When BDO USA’s 880 partners met recently in Florida, they voted nearly unanimously to establish an employee stock ownership plan (ESOP). The plan is scheduled to go into effect on August 31, 2023 and will give the firm’s 10,000 employees a direct stake in ownership. The firm’s executives will continue to lead the company and build its tax, audit and advisory services.
Attracting and retaining talent is a major focus for Berson and BDO and their new ESOP is a key part of that strategy. “The people who contribute to our success will have the opportunity to benefit from it,” Berson added.
According to BDO USA CEO Wayne Berson, “”We do a lot of choice-of-entity consulting, and we thought, ‘Why don’t we just look at it [an ESOP] for BDO?’ And we concluded we’d be better off as a corporation.”
Attracting New Talent
One of the primary drivers for BDO’s move to employee ownership is to attract new talent. “We’re dealing with a much more severe situation today than five years ago in this industry, which has not attracted enough people into the firms,” Berson stated. “The younger generation wants a piece of what they are helping build.”
Transitioning to an ESOP is designed to address a growing set of interlinked issues for accounting firms – funding partner’s retirement, attracting new employees, and generating cash flow for technology investments, according to W. Robert Knechel, an accounting professor and director of the international accounting and auditing center at the University of Florida.
“These firms are all wrestling with how you essentially take a 100-year-old business model and update it in a much more fluid, dynamic, financially oriented market,” Knechel said.
BDO USA’s CEO reinforced this theme, “We knew we weren’t getting enough people, and our people team started studying the generational differences,” Berson said. “The more we studied it, the more it pointed to something like this.”
“To be a best-in-class advisory firm, we need to be able to invest and to bring on the best people,” continued Berson, who has focused on creating an attractive culture – one that foregrounds flexibility and diversity — since the beginning of his tenure as CEO over a decade ago. “People want to work where they have meaning and purpose — and the ESOP creates a shared sense of purpose and responsibility.”
Funding the ESOP
According to the Wall Street Journal, BDO “secured about $1.3 billion in private debt from funds managed by affiliates of alternative-asset manager Apollo Global Management, among others”to fund the creation of the ESOP and restructure existing debt obligations”. Berson stated that no companies, including Apollo, received equity as part of the deal.
“This is not a private equity deal — it is private credit,” Berson explained to Accounting Today. “It’s realigning our debt and our obligations to optimize our business and invest in the firm. Much of the Apollo funds will fund the creation of the ESOP.”
“People are saying this is an infusion of cash to pay off debt,” he continued, “but nothing could be further from the truth. It enables us to realign debt and keep control of the firm in our hands, while giving us the financial flexibility to continue to invest in our business.”
The deal refinances BDO USA’s existing credit line which allows it to reap tax benefits from the ESOP. Additionally, employees’ annual allocation of shares in the ESOP trust is tax deductible for the company. According to Berson, “That enables us to repay debt and enables us to invest in quality.”
The move to an ESOP follows the July 2023 shift in legal structure for BDO USA, which is based in Chicago, from a partnership, a structure used by many large accounting firms, to a professional services corporation.
A Model for the Future
Berson told Accounting Today that he expects more firms to transition to an ESOP in the future and sees employee ownership as a strong alternative to an investment from private equity.
“We get all the benefits of private equity, without giving up control of the firm,” he said. “I bet you’re going to see more of this kind of deal before the end of the year, or at least dialogue around it. It doesn’t make sense why someone wouldn’t do it.”
“Our industry is at an inflection point — you’ve seen how private equity has influenced the profession in recent years,” he continued. “We explored private equity, but knew it wouldn’t be the right model for us. It may work for other firms, but not for BDO. But we recognized we needed to transform our business to meet our investment and growth goals, and the needs of our people.”
Attracting and retaining talent is a major focus for Berson and BDO and their new ESOP is a key part of that strategy. “The people who contribute to our success will have the opportunity to benefit from it,” Berson added.
Phil DeDominicis is an ESOP strategist and M&A advisor who has guided 300+ companies through ESOP formations, financing, and transactions over 20+ years at Menke & Associates. He specializes in selling ESOP‑owned businesses to financial or strategic buyers and in helping ESOP companies acquire other businesses.
