Accounting- and consulting firm KPMG has agreed to buy Rothstein Kass, the 19th largest professional services firm in the United States. Terms of the deal have not been disclosed yet based on the size of Rothstein Kass analysts suggest that it is KPMG’s largest acquisition since the merger of Peat Marwick International and Klynveld Main Goerdeler that formed the current KPMG in 1987.
Rothstein Kass has more than 1,000 professionals in 10 offices across the United States, making it the 19th-largest accounting firm in the U.S. It provides a full suite of audit, tax, and advisory services to hedge fund, private equity, venture capital, and other clients. Several large names such as Paulson & Co., Brigade Capital Management and Pennant Capital Management belong to its clientele. KPMG’s Alternative Investments practice currently boasts more than 6,000 partners and professionals worldwide, and is part of the firm’s Financial Services business line. Rothstein Kass had $202 million in revenue last year, compared with KPMG's $6.1 billion in U.S. revenue.
In a press release KPMG provides two main reasons for the takeover. Firstly, with the acquisition it instantly becomes the largest auditor of hedge funds in the US (based on client numbers), up from fifth currently and displacing the current #1 EY. “The addition of Rothstein Kass significantly strengthens KPMG’s market position in the Alternative Investments space and enables us to provide the highest level of service to hedge funds of every size and at every stage of growth, from emerging managers to the most seasoned funds,” said P. Scott Ozanus, COO of KPMG.
Secondly, KPMG is – similar to its competitors – aggressively seeking to tap into the booming hedge-fund-services business. According to HFR, which tracks the hedge-fund industry, total hedge-fund assets have grown to a record $2.7 trillion in the first quarter of 2014, nearly triple the $972.6 billion of 10 years ago, and growth is expected to continue. In addition, hedge funds also have a growing appetite for auditing, consulting and tax advice, as regulators increase their scrutiny of the industry.
Not for sale
The deal between KPMG and Rothstein Kass does not come as a complete surprise. KPMG has tried to buy the firm previously over the past few years, but the smaller firm had indicated in the past it wasn't interested in selling, to KPMG or anyone else. Last summer, in the face of rumours that Rothstein Kass might be acquired, founder Kass even sent employees a memo reconfirming that the firm was "not for sale”. Yet now, following renewed negotiations between the two firms, the deal has been sealed. “We looked where the two organizations would benefit each other," explains Ozanus.