Family Office Funded Firms with Noah Beery

Before I jump into this episode, I want to give a big thank you to this episode's sponsor, Kanopy. Kanopy is a best-in-class practice management software to help your firm run smoother. If you want to get the most out of your talent at your accounting firm, you need to make sure that they have access to the right tools to be able to properly leverage their time and spend more time doing what they are best at, and less time in the weeds trying to manage firm operations, trying to get organized folders, and trying to figure out where all the documentation is. So if you want to run a smoother operation, check out getkanopy.com. They're going to be linked in the podcast description. And unclunk your firm with Kanopy. Hello and welcome to the Big Four Transparency podcast. I'm joined today by Noah Beery, the head of corporate development at Platform Accounting Group. Welcome to the pod, Noah. Thanks for having me on. Yeah, yeah, my pleasure. It was great meeting you up from Growth Forum and immediately upon hearing what you kind of were up to and Platform Accounting Group was up to, I thought that was incredibly interesting. We've had a lot of conversations around this pod that I think you can kind of provide some answers to. So to start us off, what is Platform Accounting Group and what makes you all kind of unique? Sure. So Platform Accounting Group is at its core, an accounting firm and our roots trace back a decade to a gentleman named Reyes Flores, who really grew up inside of his dad's boutique accounting firm. And the clients that his dad served were kind of second generational clients from clients that Reyes' grandfather served. He was one of the first people in his community to get any sort of kind of formal education and would sit around the kitchen table with his co-workers from the cement factory. And because he was one of the few people in the community that spoke English, they would do tax returns together. And that basis was really the kind of founding client base that Reyes' father took over and kind of formalized and built a firm around it. And then that is the firm that Reyes grew up inside from a very young age. And kind of tying back to those roots, Reyes was kind of intimately involved in understanding what the client relationship looked like, what the staff relationship looked like, how those two things kind of played together. And he started growing up and said, you know, hey, I want to be like dad. I want to go off and do my own thing. And so he spent a number of years at a couple of larger financial institutions, got an MBA at Chicago Booth. And then in 2015, as his dad was starting to think about retirement and what to do with the business, Reyes said, let's take the firm to market and let's see what's out there. And so they ran a full process and realized pretty quickly, especially at that time, that some of the things that the buyers wanted to do just didn't sit well with them. They wanted to, you know, hey, we'll take your top 20 clients, we'll take a handful of your staff. Everyone else is kind of free to go. And these are people that were multi-generational clients. They were people that Reyes grew up with from a young age. And so in 2015, he decided to purchase his dad's firm. And since then, we've really executed on a growth strategy primarily driven through M&A. So for the last 10 years, we've been out finding the best firms across the country, acquiring them, bringing them into platform. To date, we've done 53 acquisitions that have consolidated into 40 offices in 14 states. And you know, what we really focus on and spend a lot of our time thinking about is how do we preserve all of the great things about a boutique accounting firm, things like high glove level of service to clients, autonomy of staff, that familial culture around the office that the clients have self-selected into, the staff have self-selected into, but be able to provide those firms with a much greater degree of support, resources, infrastructure, to help them really compete and win in what is a rapidly evolving environment with a whole host of challenges that firms all across the industry are running into. So that's kind of the background of platform and where our roots are from and what we're building around. But maybe that's a good jumping off point for us to kind of dive into anything that's particularly on your mind or helpful here. Yeah, I really like the wording where you say, you know, clients and employees who have self-selected into that type of firm. And so one of the things that is not totally unique, but relatively unique that you're doing is that when you're doing these acquisitions, like it sounds like you're kind of maintaining the existence of the firm, right? Like, are you rebranding them at all? Or for the most part, you're kind of keeping that identity? Yeah, so we are rebranding them, but if you look, it's not the platform, right? It's something that's modern and fresh and has a tie to the local community. Because as we think about it, you know, part of the identity of that local firm, it's the culture. But a lot of that stems from the branding, right? And that's what people feel tied to. That's what clients feel tied to. And, you know, as we think about it, it doesn't make sense to brand everything as platform because that could be misconstrued as we're, you know, a national firm and we act like one and hold ourselves out like one. And it's just