The Power of Data & Acquisition News with Stuart Ferguson

Hello, and welcome to the Big Four Transparency podcast. I am joined today by Stuart Ferguson, the current president of Stout Strategy, and formerly until very, very recently, actually, the managing partner of Point Advisory. Welcome to the pod, Stuart. Thanks, Tom. Appreciate it. Good to be here. Yeah. Yeah. I'm very excited to have you on. You are coming out on the on the back of some pretty huge news here. So Point Advisory having been acquired by Stout, so we're definitely going to touch on all of that later. But to kind of start off, like, what is it that you do? Because I'm sure a lot of people might recognize you from, you know, Private Equity Summit or various other conferences where you were kind of the talk of the town with your presentation there, two years running. So yeah, let's get into a little bit what Point Advisory did when you were managing partner there. Yeah, absolutely. And Dominic, I think more folks are talking about your presentation being the guy who knows more about compensation than anybody else in the market. But happy that we're at least in the same level at that conference. But Point Advisory, I'll keep it reasonably brief. You know me to be a loquacious guy. So cut me off at any point if I ramble on too long. We're a strategy consulting firm. So you could think not dissimilar to the Bains, McKinsey's, BCG's, EYP's of the world. One thing that's a little bit different about us is we're very deeply verticalized. So we focus on just three core industry verticals. And the one that's most relevant for the conversations you and I have had is professional services. And we've been focused on professional services for over 20 years, advising firms originally, almost exclusively on top line growth. Where do we grow? How do we outperform our peers? Where do we invest to see a overweight return on our capital? But it's evolved to helping them think through other line items in the P&L. How do we optimize cost revenues, delivery models, offshoring, tech investments, even all the way down to indirect costs or OPEX? How do we ensure that we're running as lean and mean as possible without under-investing in our business? So up and down the P&L. But I'd say the areas that keep me most excited are organic and inorganic growth. And that's where I spend most of my time. Yeah. I mean, you guys have been instrumental in the behind the scenes of a lot of these M&A deals without necessarily naming them all. But that's how we got introduced is I was speaking to Moutien from Charles Bank through the kind of Aprio connection that we have there. And he was like, oh, there's this guy you need to talk to. And he was like, very, very adamant about that. You were like the number one name on the list of like, you need to talk to him. And so like, you've very clearly been very instrumental in a lot of that kind of M&A work as well. Now there's a lot of different touch points in supporting these deals, right? Like there's the Coltons, who my understanding is like, that's a lot of like the introductions and like the warm handshakes and making things happen. But you guys seem to be very deep on the analytical side. So are you typically kind of supporting the buyer in like running analytics on the potential target or what does that look like? It's a great question. Alan Colton is more the eye in the sky and we're kind of in the trenches doing the dirty work. Yeah, we're either advising a private equity firm, a sponsor on the buy side. So looking at a specific CPA firm as an example, and evaluating, is this a business that we should buy? Yes. What's the right underwriting case or the appropriate valuation to be able to successfully transact on this business and then scale it appropriately? And the areas we have historically focused are, what's the specific market size and growth potential for this business based upon the size of clients it serves, the industries it's in, its service lines, etc, etc. How strong is the leadership team? How scalable is their strategy? How intentional and thoughtful is that strategy? Do they have differentiation based on talking with customers and other folks in the marketplace? And then if we were to expand EBITDA over the next five years, what levers would you pull from a value creation standpoint? Could we enhance leverage ratios? Could we up utilization? Could we shift pricing? Could we improve cross-selling? There's a whole bunch of different ways in which to drive value through these firms that has in many respects been under-invested in and that's what we're stress testing on the buy side. That's about three quarters of what we do. The other quarter would be actually on the sell side. If a firm is coming to market and they want support thinking through all of those things and how to articulate their equity narrative, we'll spend time with the leadership teams and actually build a glossy report for them to include in their data room to show private equity sponsors how we think about their business as a third party, but also to ensure that the leadership teams are crisp and tight on how they're articulating the potential for their business. Okay. And some of the materials that I've seen you put together, I think the best description for me is I would say it's a little bit frame-breaking where I think a lot of consulting work can be, I don't know how to say this, maybe a little bit squishy, right? It's like, oh, you know, the prevailing theory is that, or my professional opinion is that, but you guys are deep in the analytics and I have actually genuinely never seen anything like that in my entire life. Where do you gather all this data and how does that even sort of come to be? Because everything that you're