Hello everyone, and welcome to The Upstream Leader Podcast. My name’s Jeremy Clopton. Excited to be with you for a conversation about everybody’s favorite topic right now: private equity. We’re not going to be talking about why you should or why you shouldn’t. We’re also not going to be giving any advice, so any lawyers that are listening, here’s the disclaimer, we’re not giving advice. Don’t take this as advice, it’s a conversation between two folks talking about private equity, and what it’s meant for one firm, and what it can mean for the profession. So for that conversation I have with me today, the CEO of Frazier & Deeter, Jeremy Jones. Jeremy, glad to have you on the show.
Thanks, Jeremy. Glad to be on.
Absolutely. It seems fitting that we’re going to be talking with you about private equity because you all are about a year in, if I recall correctly, about a year into your journey with private equity as an investment. Before we do that though, I’m going to start the conversation the way I start every conversation on the show: Tell us a little bit about how you became the leader that you are today.
Yeah. Well, thanks again for having me on, Jeremy. So I’ve been with Frazier & Deeter for 24 years. I was with another firm in Atlanta for four years before that. So obviously a lot of people have influenced me and helped me get to where I am today. So, through the 24 years I grew up on the audit side of the house, I led the audit practice for nine years, and through that course I had some great mentors. My former head of the audit practice, Ruth Bartlett, she was a phenomenal lady that led our practice for many years, and she was always open and honest and very direct with us and told us what we needed to do to succeed. That was a huge influence on me in helping me become a partner and really help me develop my leadership skills. And then obviously, I’m the fourth managing partner, so the first three managing partners are still involved in the business, so they’ve had a big impact on me and how I’ve grown through the years.
Absolutely. The value of mentors is critically important. Before we jump in, I want to ask the previous three managing partners are still actively involved in the business; how is that from a leadership standpoint? And I realize I’m asking you this, what, 22 days into the role. How do you balance having them actively involved, but still providing you what you need to have the authority that comes with your role?
Yeah, so Jim Frazier and David Deeter founded the firm. So Jim was the first managing partner for 20 years. And then David took over for eight years. And then Seth McDaniel just wrapped up 16 years as a managing partner. So I’ve had long relationships with all of them. It is Jim and David’s baby, they started it. It’s grown significantly. But over the years, as Seth stepped into the managing partner role and he built the trust with Jim and David that we were going to take care of Frazier & Deeter for the long term, they easily handed over the reins to him. And then they’ve treated me the same way, just with trust that’s been built over the years and they know we’re always going to do what’s best for the firm and our people and our clients. And Seth, I’ve worked with Seth the whole time he’s been here at Frazier & Deeter. So he came a few years after I joined and he was the head of audit while I was in the audit practice and then obviously the managing partner while I was the head of audit and while I was the COO. So Seth and I have worked together many years and with that there’s a lot of trust between us. He and I are very aligned on where the firm is going, where the industry’s going, so there’s just a lot of trust between the whole managing partner cohort, if you will.
Yeah, absolutely. That’s wonderful. So you talked about doing what’s in the firm’s best interest and for whether that’s employees, clients, partners, everybody involved, and you all made a big decision, like I said, about a year ago to take an investment of capital from private equity. Talk a little bit about what that journey was like for you to get from, we’re an independent firm. We’re carrying on the legacy of the founders and their name. How you approached this decision, because I’m curious more the mindset. I firmly believe everybody has a right to run their firm the way that they want. And I know that we have listeners that are probably very pro private equity and some that are very non-private equity and some that are still trying to figure out what it means. So I’m not here to figure out whether it was a good decision or not, but what I’d love to hear: how did you approach the decision? Because you’ve still got an active relationship it sounds like, with the two guys whose names are on the building, right? They’re on your lapel. I can see the—
That’s right, that’s right.
—the Frazier & Deeter pin. So how did you go about this decision?
Yeah, we really, it started in late ’21, early ’22 after really Eisner Amper and Citrin Cooperman, Schellman, had all taken private equity. I think Cherry Bekaert was right along in there. But we started really evaluating what this meant for the industry. So in ’22, the board charged Seth and I with the responsibility to go and evaluate what private equity would mean for the industry, what it would mean for Frazier & Deeter, could we compete and help achieve our goals without private equity. So we undertook that in ’22. We had a lot of conversations. We probably didn’t do it the right way with the private equity side. So we talked to a couple of private equity firms on our own and they were relationships we had, and great relationships we still have with those private equity firms. But we didn’t use an investment banker or any of the professions consultants. So we kind of ran that process on our own. We did have one consultant help us with introductions to some larger firms. Because that was also part of the consideration is do we want to roll up into a much larger firm, one of the 500 million billion dollar firms, or do we want to go private equity?