simply not the case. All of the relationships remain local. Our firms are run at the ground level. A lot of the decision making is happening by the local leadership. But, you know, as we think about kind of helping firms evolve into, you know, what is this kind of changing environment, part of that is rebranding. Because if you think of, you know, a firm that's Smith, Smith and Smith CPAs, you know, that means that they're tied to a Smith, right? And the partner, and that's where the real relationship lies. And as we think about it, you know, helping firms grow and evolve, involves kind of decentralizing some of those relationships and spreading them out across the broader team, giving our team members the ability to engage with clients at an earlier level, really hold client relationships and manage that from an earlier level that will help them longer term be better professionals and know what it means to really hold that client relationship. And so if I'm a firm who kind of gets acquired by platform AG, like what's going to change? Because are you, are you standardizing like the entire tech stack or like what, what kind of evolves for a firm who gets acquired under this kind of model? Yeah, it's a great question. And as we think about it, there are some things that are non negotiable for us, right? Things that we have to do to be able to move as a cohesive organization at the scale that we are, right? So things like, you know, cybersecurity, right? We have to make sure that our clients information and data is securely protected. Workflow management, we all use the same workflow management software. But things like standardizing the tech stack of the production software are just less important, right? They're highly disruptive to the organization. They cause a lot of kind of loss of efficiency, you know, for the first year or two out. The beauty of the accounting industry is there's really only three of them, right? And there's, you know, maybe two that are kind of scaled and, you know, enterprise level technology platforms, kind of your tops and Reuters, your Walters Kluwer. And that is just not something that we'll focus on is ripping out all that tech stack and say, hey, everybody is going to CCH now, right? We're agnostic for the production software because you know, we've built our IT infrastructure in a way where we can service those firms regardless of what technology stack they're on. The only piece that we will standardize is you know, workflow management allocation through a tool through carbon. I know you have a relationship with canopy, so I apologize, but that's okay. That's that I do actually want to know what people are using regardless of a relationship with any kind of sponsor. So sure, sure. But that's really kind of like on the tech side, you know, what we're focused on integrating and then you obviously have all of the back office infrastructure and support, right? So, you know, HR, IT, recruiting, financing, accounting, strategy, growth maps, et cetera. We'll be able to offload a lot of the burden from our local offices without being highly disruptive because one of the things that we think a lot about is change management. And if we come in and say, hey, we're going to change all of this stuff all at once, that's a lot of change for humans to digest. And you know, that feels like change that's fundamentally disrupting the culture that they've built and the identity of their firm that they've built. And so we're very cognizant of, hey, we need to be deliberate in this and we need to be good at it. If we're not good at it, then folks are going to think that we don't have an understanding of what we're doing. That'll cause them to question the strategy and the things that we are focused on integrating, like IT, like HRS, like finance and accounting, get everybody onto the same ERP. And if we can get really good at that, then it becomes something that's really not disruptive. It's more of, hey, let us train you on a couple of changes to what you're used to doing and we'll handle all of the rest and make sure that this is not a burden that falls on your shoulders anymore. Yeah, I like that. And is, is there like kind of a centralized service offering that's happening from kind of the, you know, I guess what I'll call head office of platform accounting group going down to the firms? Like, are there certain service offerings that are kind of happening internally and then being offered to the firms or are they like pretty much entirely independent on that front? Yeah, service offering in kind of client facing revenue generation is or more of kind of support resources because I can go both directions on that. Either one, actually, I was, I was pointing towards support resources, but I'm actually very curious about the revenue generation as well. Sure. So I'll, I'll start on support and then we can go towards revenue generation. So on, on the support side, we have a team of call it 70 people and they sit primarily here in Salt Lake City. They're handling all of those back office functions that I talked about. So on the HR side, you know, uh, performance and leadership training and development and benefits administration, right? We're, we're taking all of that and being able to offer it to our offices. We've got a best in class kind of management and leadership training engine to help folks that are great technicians become great people managers as well. Because one of the things that we think that the