DEFA14A: CBIZ to Acquire Marcum LLP in $2.3 Billion Deal; Reports Mixed Q2 2024 Results

CBIZ announces the acquisition of Marcum LLP for $2.3 billion while reporting a 5.4% increase in total revenue but a decrease in GAAP EPS for Q2 2024.

Summary

• CBIZ announced its Q2 and first-half 2024 results, along with a definitive agreement to acquire Marcum LLP.
• The acquisition of Marcum, a national accounting and advisory firm, is valued at approximately $2.3 billion in a cash-and-stock transaction and is expected to close in the fourth quarter of 2024.
• Upon closing, CBIZ will become the seventh-largest accounting services provider in the U.S.
• CBIZ's Q2 2024 revenue increased by 5.4% to $420.0 million, while same-unit revenue increased by 2.8%.
• Net income for Q2 2024 decreased by 26.3% to $19.8 million, or $0.39 per diluted share.
• Adjusted EBITDA for Q2 2024 decreased by 6.9% to $50.7 million.
• For the first half of 2024, CBIZ's revenue increased by 7.2% to $914.3 million, with same-unit revenue up by 4.4%.
• Net income for the first half of 2024 decreased by 3.3% to $96.7 million, or $1.92 per diluted share.
• Adjusted EBITDA for the first half of 2024 increased by 1.0% to $169.5 million.
• The company incurred $6.7 million in expenses related to the Marcum acquisition, impacting Q2 earnings by $0.10 per share.
• CBIZ expects total revenue to grow within a range of 7% to 9% for the full year 2024.
• GAAP fully diluted earnings per share are expected to grow within a range of 6% to 8%, to $2.53 to $2.58 per share for 2024.
• Adjusted fully diluted earnings per share are expected to grow within a range of 10% to 12%, to $2.64 to $2.69 per share for 2024.

Sentiment

Score: 6

Explanation: The sentiment is moderately positive due to the strategic acquisition of Marcum and projected revenue growth, but tempered by the decline in net income and EPS for the reported periods.

Positives

• CBIZ's acquisition of Marcum LLP is expected to significantly expand its market presence and service offerings.
• The company reported revenue growth for both the second quarter and the first half of 2024.
• CBIZ projects continued revenue and adjusted EPS growth for the full year 2024.
• The company has a resilient business model with a high rate of recurring revenue and variable expenses.

Negatives

• GAAP EPS and net income decreased for both the second quarter and the first half of 2024.
• Adjusted EBITDA decreased for the second quarter of 2024.
• The company incurred $6.7 million in expenses related to the Marcum acquisition, impacting Q2 earnings by $0.10 per share.
• The departure of a small group of producers from the Property and Casualty Insurance business impacted earnings.

Risks

• The acquisition of Marcum is subject to various closing conditions, including regulatory approvals and approval by Marcum's partners and CBIZ's stockholders.
• Integration of Marcum may be more costly or time-consuming than anticipated.
• The company faces risks related to potential litigation, disruption of ongoing plans, and increased leverage following the acquisition.
• Uncertainty in the market, amplified by the election year, may lead to clients delaying investment decisions and tightening discretionary spending.
• The company is exposed to risks related to cyber-attacks, software licensing, and potential liabilities for errors and omissions.

Future Outlook

CBIZ expects total revenue to grow within a range of 7% to 9% for the full year 2024. GAAP fully diluted earnings per share are expected to grow within a range of 6% to 8%, to $2.53 to $2.58 per share for 2024. Adjusted fully diluted earnings per share are expected to grow within a range of 10% to 12%, to $2.64 to $2.69 per share for 2024. This guidance excludes the impact of the Marcum acquisition.

Management Comments

• Jerry Grisko, CBIZ President and Chief Executive Officer, said, 'We are pleased to report that our second-quarter results were generally in line with our expectations and that the overall health of our business remains strong.'
• Grisko continued, 'This morning we announced our agreement to acquire Marcum... We are excited about our future together and the opportunities this will provide to our people, the solutions we will bring to our clients, and the value we expect to create for our shareholders.'

Industry Context

The acquisition of Marcum positions CBIZ to compete more effectively with larger accounting and advisory firms in the U.S. middle market. The consolidation trend in the accounting industry reflects a desire to offer a broader range of services and gain market share.

Comparison to Industry Standards

• CBIZ's acquisition of Marcum for $2.3 billion is a significant transaction in the accounting and advisory services industry, comparable to other major acquisitions by firms like Accenture, Deloitte, and PwC to expand their service offerings and market reach.
• The combined entity aims to be the seventh-largest accounting services provider in the U.S., placing it in competition with firms like RSM, BDO, and Grant Thornton.
• CBIZ's revenue growth of 5.4% in Q2 2024 is within the range of growth reported by other professional services firms, although the decrease in net income is a point of concern compared to industry peers who have maintained or increased profitability.
• The projected full-year adjusted EPS growth of 10% to 12% is a positive indicator, suggesting that CBIZ expects to outperform some of its competitors in terms of earnings growth.

Stakeholder Impact

• Shareholders can expect potential long-term value creation from the Marcum acquisition, but also face short-term dilution and integration risks.
• Employees of both CBIZ and Marcum will experience integration and potential career opportunities within the combined entity.
• Clients of both firms will have access to a broader range of services and expertise.
• The acquisition could impact competitors in the accounting and advisory services industry.

Next Steps

• CBIZ will file a proxy statement with the SEC regarding the Marcum transaction.
• The company will seek approval from its stockholders for the Marcum acquisition.
• CBIZ expects to close the Marcum acquisition in the fourth quarter of 2024.
• Management expects to update guidance for the combined business upon closing of the transaction.

Key Dates

Keywords

acquisition, Marcum LLP, financial results, CBIZ, revenue, earnings, EBITDA, accounting, advisory services