saying, pricing will be then accompanied by a scatterplot with 800 different data points on trends over the last 10 years. How does that come to be for even anyone who's like looking to get a little bit deeper? Because this is like coming from someone who's done data collection at scale, this is very astonishing. Yeah. So one of the things that was a thesis for the business back 25 years ago when it launched was it'll be tough for us to differentiate just on the basis of the originality of our analytics. Not that that's a commodity, but a lot of folks can do relatively sophisticated analysis. We thought that if we got better, higher quality data, that in and of itself would be a point of differentiation. It's the same caliber of analysis, but better data. So over the last 25 years, we've been really intentional about codifying our research over time, both to ensure that we've got better depth, but also better longitudinal views on different trends in the space. So we've done tens of, this is not hyperbole, tens of thousands of interviews with experts in the market over the last couple of decades that we've been able to, now that we have all those transcripts, we could plot and or put into one massive database and wrap an LLM around it and have querization and drive really interesting insights from that data. That's number one. Number two, we, starting about eight years ago, went beyond just doing primary research calls to actually building out custom panels across the globe in the professional services space of both customers and then folks that are in the businesses. So we have voice of customers and voice of talent and have built a pretty substantial database now of over 30,000 respondents of buyers of these services to assess, you know, net promoter scores, key purchasing criteria, trends around pricing, willingness to pay. And we have over 600 different providers with discrete data points in this database because it's been, we've now covered so many different markets. So we've got a pretty incredible amount of insights across, you know, who is good at what. I've got a, I did not build this, my team, which is much brighter than me, have this really awesome Power BI dashboard where you can type in any firm and it pulls up all of these stats, comparing them to what they've been tagged as their peer by geography, by company size, we're able to pretty quickly gauge, is this a high performer? If yes, across what different benchmarks, what different dimensions, not dissimilar to the incredible data source you have on compensation benchmarking. We've tried to do that, but we're coming at it from a different angle. You're coming at it from the angle of the employees and compensation where the supply side or we're much more on the demand side, how customers are thinking about the particular firm. Yeah. Well, so that's like the experience that made this so like mind blowing for me, whereas like I went very, very deep in like one area, but like, yeah, it feels like point has that, but like from like 47 different angles of like equivalent or greater depth. And I just, I find that crazy because I'm like, I very much captured lightning in a bottle with Big Four Transparency of like getting this much community buy in into this thing. But then to repeat that so many times, I think is crazy, right? So with all this data, when you're kind of doing the consulting with firms, like what is the most common sort of unlock that you're driving for them or like what's usually the blind spot that you're able to provide an answer to? Yeah, what's what's interesting about a lot of CPA firms is they've grown up very entrepreneurially, but also very opportunistically. And so when they think about growth, it's more about launching of new practices based upon where they think there's an opportunity in many instances, almost in a vacuum, as opposed to a longer term vision of what is the business we want to build over the next decade. And if that's what we want to be when we grow up, what are the areas we should be investing in and overinvestment in today to be able to start walking towards that particular end state? And so I think the biggest gap folks have is more around the intentionality of the immediate steps being mapped to the long term vision for the business. There's a bit of a thousand flower strategy for a lot of firms. They've got teeny tiny subscale practices across a ton of different areas without a very clearly defined ideal client profile. And our goal is to help them really understand, hey, this is where you are differentiated category of one or at the very least have a really strong right to win. Don't get distracted by all these other areas where you don't have a differentiated value proposition, double and even triple down on the areas that you have a right to win. And that will drive better organic growth. And really, it starts having kind of a compounding impact on how the business performs over time. So I think focus, frankly, one of the ways in which we help firms a lot is just to increase their conviction around what to focus on. And then, I mean, proof's in the pudding. Strategy is only as good as its execution. So getting them locking arms and helping them actually start getting momentum around execute on that particular strategy. Yeah, that's interesting to me that that's still such a like common issue for the firms, right? I mean, that's something like we advocate for a lot where it's like, yeah, if you're just kind of going like, oh, we help businesses, then it's like, well, OK, but there's a big four firm out there who has a thousand times more resources than you who can probably realistically cover that broad spectrum in general, on average, better than you can. But if you go like, hey, we