industry hasn't done overly well or been very deliberate about is taking people who are great client managers and great, you know, technicians and turning them into great people managers. And so we have a whole program and kind of university that will, you know, take our people through and continue to provide ongoing education and support on that side. So that's kind of HR on the recruiting side. We have a full scale recruiting team that does all of the kind of job placement and you know, collection of resumes, the initial screening, you know, all of kind of the nuts and bolts that go into recruiting. And then the final decision of are we hiring this person really rests with the local office because that's where they're going to sit. That's who they're going to be, you know, working with on the day to day finance and accounting side. We offload a lot of the kind of vendor management, AP management, right? All of the things that go into kind of maintaining your books, making payroll, you know, all the minutiae that partners are typically doing. On the IT side, we have, you know, effectively what is an MSP that serves all of our local offices. But part of the beauty of having that in-house is they're trained on the specific tools that our offices are using. And so they know if somebody's having, you know, a login issue in Thompson, then they have processes of, I've seen this a hundred times before. I'm not calling into an MSP. This is just a generalist MSP. I know where these tools break down and I can get directly into them and service them. Obviously, cybersecurity and kind of, you know, kind of standardizing that across the organization. And then finally, strategy and operations, right? We think about each firm as an individual unit. And a lot of the firms have very similar challenges, but that doesn't mean that those challenges are pressing in the same order, right? So we'll go into an office. We have, you know, a framework that we've developed that'll help evaluate the office in a number of different categories through surveys with staff, through data analytics. And we'll go and serve it to them and say, Hey, here's what we're seeing. Here's how this benchmarks across other firms in platform across the industry writ large. And this is what the data shows. What do you want to do about this? And then we'll collaborate, collaborate with the local office to create an action plan that's specific for their office. And then we have the execution firepower to really then go and help drive those changes that we have buy-in from the local leadership. That's brought in from the staff level as well. And you know, what we find a lot of times is that firms know the direction that they want to go. They know the strategy that they've kind of laid out in this three or five year plan. But how do you find the time to really go execute on those strategy decisions when you're managing clients, you're, you know, managing staff and trying to develop them, you're doing business development, right? There's just not as much time in the day or the week to be able to go and do those kinds of strategic initiatives. And that's what we've built our team around. Yeah. No, I like that a lot is just kind of like letting people operate in their own, you know, area of genius, right? Like a firm operator who's, who's grown a wonderful practice might not be great at HR or might not be great at all these other things. And so they're just very unburdened and allowed to kind of do the other things that they're probably best suited for. I talked about that a lot in terms of just kind of, you know, firms learning to leverage their time. And that's a journey I've talked through with like small firm owners who've been acquired by bigger firms too of like, Oh my God, my billing rate just went from 250 to 750 an hour. How do I actually like justify that rate? And how do I learn how to kind of like operate in a place where I can actually add more than 750 an hour worth of value. Right. And so this just completely unburdens people, which is, I think a really important a really important thing. So it kind of feels like, right. They, they still are small firms or, you know, medium regional firms at heart, but they get to kind of get the big firm resourcing and a lot of the kind of benefits at scale of a big firm. That's right. I like to think of it as kind of this, this Goldilocks zone, right. You know, boutique firms, and I would define boutique, you know, kind of 2 million up to 20 million of revenue, you know, handful of partners boutique in the way that they service their clients boutique in the way that, you know, the, the team interacts with each other. And, you know, when I think about what those firms do well, it's, it's really service their clients and provide strategic advice. And a lot of times people will self-select into that type of firm for a number of reasons, whether it's better work-life balance, whether, you know, kind of direct conversation and engagement in their clients, you know, lives and, and being able to really kind of feel that material impact that they're making. But a lot of times that will come with trade-offs, right? So if you go to a big four or a large national firm, you know, you're going to get the training and development, the cachet, right. Maybe working on large public companies, if that's what's interesting to you. And I think of platform is kind of somewhere in the middle, right. Where you can get all of those things