Brown, Edwards & Co.: A ‘large small firm’ thinks big in the Virginias
Large firms might get all the attention with their towering offices in major cities, but sometimes even being a “large small firm” is enough to make waves, according to Jason Hartman, CEO of Virginia-area firm Brown, Edwards & Co.
“We have the feel — to the clients, to the staff, to the partners — of a large local firm because we are a 10-office firm,” said Hartman. “And we’d like to try to keep that culture, that feel, as we continue to grow.”
Founded in 1968 when two predecessor firms merged, Brown Edwards has now expanded to 10 offices across the Virginias and Tennessee, with “all but one of those offices” a result of a merger or acquisition, according to Hartman. This year, the firm also earned a spot on Accounting Today’s 2019 Top 100 Firms list.
‘We hope to see organic growth in areas ... where we’ve added bench strength, but I also think that continued merger and acquisition activity is likely. We are getting more inquiries and expressions of interest now than we have ever seen.’
Over the last three years, the firm’s acquisition activity has ticked up, though mostly in small markets. (Roanoke, Virginia, with a population of approximately a quarter of a million people, was the firm’s largest market until only a few months ago.) Recent acquisitions include Dixon Hughes Goodman’s Roanoke practice in February 2017, Gibbons & Kawash in Charleston, West Virginia, in January 2018, followed by DHG’s Newport News office last November. “My hunch is that we’ll have two to three more [acquisitions] over the next year or two,” Hartman said.
“We [have] offices with roughly $14 to $15 million in revenue down to $2.5 million in revenue,” Hartman added. “We’ve been lucky to capitalize on the focus of the super-regional firms, who are moving towards major metropolitan areas, and the types of clients and work in smaller markets doesn’t fit as well [for them], but it fits well for us.”
Brown Edwards’ bread-and-butter industries include construction, community banks, private colleges, state and local government, and benefit plans, with those five areas equaling roughly half of the firm’s generated revenue, according to Hartman, with “a little bit of everything else with the other $25 million in revenue.”
Chief operating officer Laura Sprouse estimates that 60 percent of the firm’s work is in A&A, with another 35 percent in taxes and 5 percent in consulting (though consulting is also a part of A&A and tax work, she said).
“We’ve had substantial growth through mergers, and we’ve had pretty significant organic growth,” said Sprouse. “I think a lot of that organic growth can be attributed to just the quality and reputation … in our local areas, as well as the principalities outside our local areas, clients know that we are very diligent in providing quality product, that we’re very service-oriented. I think that word has spread as we continue to build upon those niches and build our bench strength through some of these mergers and acquisitions.”
There’s good reason as to why the good word has spread, as Brown Edwards has prided itself on trying to leave its acquired firms feelng independent.
“The culture of the firm is such that we try to make partners feel like the business owners that they are,” said Hartman. “Our management is still largely individual-office-focused, so a lot of decisions are made at that level and the partners feel like partners, as opposed to … [when] management is more across service lines and industries and most decision-making is centralized [so] partners tend to feel more like employees. I know in some of the acquisitions we’ve done, firms have talked to other firms like us, and they have come away from Brown Edwards feeling that the culture suited them better. They could merge their firm in, get a lot of the advantages of being a Top 100 Firm, but not lose the culture or the feel of a big local firm.”
A cybersecurity niche and a K-12 education program have also helped drum up interest in the practice. “The K-12 program was just another avenue of education for us,” said Sprouse. “We’ve got two partners who have been involved with that. We’ve picked up new K-12 clients who our partners are out talking to at events. It’s just really been impressive to see how fast that really has grown. Our cybersecurity group … just the way that [they] can talk to our clients in a very down-to-earth manner and explain the risk and issues [is] just a great add-on for us trying to do any cross-selling to our clients.”
“Through a couple of these acquisitions, we have significantly increased our depth in practice areas we were already in, like higher education,” added Hartman. “We had a large local government practice, but as a result of one of the transactions, we now have a pretty significant state government practice. So we hope to see organic growth in areas like that where we’ve added bench strength, but I also think that continued merger and acquisition activity is likely. We are getting more inquiries and expressions of interest now than we have ever seen.”
Looking ahead, the firm’s future is bright, but retention is still a major concern, as it is at most practices. “We don’t have much of an issue hiring entry-level staff, but we have a problem holding them past that three-, four- and five-year level,” said Hartman. “And I think a challenge we have is very likely a narrowing of the pyramid at the top — I think in 10 years, for the same volume of revenue, the partner count is going to be lower, partly because of fewer people being interested in that role. Partners are going to have to learn how to work and manage differently than they do today to get us there.”
“If the predictions come true, that compliance work and hours are going to drop off significantly due to technology, how do we replace that revenue?” Hartman continued. “We’ve had partners who have recently retired and partners who will be retiring in the next few years, and we’ve got to buy them out. Our concern is that the practice we’re buying from them through their retirement payments may not be there to fund those payments. So … how do we keep it going if that compliance revenue does significantly shrink?”
Internally, Brown Edwards will continue to develop staff members by letting them find their niche — a defining characteristic of the firm.
“The opportunity that the firm affords the staff, just the ability to try different things and be different things to find your own path through the firm, is something that worked well for me for years,” said Sprouse. “I started out as a staff member and am now up to the role of COO — you just never get put into a box and always have the opportunity to try other things and be other things with the firm.” And despite having big ambitions and a growing list of acquisitions, Hartman is comfortable resuming Brown Edwards’ focus on the mid-market and smaller clients: “We think [it’s] good work, we enjoy it, and we appreciate and respect the communities we serve.”