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Marcum Asia, the US audit firm focused on Chinese small-caps, has been excluded from the $2.3bn acquisition of its parent company, leaving it searching for a new name and potentially new investors.
Ohio-based CBiz, which agreed last week to buy Marcum to create the seventh-largest US accounting firm by revenue, said it did not want to acquire Marcum’s 50 per cent stake in Marcum Asia, which audits about 50 US-listed companies from China and elsewhere in the region.
Marcum had grown to be the largest auditor of US-listed companies outside the Big Four by number of clients, thanks to its willingness to take on business that is too small or too risky for the largest accounting firms. Its more than 400 clients have included scores of special purpose acquisition companies and, through Marcum Asia, Chinese small-caps and other Asia start-ups with US listings.
CBiz, by contrast, had been getting out of auditing public companies until reversing course with the Marcum deal. A number of mid-size accounting firms have stepped back from auditing US public companies, particularly small-caps, because of the cost of meeting audit standards and the risks from regulatory scrutiny.
“We understand that the Asia focus of Marcum Asia’s practice was not part of CBiz’s strategy,” said Drew Bernstein, co-chair of Marcum Asia.
Marcum Asia was formed in 2011 as a joint venture between Marcum and Bernstein & Pinchuk.
The firm, which has annual revenues of about $50mn, would keep the right to use the Marcum brand for an unspecified transition period after the CBiz deal closes, Bernstein said, and it would not need to untangle its staffing and quality assurance processes from Marcum’s until after that period.
Longer term, its ownership structure is likely to come under review. Marcum’s more than 500 partners, who are set to become shareholders of CBiz under last week’s cash-and-stock deal, will continue to own 50 per cent of Marcum Asia for the time being.
Private equity firms have been hunting for acquisitions among small-cap accounting firms and could be interested in the Marcum stake, according to people familiar with the sector, or Marcum Asia’s own partners could mount a buyout.
CBiz said the decision to exclude Marcum Asia from the acquisition “was not a reflection of the underlying business”.
A spokesperson said: “There were a number of characteristics of that business that would have required due diligence. Our higher priority was to focus our time and resources on due diligence to support the transaction that was announced.”
Jerry Grisko, CBiz chief executive, said that he did not expect to shake out any of the publicly listed clients of the main Marcum audit business. “We’re early-stage in working through all of those processes, but there is no plan to change the profile of the client base,” he said.
Bernstein said Marcum Asia now gets 50 per cent of its revenue from companies outside China, following the opening of an office in Singapore. “Over the next decade, a substantial share of the world’s unicorn companies will be coming from Asia, and this is a great market to be positioned in,” he said.
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