that you love about being at a boutique firm without having to deal with the trade-offs of going to that larger organization. And it's gone really well on the market and have had a lot of success in recruiting talent, in retaining talent, in growing, you know, the, the folks in our organization to, to take on more roles, to take on more responsibility. That's exciting. That's more in line with the direction of where they want to go with their career rather than, you know, some of the things that they've seen, the other partners, the older partners do in their career and whether that's interesting to them or not. And I like, I like that kind of distinction because again, when I was an accounting student, I would have rolled my eyes at that, but now looking back and having had all these conversations with like, you know, all kinds of different practices, I kind of realized like my biggest problem in big four was like, I was not a fitting the mold employee and the, the areas where I could add the most value and what I liked and was good at did not fit the evaluation criteria of what would be kind of an analyst, senior analyst, probably even manager person. And actually had like a very like frank conversation with people there being like, listen, you're going to love it here if you make it until senior manager, but like, you're not going to have a good time until then. Right. And so, and so, yeah. And it's not even their fault. Like you can't manage 20,000, 50,000, a hundred thousand employees in such a tailored manner. Right. Like there's just no way that it would work versus kind of in some of these smaller practices that might work out for people a lot better. Um, so I do think that those like trade-offs are super important and now, okay. So we've talked a lot about acquisitions. We've talked a lot about you kind of providing a lot of service for these firms that are being acquired. Um, where's the capital coming from for acquisitions? Cause that's entirely unique, at least in terms of conversations I've had. So like we've spoken to people who have kind of some similar models around ascend, um, probably not as much of a one-to-one comparison, but like dark horse as well as kind of like Trent, you know, challenging the traditional firm model and doing kind of different level of operation. Um, but yeah, you're kind of unique on, on where the capital is coming from. Sure. Yeah. And, and it, we're unique because we've been incredibly deliberate over the last 10 years, uh, as we thought about raising capital and, you know, we've raised capital a couple of times over that timeframe and every time have raised from family office. And as we think about kind of the continuum of private capital, that there's a lot of different flavors to it. And, and I don't necessarily think that one is categorically better than the other. It's, it's really more about how you think about the long-term strategy of your company. And as I think about, you know, you mentioned ascend, right? They're kind of traditional private equity and that's great. And there are a lot of benefits of having traditional private equity backing, you know, a lot around kind of infrastructure and thinking about, you know, putting a scaled organization together and bringing the right people around the table, et cetera. And that's great. As we've thought about our business, you know, we've chosen family office for, I think, two different reasons. One is the time, the timelines, right? There's no kind of defined timelines, LP pressure to return capital. You know, as you think about traditional private equity, a lot of times you sell your business to a private equity firm and they're thinking, okay, now we need to start getting the business ready for sale, right? We have, we're on this timeframe. Let's get in, let's build as fast as we can. Let's accumulate as much revenue as we can, and then let's get it ready for sale. And that model doesn't necessarily line up with what we think makes sense in the accounting profession. I think that the accounting profession is fundamentally different than some of the other industries that private equity has exercised that playbook in things like that, or, you know, RAA or insurance, right? I think that that model works really well over there. And it maybe doesn't work quite as well in the accounting profession. And as we think about building a long-term fundamentally sound business, there are inherently investments that you have to take, you have to make to be able to build something like that. Something that is really enduring and to its core has the right pieces in place to live well beyond Reyes, to live well beyond Tyson or COO, to live well beyond me, right? You have to make investments early on. And because of the patience between family office versus private equity, family office allows us to make those investments. And as we think about it, you know, they're trading kind of short-term profitability for long-term sustainability. And we would much rather have that long-term sustainability than operate on a three to five-year timeframe of when are we going to get the next flip? When are we going to be able to kind of, you know, maybe kick the can down the road? And that just doesn't align well with our founding values, particularly from Reyes and how he thought about building a business. So that's the first one. The other is operational control, right? If you take a private equity investment, a lot of times they're going to be