DEFA14A: CBIZ to Acquire Marcum, Creating Seventh Largest Accounting Services Provider in the U.S.

CBIZ announces agreement to acquire Marcum, a top accounting firm, in a deal valued at $2.3 billion, aiming to solidify its position as a leading professional advisory services provider.

Summary

• CBIZ announced an agreement to acquire Marcum, the 13th largest accounting firm in the U.S.
• The combined businesses will have approximately $2.8 billion in revenue and over 10,000 professionals serving more than 135,000 clients.
• The acquisition will position CBIZ as the seventh-largest accounting services provider in the nation.
• The transaction is valued at approximately $2.3 billion, with consideration paid 50% in cash and 50% in CBIZ shares.
• The deal is expected to close in the fourth quarter of 2024 and is projected to be 10% accretive to adjusted EPS in the first year.
• CBIZ's second quarter revenue was up 5.4%, and first-half revenue was up 7.2%.
• The company faced headwinds including the exit of a team from its property and casualty insurance business, incurring a $0.03 adjusted EPS impact for both the quarter and the first half.
• CBIZ incurred $6.7 million in expenses related to the Marcum transaction in the second quarter.
• Full year 2024 adjusted earnings per share growth is now projected to be 10% to 12%, reduced from 12% to 14% due to the property and casualty incident.

Sentiment

Score: 7

Explanation: The document presents a mix of positive and negative news. The acquisition of Marcum is a significant positive, but the lowered earnings guidance and other headwinds temper the overall sentiment. The strategic rationale and future outlook are optimistic.

Positives

• The acquisition of Marcum will significantly increase CBIZ's scale and market position.
• The combined company will have a broader range of services and expertise to offer clients.
• The transaction is expected to be accretive to earnings in the first year.
• CBIZ has a strong track record of successful acquisitions and integrations.
• The company has financing commitments in place for the Marcum acquisition.
• CBIZ's Financial Services division experienced continued steady demand for core accounting and tax services.
• The government health care consulting business is demonstrating strong momentum with growth in new projects.

Negatives

• The exit of a team from the property and casualty insurance business negatively impacted earnings.
• The company experienced some delays for project-based discretionary services.
• The M&A market was more subdued than expected, impacting advisory services revenue.
• Higher-than-normal claims costs in the self-insured health benefits program impacted earnings.
• The company intentionally migrated from client relationships that do not meet minimum thresholds of profitability which impacted quarterly revenue.

Risks

• The integration of Marcum could be more costly or time-consuming than anticipated.
• The company may not achieve the anticipated synergies from the acquisition.
• The transaction could disrupt ongoing plans and operations.
• The company faces risks related to increased leverage following the transaction.
• Economic uncertainty and potential regulatory changes could impact client spending.
• The company is pursuing legal remedies related to the exit of the property and casualty insurance team, which could result in additional expenses.

Future Outlook

CBIZ expects stronger year-over-year growth in the second half of 2024 and anticipates the Marcum transaction to close in the fourth quarter of 2024. The company expects to provide more detailed guidance for 2025 after the transaction closes.

Management Comments

• Jerry Grisko: 'This acquisition provides us with the scale to exponentially accelerate our growth strategy.'
• Jerry Grisko: 'Together, we will expand our horizon of possibilities, strengthen our overall capabilities and reach new heights that we truly feel will break away from others within our industry.'
• Ware Grove: 'The combination of CBIZ and Marcum really combines two very similarly managed businesses, and that gives us the opportunity to continue to build on the attributes that youve seen with CBIZ with our track record of revenue growth, margin expansion and then a higher level of bottom line growth versus top line growth.'

Industry Context

The acquisition reflects a trend of consolidation in the accounting and professional services industry, as firms seek to expand their service offerings, geographic reach, and technological capabilities to better serve middle-market clients and compete for talent.

Comparison to Industry Standards

• CBIZ's acquisition of Marcum positions it as the seventh-largest accounting services provider in the U.S., competing with firms like Deloitte, EY, PwC, and KPMG.
• The deal's valuation at 12x adjusted EBITDA is within the typical range for acquisitions in the professional services sector.
• Marcum's historical growth, driven by both organic expansion and acquisitions, aligns with the strategies employed by other successful firms in the industry.
• The focus on serving middle-market clients is a common strategy among firms seeking to capitalize on the growing demand for professional advisory services in this segment.

Legal Proceedings

• CBIZ is pursuing legal remedies related to the exit of a team from its property and casualty insurance business, alleging breach of restrictive covenants.

Stakeholder Impact

• Shareholders will benefit from the increased scale and potential synergies of the combined company.
• Employees will have access to more opportunities for growth and development.
• Clients will benefit from a broader range of services and expertise.
• The company's increased size and market position could impact competitors.

Next Steps

• The company will file a proxy statement with the SEC related to the transaction.
• The company will seek approval from its stockholders for the transaction.
• The company will work to secure regulatory approvals for the transaction.
• The company will focus on integrating Marcum after the transaction closes.
• The company will focus on deleveraging after the first year of integration.

Key Dates

Keywords

acquisition, Marcum, CBIZ, accounting, financial services, merger, revenue, earnings, EBITDA, synergies