help construction businesses who specifically are doing construction of data centers and this and that, like you probably don't need that many clients until you have the same number of clients doing that as the big four firm does, let's say, or whoever other major player. But you know, if you adopt that niche and you go all in that, like, it's not going to be that far down the line until you can become the leading expert firm on that and have all of the benefits that come to you with that, right? So it's interesting to me that like that's still something that's hard to drive through. Obviously, for a small firm operator, just hearing that once or twice is probably enough. But I imagine for you guys working with a hundred million dollar firm, like they probably want to see some proof before actually believing you, right? Oh, without a doubt. And we have had to invest a lot around getting the data to support with evidence that the more you focus, the better you'll perform over time. I mean, I understand the trap. A lot of firms, I don't know if it's fear or just prior experience that the way in which you grow is like more surface area. It's almost like I could give you an analogy for like gold mining. It's way less intimidating to put a whole lot of folks out, you know, panning for gold in as many different creeks as possible. And the way in which you think you get more gold is like, well, let's access more creeks or more rivers and you'll get more gold. It's way scarier to say, hey, dig a hole here. It's depth versus breadth. And you might, if you're right, hit a vein of gold and make way more than you ever could if you had just been panning. But a lot of firms are like, oh gosh, what if we're wrong? So trying to get them confident, like, no, it's there. You got to do the hard work for it, but you have a right to go down and get that hidden gold. Not my best analogy, but we'll roll with it. I was about to compliment you on the analogy. I was going to say, what a good analogy. Yeah, no, I like that one a lot. And so what motivated the sale of Point Advisory? Because it feels like you were both gaining traction kind of, you know, I guess personally as the face of the firm and be, you know, at the same time in this like exploding area of demand where it's very clear that firms need this type of service both to, you know, deal readiness, figure out should we sell, should we acquire, et cetera, et cetera. But also for the firms who are remaining independent, like the bar is continually being raised. And so it just feels like this is now like everyone needs to consider a little bit more outside strategy and a little bit more kind of, you know, sharpening their tools a little bit. So, yeah. What motivated the sale ultimately? Yeah. I mean, as is usually the case, there's a whole lot of kind of behind the scenes variables at play. And I could list them all out and apply coefficients, but I'll keep it a little bit simpler. We went through a process after recognizing, let's take a step back and think through what do we want to be when we grow up? And then what's going to be required for us to get to that particular point? And kind of the non-negotiable for us was to continue to scale our value proposition, which we set out to be our purpose is to be a platform for fulfilling careers. We defined fulfillment by personal and professional growth for our people, and then relationships, and wanted to ensure that we safeguard and scale that value proposition. And as we thought about what was gonna be requisite and ate our own cooking kind of with a future back approach, we recognized the need for additional capital, as well as some underinvestment in different parts of the business. And so we went out and sought capital. We looked at a bunch of different potential partners. And we found that we needed not only capital capital, but experiential capital across a couple of core dimensions of the business that we wanted some support in terms of scaling. And Stout was incredibly values aligned. I don't know if you've met Craig. He's got a stellar reputation in the market. I'll have to introduce you. He's got a stellar reputation in the market, and it's incredibly well deserved. He's well known for good reasons. And the business he's built has almost eerily similar values to the business we've built. And a lot of their strengths complement some of the areas that were still opportunities for improvement, if I put it nicely, for our business. We felt confident that us being on their platform would amplify our purpose statement while accelerating some of our key growth initiatives. In particular, core focus for us has been accelerating into the value creation. That represents about half of our revenues now, but we want it to be two-thirds in the next three to five years. We were very heavily indexed towards M&A work, which I love M&A work, but it's volatile. And so it's good to have a nicely balanced portfolio in that respect. And they've helped us in that particular dimension already. And we've already done cross-selling on the platform and are really excited about what the outlook is for us being Stout Strategy. Yeah, that kind of cross-sell opportunity is for sure huge here. And then for Stout, you're a new division, if I understand it right. So you're not just being filed away as an acquisition from this mega firm. Because Stout is huge. So you're not just being filed away, you're really an entirely new offering that they're going to do and you're the president of it. So I mean, this is probably pretty phenomenal on both sides as well. There's a lot of new, very interesting opportunities for our people, for me as well. But we very much so feel that we're a tenth of the size of the overarching Stout platform. We