August Aquila, vice president mergers and acquisistions for American Tax and Business Services (TBS), recently addressed a group of managing and administrative partners in New York about the overall goals and strategy of his organization. First he stated that TBS is a separate unit that operates within the Amex group of companies. Its objective is not to be a feeder to other segments, nor is it a loss leader. According to Aquila, it is intended to make money for Amex by providing high quality accounting and related consulting services to small and mid-sized businesses.

TBS sees the small business segment of the economy--$1.9 trillion, soon to grow to $2.8 trillion by the year 2002--as an underserved market with a potential for accounting, tax, and consulting services of $15 to $20 billion. This contrasts with the current market for audit services (according to the research of the AICPA's Special Committee on Assurance Services) of $7 billion.

This is clear evidence that the demand for the services of CPAs and CPA firms is not on its last legs as some would say. If TBS is right, accounting and related tax and consulting services represent a potential growth market.

Aquila went on to say that the trend for the delivery of services is to consolidate from fragmented markets with many providers into a few larger entities. He gave the example of the office supply business, which has seen a major consolidation into a few suppliers such as Office Depot and Staples. He obviously wants to be the Office Depot of accounting firms serving the small business market.

TBS, with its recent coup of bringing the Checkers Simon & Rosner LLP firm in Chicago into its fold, now boasts of revenue in excess of $100 million. Its plan is to double revenue this year and to be in the 50 largest markets for accounting and related consulting services. This sends a clear signal that TBS plans to enter the New York market, where it presently has no foothold, very soon. To be sorted out for TBS will be the kinds of services its CPAs can offer within the constraints of the regulatory structure of New York.

The usual arrangement that TBS contracts for is a purchase of the assets of the firm--its customer base and goodwill--with a payout contingent on the firm attaining certain financial goals. Pension obligations of the firm are presumably funded from the purchase price. The partners and employees of the firm become employees of TBS: The firm remains a separate legal entity to do attest services for which it may subcontract employees from TBS to do the work.

TBS receives compensation for the services performed by its employees on behalf of the old partnership as well as for use of TBS facilities and administrative services.

The question that arises from this arrangement is how independent is the old partnership from TBS. The attest services work is being done by the same people--employees of TBS--as the other work that TBS does. A sizable portion of the fee charged by the partnership for the attest services ends up with TBS as payment for various services it provides to the partnership. The issue of independence and who in fact is practicing public accounting will be determined by the various jurisdictions in which TBS operates.

TBS should not be viewed as a unique threat to the existing CPA practitioners. If not TBS, surely the competition will come from elsewhere. In fact, TBS validates that what CPAs do has value. Ultimately the small and mid-sized businesses that comprise the market TBS seeks to serve will decide which organizations will provide its accounting, tax, and relating consulting services. The choice will be made on the basis of value and the perceived quality of services. *