Houston, TX (February 2, 2016) – Managing Partner, Jason Ferguson, recently sat down for a Q&A with the Houston Business Journal. For some, $30 oil means batten down the hatches and weather the storm. For Calvetti Ferguson however, it’s full steam ahead. Sure, the plans have changed for some of the Houston-based accounting firm’s oil and gas clients, but Calvetti Ferguson wants to use 2016 as a year to gain market share. Jason Ferguson, Managing Partner, outlines his plan to grow. Calvetti Ferguson ranked as number 21 on this year’s largest Houston accounting firms ranked by number of certified public accountants.
How’s 2016 looking for Calvetti Ferguson?
We thought going into this year it’d be slow growing, but we’re off to a better start than what I’d anticipated. We’re big in oil and gas; the vast majority of those (clients) are upstream, and we have some downstream and midstream, as well. For those clients, they obviously have less cash available; they’re much more distressed. There’s been a lot of fee pressure, where they need us to cut fees to help them through this, but the activity has been about the same. We’ve seen fewer transactions than what we thought we might see. We thought we’d see a little more distressed buying, and that hasn’t happened yet.
Do you think that will end up happening as long as oil prices stay at $30 a barrel?
I do think it’s coming. The banks have been willing to work with the oilfield service companies a lot more than what people anticipated. When you talk to banks, their collateral is all the equipment and assets and they don’t want to have to recover these assets all over God’s green earth and get them shipped to Ritchie Bros. Auctioneers and fire-sell them.
(The banks have) been giving more leash than what everyone thought they would, but they’re going to run out of rope at some point this year, and that’s when we’re going to see more transactions, more distressed acquisitions.
Does the industry have any room to get leaner and make more cuts?
On the E&P side, they’re getting as close to being as lean as they can get without neglecting assets or having to walk away.
On the oilfield services side, they’re as lean as they can get. They’re already sacrificing into maintenance. Now when oilfield service companies have to do a repair, they’re tearing parts off idle equipment and using it instead of buying new parts. When you’re doing that, you’re as lean as you can get. I don’t know that there’s too much more they can squeeze out.
Everyone’s big fear is that this will all have an ancillary impact on the industries that work around oil and gas. Obviously, the accounting industry is one facet of that. Has it started to have an impact on your work yet?
It has (reached that point). It’s a bit of a layered or waterfall effect. There’s some portion of the accounting business that is required. If someone is getting audited, it’s — most of the time — because someone required it, whether it be the SEC, bank or private equity. There’s a reason for it. Everyone has to file tax returns; they’re not able to opt out of that just because it’s a rough year. That portion of the business never goes away, but what’s happening there is significant fee pressure.
About 50 percent of our clients are private equity-backed, so we are working them. They come to us saying, “We need a haircut on the audit or tax returns fees this year because we’re laying off everyone, asking management to take pay cuts, so it’s only prudent for us to go to our vendors and ask them to take a haircut.”
The other layer, there are companies using the Big Four (accounting firms) because they liked having the name on their opinion or return. They were paying a premium and it was OK because everyone was making money and cash was flush. Now that it’s not, they’re saying they don’t need that, and they’re coming to us and other mid-market firms, so we’re seeing a pickup in business coming down from the Big Four.
You’re largely an oil and gas accounting firm, but you do have some presence in health care and real estate. How are those markets today?
Our health care business — we lump manufacturers and distributors that manufacture medical devices and health care product — is doing well, still holding its own and growing. Real estate and construction is doing fine now, but I think as the year goes on, we’re going to see challenges in our real estate and construction area.
I really think 2017 is when real estate construction will be challenged for us.
Considering this current climate, from the energy industry to real estate, is Calvetti Ferguson focusing on more of a holding-pattern year?
No. This is an opportunity for us because when companies are looking for creative ways to save money and bridge a gap in the downturn, that means they’re open to new service providers. It’s an opportunity for us to go get market share. These companies are evaluating their audit and tax firms; they’re open and willing to have conversations about whether we can do a better job at a better price.
It also gives us an opportunity to buy other firms and acquire others in the market we’re in because other firms aren’t able to take advantage of that opportunity.
We’ll be more aggressive getting into other markets in this current economy. We’re actively looking at acquiring firms in other cities.
How far away is that from happening? Will Calvetti Ferguson make an acquisition in the next couple months?
There’s one that could happen in the next three months. That’s not in Houston. We have an office in San Antonio, and there’s a group in San Antonio we may be able to close in the next three months. We’re actively looking in Dallas-Fort Worth, Denver and Pittsburgh.
Read the article on Houston Business Journal’s site here.