definitely don't feel that small in terms of our ability to inflect growth on the overarching enterprise or to create value for the overarching enterprise. So we're really excited thus far. It's early days. And so we're very much so in our honeymoon phase. But we feel optimistic that we'll have this level of enthusiasm for the combination for years to come. And so you alluded to this earlier, you've supported so many M&A deals and all that in the accounting industry. What was different this time, you going through it? Did that unlock brand new perspectives for you that you haven't considered before? Or given a new level of empathy for the people going through it? I think empathy for sure. And sympathy. I mean, my role is historically to sit in management presentations and then provide my interpretation of what they said well, what they said wrong, what the gaps are. And I've given scathing reviews of leadership teams, ways in which they've carried themselves management presentations. It felt wildly different to be the one giving the management presentation and even hearing myself some of the stupid things I said. Knowing that on the other side, if I was diligencing me, I would have been pretty, pretty aggressive in terms of how dumb my responses were. So I appreciate a couple of things. One, it's harder than it looks to be in the hot seat. And two, you have an unbelievable volume of things going across your desk at any point in time, especially given you're still running the business. So not only are you running a process and trying to ensure that that is successful, you've got your day job. That doesn't slow down. So we were growing. We grew over 40% last year, so we're growing really fast and also in a process. It was a lot. It was energizing. But definitely now, knowing the weight of the various responsibilities and the shoulders of folks going through that process, I'm giving them way more empathy in terms of their responses. I'm probably too nice now in terms of how I evaluate management teams and my business is small. We're only a $50 million shop for folks that are dealing with 20x the complexity, 20x the size. Like, oh gosh, I can't even imagine they're better equipped than I am to deal with these. Yeah. Well, I mean, listen, I flipped a tiny book of crypto tax clients a number of years ago. I'm talking just barely scratching five figures. It was just like a little side thing. And even that, I was like, oh man, this is a headache. So yeah, I mean, I can only imagine at scale that that becomes a lot harder. But I think for you going forward, that's going to be really interesting as a perspective to look back on. Right? I talk about this a lot with audit partners or tax partners where it's like, oh yeah, you actually left the firm and boomeranged and did a stint in industry and they're like, oh man, let me tell you. That made all the difference. Like, I'm such a better advisor to my clients because I've been through it, I've understood their perspective, and I've myself been frustrated with the service provider who didn't understand where I was coming from. So I think that that's really, really cool and a great experience for you and the team. You nailed it. Couldn't agree, could not agree more. And I think we've already reflected on all of the unlocks we've had as advisors as a consequence of experiencing what our clients go through ourselves. You said it perfectly. I could not agree more. Yeah. So, I mean, really, really massive news, I think, for a lot of folks in the accounting industry who have been working with Point, and I imagine this will probably unlock even more for them in terms of value creation. Now to move on to kind of your own personal journey a little bit. I get questions about this a lot, like people asking me, I don't know why they're asking me, but like, hey, you know, I'm hoping to break into X, Y, and Zed. And currently I'm working at tax at this firm. You did that. So you actually like were in tax at KPMG at one point, which again, you know, speaking about perspective of who you serve, like that's super important as well. And then you kind of pivoted out of tax into, I mean, ultimately, you ended up at Bain, in terms of very recognizable names, let's say. A lot of people sort of look at that as, you know, very hard jump to make. Like, I guess, A, what were you seeking when you made that change and B, like, how did you do that? Yeah. Yeah. So it's a great question. I'd say, you know, first and foremost, I would argue that the core skill set you develop as an accountant, as a CPA, either in tax or audit, actually has some parallels or translatability into other areas of professional services. There's client centricity. You're working with a team, and in many instances, an eclectic group of accountants that are trying to solve a particular problem. You know, the building blocks of business are, you're fluent in them. You have strong financial literacy. The one challenge is, as accountants, we tend to be much more diagnostic, kind of below the ocean. We go from the bottom up, as opposed to in other areas, professional services, in particular for management consulting, because there's a universe that's not consumable of data. You have to be much more hypothesis driven and kind of top down. And you're validating or testing what you believe, as opposed to the kind of, give me all the data and let me, from that, start determining what my conclusions are. It's like, give me none of the data. Let me create some hypotheses and then start saying what data I need to test those hypotheses. So flipping that requires kind of external investment in yourself. So I would argue that there were some fundamental building blocks that existed for me from my experience as an