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Markham Asia, a U.S. audit firm specializing in Chinese small and mid-cap stocks, has been removed from its parent company's $2.3 billion acquisition, leaving it to search for a new name and new investors.
Ohio-based CBiz agreed last week to buy Markham to create the seventh-largest U.S. accounting firm by revenue, but said it does not intend to take a 50% stake in Markham Asia, which audits about 50 U.S.-listed companies in China and the region.
Thanks to its willingness to take on work that is too small or too risky for the larger accounting firms, Markham has grown to become the largest audit firm for publicly listed U.S. companies outside the Big 4 by number of clients. Its more than 400 clients include a number of special purpose acquisition companies and, through Markham Asia, U.S.-listed smaller Chinese companies and Asian start-ups.
“CBiz, by contrast, had been pulling away from auditing public companies until its Markham deal changed course. Citing the costs of meeting auditing standards and the risks of regulatory scrutiny, many mid-sized accounting firms are pulling away from auditing public U.S. companies, especially smaller ones.”
“Our understanding is that an Asia focus for Markham Asia's operations was not part of CBiz's strategy,” said Drew Bernstein, co-chairman of Markham Asia.
Marcum Asia was established in 2011 as a joint venture between Marcum and Bernstein & Pinchuk.
The company, which has annual sales of about $50 million, will retain the right to use the Markham brand for an unspecified transitional period after the CBiz deal closes and will not be required to separate its staffing or quality assurance processes from Markham until after that period, Bernstein said.
In the longer term, the company's ownership structure is likely to be reviewed: Markham's more than 500 partners, who became shareholders in CBiz in last week's cash-and-stock deal, will continue to hold 50% of Markham Asia for now.
Private equity firms are looking to buy smaller accounting firms and could be interested in a stake in Markham, according to people familiar with the industry, or Markham Asia's partners could make an acquisition move themselves.
CBiz said the decision to exclude Markham Asia from the acquisition “does not reflect the underlying business”.
“The business had a number of attributes that required due diligence and our priority was to focus our time and resources on due diligence in support of the announced transaction,” the spokesman said.
CBiz Chief Executive Jerry Grysko said the firm does not intend to eliminate any of the major publicly listed clients of its Markham audit business. “We're in the early stages of working through all of these processes, but we have no plans to change the profile of our client base,” he said.
Bernstein said Markham Asia now gets 50% of its revenue from companies outside China after opening an office in Singapore. “A significant percentage of the world's unicorns will come from Asia over the next decade. Asia is the best market to be in,” he said.