So we had a lot of conversations. We actually kind of skewed, I guess, in ’22, more towards being acquired by a bigger firm for a minute. And then as we started having more and more conversations with our partners and with our people, we actually opened up to our people. People said, well, I came to work for Frazier & Deeter for a reason, and I didn’t go to work for these other firms and I could have, and I want us to stay Frazier & Deeter because I think we’ve got a lot of opportunities and so as we kind of listened and evaluated what was in the market at that time, in ’22, we decided we’re not going to do anything right now. And that gave us the opportunity as a partnership group to change our corporate governance, change our partner compensation model, change our deferred compensation, actually get rid of our deferred compensation model and go more towards a fair value model. And the goal was, let’s set ourselves up as though we are owned by a private equity firm or have a private equity partner so that if we decide to do that, the transition’s going to be easier for us.
And so we did that through ’23, late ’22 into ’23, everything was humming along. And then we got to Q1 of ’24 and there had been more private equity transactions, Seth and I went back again into the market. This time we did it, I’ll say the right way. So we hired an investment banker, they helped us put together our materials, they took us to market. But before we even really started meeting with the private equity firms, Seth and I sat down and we came up with really like, it was basically a 10 point rubric and said, how are we going to evaluate these firms and what’s most important to us? At the end of the day, number one on the list was we want our growth equity partner to be culturally aligned with us. We don’t want it just to be about money. We want it to be about how they think about a people-based business and running a professional service firm, and we want to make sure that they understand we will continue to invest in our people always and forever, and we’re not going to achieve our goals through cost cutting measures and trying to be running utilization through the roof. Like we were going to take care of our people, they’re going to take care of our clients, and we’re going to build a beautiful business together.
So we did that. So we had a lot of conversations with a lot of private equity firms. We narrowed it down to eight firms that we thought were really good cultural fits for us. We did not let money play into the decision at this point. It was all about the cultural fit and who we felt could help us achieve our goals. And so we ran through that process and because we were very centered on what our evaluations were, Seth and I, we were aligned every step of the way. I think when we narrowed it down to 10, I think we had nine of the same firms and one was different. I think his number 10 was my number 11 and my 10 was his 12. So it was like kind of right there together, which was great.
But yeah, that’s how we got to the decision to go with General Atlantic. We closed the transaction in May. Everything we heard from them during our conversations and the conversations with them started in probably August of ’24. And so, I mean, we had a long period to really get to know our team, yeah. So you know the deal and one of the things we liked about them, the deal team that we worked with through our due diligence and through their evaluation of us, our evaluation of them is still our deal team today, and they are our board members today. So we’ve known them, now it feels like forever, but I mean, we’ve known them for a year and a half and we are still very aligned on what we’re trying to build.
How did you perform due diligence on culture? Because I totally understand, especially hearing from your employees, “We want to remain Frazier & Deeter, and we didn’t go to work for other firms. We came to work for this firm with this culture.” I hear that a lot, “Oh, we’re going to make sure that we’re culturally aligned.” And that sounds great. Don’t get me wrong. How do you actually do that? It’s not like you can run a report from practice management that gives you the metrics on culture, and it’s not like it’s another accounting firm. I understand due diligence in another accounting firm, we can go in and we can do some cultural work there because we understand that. But you’re not looking at another firm, you’re looking at an investment partner. How did you ensure, or at least get comfortable enough from a cultural due diligence perspective, what does that look like?
Yeah. To your point, unfortunately there’s not a database we can just pull up how good their culture is. But the way we approached it, which every firm will approach it different, is we spent a lot of face-to-face time with them. So we got to know them, they got to know us. And then as people that have been through this, understand the people that will go through this transaction understand you can discern a lot about their culture based on how they talk to you through these conversations and what they view as value creators in the accounting world. And things like, oh, well we want to increase your utilization by 10% a year. That might be okay if people are underutilized. But does that mean you’re going to start working my people 18, 19, 2,000 billable hours a year? And if that’s what you mean by that, then you’re out. So you just have to be very discerning when you’re having those conversations and make sure you understand what they mean with the questions they’re asking.
And then the other thing which we found most valuable is, I mean, they flat out said that you can look at our website, you can look at all our portfolio companies. Tell us who you want to talk to, and we will introduce you to them. You can pick it, we’re not going to pick for you, you pick who you want to talk to. So, General Atlantic had an investment in a wealth management firm. So we definitely spent some time with the wealth management firm to understand their journey with General Atlantic, understand how General Atlantic interacted with them, and how they felt about the people—like truly felt about a people-based business. So that is a big part, talking to those portfolio companies. And that’s one piece of advice I would give. Anybody that’s looking at private equity, before you select your partner, make sure you talk to other people they’ve invested in, and make sure it is exactly what you think it is.