accountant. But if you're making a career change, I think it is important to recognize you're going to have to do some extracurriculars. I did. I had to, outside of work, study up on, you know, what would it take for me to be able to really understand how to play this particular role. It was doing informational interviews with folks. It was trying to understand where my gaps were and then invest time and energy and fill in those gaps. And the reason I went on this journey in the first place, I was at KPMG doing a combination of some M&A tax and then some hedge fund tax accounting. And the other parts of those processes or client workflows, I found just absolutely fascinating. M&A, I thought, was intriguing. And for hedge funds, how they're placing big bets and then making determinations as to how do they even choose those decisions. I wanted to be helping to think through, well, how do you make the determination of allocating capital? Like what data do you need? What patterns do you need to be recognizing? How do you ensure you see what others don't and then weaponize that to your advantage? All of that was really energizing for me. And so you go to college and my priority was to get a job. And I remember I was a sophomore and I was being asked, what are you going to major in? And I Googled, what are the easiest things to get a job after college? And number one was nursing. I don't have a good bedside manner. Number two was accounting. I was like, I can count beans with the best of them. So I'm going to go that path. And so I deeply enjoyed learning about accounting. I'm still a CPA to this day. But I don't think I had set out with the expectation that this was my forever career. And I think part of that openness was also key for my ability to jump because I didn't feel like I was leaving the career path that I had set out on. Accounting felt like a great place to start as opposed to a great place to end. Yeah. Yeah. I was somewhat similar in the sense of like, I was always kind of like, well, this is cool. And I loved the M&A side of the tax work that I did when I was at Deloitte. And I was, yeah, I was always kind of like looking for something different. And when I had sort of learned about accounting, like it felt like a lot of people who had done really well were like telling me like, go into accounting. It's like the building blocks of everything. And like, everyone I know who's doing something entirely different, but started in accounting is saying like, oh, it laid such a good foundation for me, which I think is so cool. Part of the reason I ask also, like, how did you change from like what you were doing as like a tax professional? to becoming more of like a, you know, more of a management consultant in what we consider is that a lot of folks in a lot of firms are going to need to go through that evolution going forward, even just for themselves, right, where the firm needs to become more of an advisor to the clients rather than kind of focusing on the compliance side of things. So that's like a new, new dynamic that I think is really important. I could not agree more, and I tried to use that parallel that's fallen flat with my clients talking about my own personal story and how their business's journey should reflect that as well. And one of the factors that I saw was, we've talked about this before, you and I, where do you have a right to win, and that is largely based upon what differentiated capabilities you have. And I found that my differential capabilities were not advising tax clients. There were some other capabilities I had that I wanted to unlock, and so for a lot of these firms, it's similarly evaluating yourself, the good, the bad, the ugly, and then figuring out how do I, how do I deploy myself appropriately to actually win an overweighed share of the market based upon our unique selling proposition. Yeah. Yeah. Well, thank you so much for joining me on this. I think, you know, this is going to be huge for a lot of the clients that you serve and, you know, as well as for a lot of the clients at Stout currently who are going to be able to unlock the amazing capabilities that I've seen displayed at your former firm. So I think this is, this is fantastic news for, you know, a lot of folks that you've helped along the way. And yeah, congratulations on the deal and thank you so much for joining. I'm thrilled to be on it. Appreciate everything you do for the industry. Yeah. Same for you. So in a couple words, actually, who should be getting in touch with you, you know, just on the basis of what you were previously doing, but also maybe with regards to the, you know, new unlocks that are going to come with this partnership with Stout, like who should be listening along and saying, Hey, maybe, maybe I need a little bit of Stuart Ferguson in what we're doing. I doubt anybody needs, needs that. But I think the area that I'd say we're best positioned to support folks is for professional services firms, thinking through their strategy, especially for firms that are independent and want to maintain their independence and recognize that, you know, the, the choice to seek outside capital is a downstream decision from your longer-term vision. We can be very helpful in terms of helping folks evaluate where should they go and how can they get there and whether it does or doesn't make sense for them to seek outside partnership to execute on that longer-term vision. And of course, yeah, we do a lot of work beyond just strategy now. So I will probably talk folks' ears off about our broader capabilities too. Perfect. Well, make sure I link all of your contact information in the podcast description for those folks and make sure you get in touch and thanks for joining me. Thank you. I appreciate it.