Eisner and Amper Merger Forms 14th Largest Accounting Firm

Financial services partner discusses regulatory and tax challenges for private equity

Eisner LLP and Amper, Politziner & Mattia, LLP announced on Monday, August 16, that they have combined their practices to form EisnerAmper LLP. With headquarters in New York and Edison, N.J., the new entity will be the 14th largest accounting firm in the U.S., with more than $250 million in annual revenue. In a listing of top 100 accounting firms issued a week prior to the merger announcement, Inside Public Accounting ranked Eisner 24 and Amper 27.

Howard Cohen, former managing partner and chief executive of Amper, will serve as chairman of the combined firm, while Eisner's former managing partner Charles Weinstein will serve as chief executive.

EisnerAmper has more than 1,200 staff, including 170 partners. The firm will offer comprehensive audit, tax and business advisory services for the insurance, banking and alternative finance markets (including hedge funds, private equity, venture capital funds and broker-dealers).

Beyond accounting, audit and tax, EisnerAmper's advisory services include enterprise risk management, mergers and acquisitions, business and asset valuation, debt financing, internal audit, forensic accounting and litigation consulting, reorganization and insolvency and international expansion.

"It's a wonderful blend of two complementary firms," EisnerAmper partner Mike Laveman said in a telephone interview. Laveman provides tax advisory and planning services to both start-ups and well-established clients including a broad range of hedge funds, private equity funds, and broker/dealers. Laveman said the firm's largest industry group is financial services, including some 200 private equity funds. The complementarities between the two firms are especially good in private equity, he said, with Eisner being strong in the fund area, and Amper auditing many private equity portfolio companies. The firm also serves approximately 600 hedge fund clients.

Laveman said that because of regulatory and tax issues confronting EisnerAmper's private equity clients, "we're going to be very busy over the next few years." Start with the recently enacted Frank-Dodd legislation. Under the new rules, private equity funds, for the first time, are going to have to register with the SEC and be subject to all its rules, including periodic examinations. However, the legislation contains a carve-out

area within private for venture capital funds, but leaves open what exactly constitutes a venture capital fund. A definition is expected to emerge in the next six to 12 months, he said.

There's also the Volker rule, which will require banks to spin off a lot of their hedge fund/private equity investments. "Already in the past few weeks, some private equity funds have purchased some of the banks' holdings, and that's going to be a trend over the next year," he said.

Laveman said that in recent months, his practice spent a great deal of time with private equity clients concerned about proposed carried interest legislation. This would effectively turn capital gains into ordinary income for almost every private equity fund as it sold its investments, he said. This legislation passed the House, but fell short of passage in the Senate by a handful of votes. Now, in the lead up to November congressional elections, he said, the Senate is unlikely to vote on the bill again this year. His clients are "cautiously optimistic" that the legislation will be off the table if, as many expect, the Republicans take control of the House and gain Senate seats in November.

EisnerAmper's biggest area of focus now is the Bush tax cuts, which are set to expire at the end of the year. Laveman said this affects private equity in that both long-term capital gain rates and short-term capital gain rates are going up by 5%. "Some funds are now doing planning, potentially to exit before year-end to take advantage of the lower rates." And in terms of exit strategies, another area of concern is recapitalization, whereby private equity funds strip out cash from a company. "For tax purposes, that's often treated as a dividend. Dividends are currently taxed at 15%. At the end of the year, that rate is set to go back up to 39.6%; so that obviously a very significant change in tax rate."

There's talk of extending the Bush tax cuts, but whether or not this happens, "the trend is for higher tax rates," Laveman said. He noted that starting in 2013, a new Medicare tax will come into play. This will be an additional 3.8% tax on any type of investment income, whether it's interest income, dividend income, capital gains. "Unless something passes before the end of the year, taxes are going up."

Michael S. Fischer (msf7@columbia.edu) is a New York-based financial writer and editor and a frequent contributor to WealthManagerWeb.com.

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