Yeah, I think that’s a great piece of advice there. And I would imagine that that holds true in a lot of context, whether you’re looking at an acquisition or an investment understanding truly who it is. I want to go back, you mentioned that in 2022, you all were looking at either possibly being acquired or taking private equity, and that was kind of the first thing that you and Seth did, is you’re trying to figure out which of those two paths. What led to the decision that you needed to go down one of those two paths rather than organic, just traditional independent growth?
Yeah, and I mean, to be clear, we had great organic growth, so we could have continued in the old partnership model. Yeah, we could have continued making plenty of money, had nice deferred comp, but that’s not who we wanted to be. We, at the time, we were about 400 employees. We wanted to make sure we built a lasting firm that all of our employees could grow with for the rest of their careers. But to do that, we knew we had to make investments, and we had to make investments not just in the standard, oh, we’re going to make investments in people and technology, but we need to make investments in expansion. Because if we’re going to have 400 employees, you can’t have 30 heads of audit. You can’t have a lot of people on the leadership team, but you’ve got high performing people that want to be leaders, and we want to keep them here. So that’s where we got into the geographical expansion, and let’s look at M&A.
And we felt at the time that it was becoming increasingly difficult to acquire firms under the old model of, “Hey, just join Frazier & Deeter. We’re going to take on your deferred comp, work for another 10 years and you’ll get paid like the rest of our partners do over a 10 year period,” we felt it was going more to what it is today, which is more of a cash and a fair value equity model. It’s what you get in consideration. And to do that, we had to go private equity if we want to do it on our own, or we had to be a part of a bigger organization that had that ability.
That makes total sense. And I love what you said there about yeah, there’s tech, yes, there’s people, but it was expansion for opportunity for people and the retention of all the great people. And you can’t do that with just the slower, more organic growth. You could. You’re probably going to lose some of those people along the way because it’s hard to keep up if you’ve got a lot of great people, and if you’ve got a culture that’s developing those people. As you think about this journey that you’ve been on since 2022, so you could either say during that or even since you’ve taken private equity and partnered with them, I say taken like, but partnered with private equity as an investor, what’s been the biggest, maybe unexpected challenge that you’ve encountered along the way? What are those things that you’re just humming along, you’re thinking it’s all going on, and you’re like, “Oh, yeah, this was not on my radar as this could happen. What’s the biggest kind of shock that you’ve experienced in this?”
Yeah. I don’t know if I would say that this was, it was unexpected, but it’s unexpected in a good way. So once we closed our transaction with General Atlantic, we had created with them a value creation plan. So we had laid out exactly what we were going to do to become a bigger and better firm over the course of the next five years. Part of that was we were going to have inorganic growth through mergers and acquisition. I think the way they viewed it and the way we viewed it is it was going to be a very slow growth with one firm a year, maybe two firms a year of opportunities coming in. But that world has completely shifted and the opportunities to partner up with other firms has expanded and it’s moving fast. So within the first eight months of being partnered with General Atlantic, we closed three what I would consider substantial transactions, and that volume surprised me. And the fact that there are a lot of conversations going on today with well-run firms that are in the $20 to $50 million revenue range, and they are going through what we went through in ’22, they’re trying to figure out how they’re going to be successful as a firm or as a partner group and employee base into the future. So I think that has been the most shocking thing. I did not think M&A would be moving as fast as it is.
Yeah, surely three firms isn’t that much more challenging than one?
I mean we’re actually—
I joke, I joke!
Yeah. We’re having a huge tax conference this week because tax is our biggest group. And basically going from 200 employees to 400 employees just in the tax group in eight months is definitely a big growth engine in a firm going from 500 to 800 employees. It’s crazy. But the team’s done awesome. We have a full team that’s working on M&A and they’ve done a fantastic job of evaluating the opportunities, saying no fast opportunities. And then once we get firms in making sure they get integrated into Frazier & Deeter and our culture and our tech stack and everything as quickly as possible.
Yeah. That’s awesome. That’s great. What’s been a really pleasant surprise that you’ve just been like, “Oh, this is a great benefit or a great thing that happened that I really didn’t expect this to be something that would come out of it, but it’s been awesome.” Well, something like that?
Yeah. Early in the process, I probably figured this out, but surrounding ourselves with very smart people that have a world of experience different than us has been amazing. So having my team at General Atlantic, again, same deal team that we have today, has been fantastic. They view the world through a different lens. So it’s very nice to have people to bounce ideas off, challenge. And then the other thing that’s been really awesome about having General Atlantic is their wealth of resources inside their firm. So if we need a pricing strategist, they have it. If we need a technologist, they have it. If we need some kind of executive search, they have it within the firm. And that’s just been like truly the partnership we wanted and it’s, that has been amazing. We do view General Atlantic as a partner in the business for sure.