majority or very close to majority. And so at the end of the day, they're the ones that are calling the shots. Family office is different because a lot of times they don't want majority control, right? They want to partner, especially in our case with founder-led management teams who have an eye for, you know, building a long-term business. And, you know, I think there's just a difference between an investor mindset and an operator mindset, right? The investor will sit on the board and say, here are the five things that I want you to go get done this year. And the operator will say, that's great, I know, and I'm trying, but I have the political capital across the organization to do two of those, right? And if you're having somebody breathe down your neck and say, no, no, you need to go do five things this year, you only have the political capital to do two of them, that puts you in a pretty difficult situation where you're trying to make trade-offs, you're trying to trade off maybe some of the employee experience or the client experience to go drive the strategic initiatives. When if you have patient capital that's saying, hey, we've got a 15-year timeframe, I don't need you to do everything all in one or two years, we've got plenty of time, go focus on your people, go focus on your clients, and we can go execute on the couple of strategic initiatives that we think are really crucial, and then next year we can do two more strategic initiatives, right? And so not having that kind of full operational control, really pulling the strings gives us the flexibility to make the investments into our business that we need, to make the investment into the people that we need, and really take this long-term view of, if we build a great business, we will have optionality to return capital to shareholders, to return capital to our employees, right? Just across the gambit of how do people turn shares into dollars, we'll build a good business and you'll have a lot of different options on how to do that. And okay, so I have a few questions on that basis. First one, just a quick clarification, when you talk about minority stake investments, are we talking about the family offices in Platform Accounting Group or are we talking about investments from Platform Accounting Group in SmithSmith and Smith LLP? Yeah, the former, not the latter. So the family offices investment in Platform Accounting Group, when we think about acquisitions, we're taking a majority position. Okay. And then, yeah, so I mean, this was started 10 or so years ago, so obviously if you're private equity backed at this point, it would be just an immense amount of pressure to flip this at this point. And I know there's different time horizons. In the conversation I had with Nishad from Ascend, it sounds like they have a very extended timeframe from a private equity perspective. However, that's obviously not going to be the same timeframe as family office. And so basically, with family office, my understanding is that there isn't necessarily any pressure to liquidate whatsoever, provided this is cash flowing, right? Yeah. Or continuing to grow and have a great business, right? It's not that our family office partners are saying, hey, don't grow and just produce dividends. They're saying, we don't want to force you to make short-term decisions because we need to return capital to LPs in a shorter timeframe. So as long as the business is continuing to grow, there's improvement, right? We want to stay in this as long as possible. The guys that run the family office are ex-Carlyle guys. And the reason that they left Carlyle was because they felt like they were selling their winners too soon. And they didn't want to be forced to return capital to LPs for firms that were really on the precipice of really taking advantage of that really explosive growth. And so they said, there's got to be a better way to do this. We can... continue to have that investor mindset and partner with great companies. But we don't want to be pressured to sell before we think the business is at really an opportune place. And if the business is doing great, we want to be able to hold it as long as we feel comfortable. I love that. That's cool. And then my next question here about the difference in structure with this being family office. So if my firm's being acquired, are these typically all cash deals then? Or are people getting some form of equity at the top? Because at that point, there isn't necessarily a timeline to sell. And I know with PE, everyone talks about the second bite of the apple being such a big part of it. So yeah, what does that deal structure look like? Yeah. It allows us to be flexible, right? So if we need to not roll equity in a deal because somebody is on a shorter timeframe, then we can do that. For folks that are younger and have a longer timeframe, we want them to roll equity. And going back to my earlier point of building the business for optionality, it means that if we get into a position where somebody's been with us and they say, Hey, this has been great. I'd like to take some capital out and go buy a vacation home. Or just get some liquidity. By building your business with optionality, you have the ability to do that. Whether it's treasury buybacks from a platform, whether it's secondary sales to our investors, we want to have the optionality to make sure that when people want or need liquidity, we can still get that to them at fair market value and make sure that