An Inside Look at Sikich LLP
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The 225-employee firm, with six operating divisions, registered about $26 million in gross revenues after mark-downs in 2005 and is on a run rate for $30 million this year, all up from about $8 million to $10 million in 1996 when the company formerly known as Sikich Gardner & Co. launched a growth plan guided by its president James Sikich. He predicts equally fast growth in the years ahead.
“Our internal growth has been good, we have some mergers and acquisitions planned and, besides, business in general has been good,” says Sikich, 58, a wunderkind after he entered the profession in the 1970s and soon became the youngest partner at the former Filbey Summers & Co. in Champaign, Ill.
After some older partners at Filbey Summers sold their interests in 1982, Sikich and one the remaining partners, Jerry Gardner, kept their stakes to create Sikich & Gardner. What had been a staid practice that began operations in 1927, ultimately morphed into Sikich & Co., one of the fast-track multidisciplinary firms of the 21st century.
The 30-partner firm, up from 13 partners a decade ago, has separate divisions for accounting and advisory services, technology consulting, investment banking, entrepreneurial services, marketing services and human resources, and an affiliate company that does asset management. All of those practice groups, except accounting and technology, were begun since 1996. Gardner retired as a partner in 1992, but still works as a manager in the firm.
The firm’s expansion, all in the Midwest, has been a combination of organic growth and mergers and acquisitions (M&A). In just the past year it has: acquired Chicago area technology consulting firm Computer Application Solutions, a Microsoft business solutions specialist; established a new governmental strategic planning and performance measures practice; added a key top executive to its corporate services operations in Indianapolis; opened technology consulting offices in Indianapolis and St. Louis, MO., and entered into M&A discussions with an undisclosed technology consulting firm that has two Missouri locations.
Sikich describes his M&A strategy thusly: “We don’t grow for growth’s sake. We look at where we have market needs and then for practices that would be a good fit.”
While that’s a plain vanilla-sounding strategy, the firm’s growth in the past decade has been unusually rapid by industry standards and may be a prelude to future fast growth. Sikich expects the firm to at least double in size within the next five years or so.
In mergers or acquisitions, Sikich typically looks for other firms with about $5 million in annual revenue, a “platform” size which would indicate that the firm is already successful enough and has clients that could sense extra value from being served by a larger Sikich firm.
The individual specialty practice divisions of the firm are what provides value to clients and should make the firm attractive to other practices it seeks to merge with or acquire, Sikich says. He notes that in M&A’s he prefers accounting firms that only do accounting or tax work, since they could most likely benefit from being able to access his firm’s other service areas.
Practice management consultant Allan D. Koltin of Chicago-based Practice Development Institute, which has advised Sikich, says the firm could possibly triple in size by 2011 because of its specialty service area experience and expertise. He notes, “The old adage about CPA firms is that they are a mile wide (in service offerings) but an inch deep. Sikich has the depth to go to the next level.”
Examples of the firm’s specialty experience include Frederick G. Lantz, director of the accounting division’s government services group, who joined Sikich from the Technical Services Center of the Government Finance Officers Association, where he a nationally recognized expert on state and local government, and managed the group’s financial reporting certification program. Sikich’s ICS technology division, which specializes in business solutions from Microsoft Corp., last year won that vendor’s Gold award and was named to its Inner Circle of top consultants and resellers.
The Sikich firm did some significant repositioning at the start of 2006 when it converted from a limited liability company, known as Sikich Group, to a limited liability partnership, known simply as Sikich and made what had been member companies into separate divisions of the new structure. As such, all the divisions are being marketed as parts of Sikich.
While becoming an LLP can mean certain tax advantages, Sikich prefers discussing the change’s marketing impact. “The name change to Sikich will provide a stronger sense of who we are and what we offer while building on the reputation and history of our firm,” he said in a press release announcing the change in February.
Moreover, the re-branding reflects the company’s operating philosophy and the underpinnings of its growth strategy. According to Sikich, the move was done to “better serve clients by more clearly communicating our resources and capabilities.” Those resources are the people and capabilities of each of the company’s separate divisions.
Sikich says he methodically added and built up each of the divisions in order to cover more of the needs of the firm’s business clients. He adds that it was not done to simply copy the service levels that national consolidators boasted about when they were acquiring firms en masse in the 1990s.
He and some partners crafted the expansion strategy at a partner retreat in the mid-1990s, a time when H&R Block was launching a consolidation that resulted in creating the now-national firm RSM McGladrey; CBiz, then known as Century Business Services, began its spree of acquiring accounting and consulting firms, and American Express launched its Tax & Business Services roll-up, which was subsequently acquired by RSM McGladrey.
“We had a choice to join a consolidator; they all approached us. But our model of multi-services makes better sense,” Sikich says. “The consolidators’ model seems based on being able to cross sell services, while we have been adding services in order to add value in client services. So if one of our people working with a client sees a new need, he can advise the client on how that service can be handled right here within Sikich.”
He notes that the firm does not pay members for referring clients to services from another division, adding that if the service satisfies the client, the member winds up looking good to the client and reinforces that client’s connection with the firm. “We have extremely high client renewal levels because of that old rule that says the more things a customer buys from you, the more likely it is that he will stay with you,” Sikich says, paraphrasing an insurance industry philosophy.
There’s also a bit of defense to Sikich’s M&A strategy. “Sometimes you have to grow just to be competitive. The Big Four and the super regionals are just like us, but bigger, and that size lets them handle specialties we don’t have. We go after the same clients and that (offering an extra service) can make a difference, “Sikich says.
Big firm activity may be increasing in Chicago, which is already home to super-regional and international firm Grant Thornton, For example, Madison, Wisc.-based Virchow Krause & Co. has been busy buying small firms in and around the Chicago area and has publicly said it plans in a few years to have as many as 400 employees there, which could be double the amount that Sikich’s firm has in that market.
Sikich is obviously aware of Virchow’s Chicago plan but says that has not altered his already aggressive growth strategy “We are going to stay the course we have been on the past decade,” he says.
Just the same, he notes that Virchow’s presence could make it even more difficult to recruit staff, which he and many others say is the biggest challenge confronting firms today. “We’re finding plenty of clients but staff is something else. The Big Four are sucking up people as fast as they can because of all the work they have,” Sikich says.
He further says his firm can compete because in most cases it can match the larger firms’ salaries, and its array of specialty services provides yet another ace in the hole.
“I would hope that people look at all the services we offer and see opportunity for growth here because we are so diverse. For example, a person can start in accounting and transfer to technology.” Sikich says. “Being able to offer a lot of quality services helps our clients, and it can help us, too,”
by John Covaleski