Yeah, absolutely. Well, and a partner that can bring resources of that caliber. I mean, what a great complement to the executive leadership, you have to be able to tap into those resources. An incredibly valuable partnership, I’d imagine.
Absolutely.
You said that earlier on talking about the profession, lots of exciting things, lots of change where you see it going. What has you excited about the profession? I mean, we’re obviously changing and evolving perhaps faster than ever before. What has you excited about the profession in the next five or 10 years for public accounting?
We’ve always said we’re the most trusted advisor, but I think now we actually have the opportunity as we look at getting out of the compliance-based everyday type stuff. Well, I mean, AI is going to take a lot of the compliance-based work away from us, and I think that’s okay. We need to be excited about that, because that gives us the opportunity to spend more time with our clients and talk about their business, or them as individuals, and let’s do more planning and let’s think ahead to what things really look like in the future for them. And let’s get the compliance out of the way—let’s let the machines take care of the compliance as much as possible. Obviously, we’re still going to need people to review the returns or review the audits and make sure we’re complying with the standards or the laws, but at the same time, we don’t need a tax associate preparing 60 1040s to be really good at preparing 1040s, right? We need that associate performing at a higher level in consulting with clients and thinking through the issues that may rise with those clients rather than just keying in a W-2 or a 1099.
How do you get them ready to do that, though? I know that’s—I’m excited by that as well. So let me tell you, I very strongly believe new college graduates five years from now will operate at a much higher level than we’re asking them to operate. Now, it’s not that they’re going to be that much smarter or more educated coming out of college. I’m not saying that. So I don’t want anybody that came out of college in the last five years to say, oh my gosh, Jeremy thinks they’re going to be smarter than we are. I’m not saying that. I think the world’s going to be different. The challenge is how do you get someone ready to operate at that high level, straight out of school, when they haven’t done some of the base work that perhaps that advisory is based on?
That’s a great question. I mean, we call it upskilling. We stole that word. Other firms are using the word upskilling too, so that’s not a Frazier & Deeter trademark thing. But the way we look at it is we will still have the associates when they come in, they’re still going to have to learn, to your point, how to learn, how to do the audit, how to do a tax return, but they don’t have to do it over and over again. So we are being very purposeful about how we’re training individuals and how we’re really taking that two-year associate and have them performing at a four or five-year level quickly. So you get them exposure to more clients faster, you get them spending more time with the managers and senior managers and partners and learning from others. We’ve got some formal development programs that we’ve put into place. So all of those things together will help them upskill.
To your point, I don’t know that students coming out of colleges and universities are smarter, but they’re different and they’re learning things different than we do and they have a lot more opportunities to learn. So a lot of the schools we’re recruiting from are putting that in curriculum. So they want them to be thinking about how to use technology, just not what the technology is, but how to use technology in their job. So when you know a student comes in now, they are way smarter than you and I are on the technology side of the business for sure. So I think it’s us trusting that and then leveraging those individuals as well will help us be better, but it helps them come up faster.
Yeah, absolutely. I agree with that a lot. Jeremy, this has been really helpful. I’ve got one more question for you here. So you’re 24 years into your career, right, at Frazier & Deeter?
That’s right.
And now you’re CEO. So you go, let’s say, 15 more years into the future—15, 20 years into the future. Who is the Jeremy Jones that you’re working to become as a leader and as an individual, whether it’s in the office or outside the office, who is it that you’re working to become over the next 15 to 20 years of your career?
That’s an interesting question. I joke with my wife when I get to the end of my career and she’ll probably control when that is, I’m sure. But when I get to the end of my career, I want to be able to look back and I want other people to look back and say that I led well. That’s all I want. I just want people to say I led well, I took care of our people, I took care of our clients, and I took care of the legacy of Frazier & Deeter. And no matter what happens along the way, I know that Frazier & Deeter will always have a strong culture and we will be rooted in our foundation. And that’s what I want. I want to make sure we maintain that through the years. If I can do that, it’s going to be a crazy success for me personally, and I think it’ll be a crazy success for the firm as well.
That’s very helpful, Jeremy. I appreciate that. If anybody wanted to reach out, learn more about your journey and what you’ve learned along the way. Where’s the best way for them to get ahold of you?
Yeah. Feel free to hit me on LinkedIn, or you can email me directly at Jeremy.Jones@FrazierDeeter.com.
Awesome. And we’ll put all that contact information in the show notes as well. Jeremy, thank you so much for joining me on the show. I really enjoyed learning about your journey and what it’s been like to partner with private equity and look forward to maybe talking again soon.
Alright, Jeremy, I appreciate all you do.
