving me a chance to tell the story and it's always fun seeing you.