people don't think, well, your capital partners are not interested in selling. My capital is locked up for 10 years. That's not the case because you can build mechanisms into a rolled equity structure where folks can still get liquidity for their shares without having to do a major recapitalization of the business. Okay. That's cool. I like optionality across the board basically at all levels, which is really interesting. The time horizon is obviously important too, right? Yeah. Again, someone who's waited too long to retire and is 70 might not be that interested in waiting out for a flip on a private equity deal. That's right. It is good that this exists in the market for sure. There is a unique subset of buyers for whom this is probably a much better option as well, which is interesting. Then I want to touch on your own journey before we wrap this up here. You're pretty pure play, investment banking into private equity. What attracted you to be a part of this specific project around accounting? Is there something that you thought was super interesting and that you specifically wanted to be involved in and saw an opportunity in? Yeah. You're right. Traditional background, going to investment banking. Then at that point, all of my peers go into private equity. As I thought about it, I covered private equity groups while I was in investment banking and put together large debt packages for them to go out and do things just like this. That gave me a unique window of opportunity to see how are these investors thinking about developing investment framework and post-investment operational involvement in the firm. It was an attractive path. I went down that path and I received an offer at a mega fund and realized that I wanted to be inside of a business. I've always been entrepreneurial. I built a number of small businesses when I was a kid and through college and thought that private equity was really a means to an end for me, where I was going to do my time in investment banking, go into private equity, maybe go to business school, and then I could go to a startup or a company and really add value. I was fortunate because I met Reyes while I was in college. He was my mentor in college. I've known him for over a decade now. When I met Reyes, platform was just first getting started. I was familiar with the financial concept of consolidation. Reyes and I would talk about the different things going on in accounting and what made it particularly interesting. I always joked with him of, Hey, when you're ready for me, give me a call. I was joking. He wasn't. He gave me a call one day and said, Hey, we're thinking about doing this and really starting to run after it. We've got this proof of concept. We built this out. Here's where we're at. Is this interesting to you? I know immediately that's the direction that I want my career to go. I want to be inside of a business. I want to be building something that I fundamentally believe in. As I learned more about the accounting profession and industry, all of these lights just started going off in my head of, wow, this is such an amazing opportunity. There's this industry that is maybe dislocated or having issues, particularly around the people side. How can we maybe develop a different way to think about it or a different model that will help an industry fundamentally evolve? I've been here for four years and have watched that change happen. I've watched the industry evolve as Eisner Ampner got bought and Citric Cooperman got bought. Then the floodgates were swung open. It just reinforces that there really is no better time to be in the industry than right now. It's been a really fun, exciting ride and a fantastic learning experience for me relatively early on in my career. I'm 28. To be able to do this and go out and build something that I enjoy and love coming to work to do every day is something that I'm incredibly grateful for and think that it's just a really special opportunity. Yeah. Hats off to both you and Platform Accounting Group. You were doing this when it wasn't the obvious thing to do. I think that that's probably going to have its advantages. I imagine those first 10 acquired firms are probably up tremendously, not only from the revenue growth and helping with head office and all of that, but also just from multiple expansion. Multiples on those firms has grown pretty significantly as well from that point to where now it's the cool thing to do. Everyone's got to buy an accounting firm. That's right. That's really cool. Before I let you go, who should be getting in touch with you? For sure, any firm operator who is looking to explore an exit, I think it's a great idea to understand your different options. I'm sure you're probably receiving five private equity calls a week. Probably worth checking out what might defer in an acquisition coming from family office. And so definitely, I'll make sure I put all your contact information there. But also, if someone's looking to explore working in a firm with a little bit of a different operating model as well, definitely make sure you get in touch with Noah. And yeah, so thank you so much for joining me on the pod, Noah. Thanks, Tom. I appreciate you having me on and appreciate everything that you're doing for the industry with the Big Four transparency and making salaries more broadly known. I think that it's high time that there was some transparency and folks knew what was going on. So thank you for what you do as well.