BDO to Establish Employee Stock Ownership Plan as Part of U.S. Restructuring

The U.S. arm of accounting firm BDO on Monday said it intends to set up an employee-benefit plan that will give 10,000 employees a direct stake in the firm, its latest bid to recruit and retain workers amid a shortage of accountants. 

“We’re dealing with a much more severe situation today than five years ago in this industry, which has not attracted enough people into the firms,” said BDO USA Chief Executive Wayne Berson. “The younger generation wants a piece of what they are helping build.” 

The move follows Chicago-based BDO USA’s shift in legal structure in July from a partnership—similar to that of many large accounting firms—to a professional-services corporation, which the firm has said would reduce its taxes and provide other advantages. 

BDO is moving a step further in its restructuring, with its 880 U.S. partners last Friday voting nearly unanimously to establish an employee stock ownership plan, or ESOP, Berson said. ESOPs are employer-sponsored retirement plans set up as a trust whereby current and future employees receive beneficial ownership in the company over time.

Employees won’t need to make an out-of-pocket contribution as part of the plan, which is scheduled to go into effect on Aug. 31, the firm said.

BDO’s partners will sell about 42% of their shares to the trust and retain the rest, while also taking a cut to their compensation and giving up their pensions, Berson said. The firm’s youngest partners would have to retire and sell their shares for the firm to be fully owned by the ESOP, which would likely take about 20 years, he said.

To fund the creation of the ESOP and restructure existing debt obligations, BDO secured about $1.3 billion in private debt from funds managed by affiliates of alternative-asset manager Apollo Global Management, among others, Berson said, declining to provide details on the financing term and interest rate. No parties including Apollo received equity as part of the deal, he said. 

The deal would also refinance BDO USA’s existing credit line, allowing it to reap certain tax benefits from the ESOP. Employees will receive an annual allocation of shares in the ESOP trust that is tax deductible to the company, Berson said. “That enables us to repay debt and enables us to invest in quality,” he said. 

BDO executives aren’t cashing in and getting out, but rather will continue to lead as the firm works to further build its audit, advisory and tax businesses, Berson said.

“We need to attract and retain the best talent,” Berson said. “They’re going to share in our growth.”

The firm in July reported $2.8 billion in U.S. revenue for the year ended April 30, up 13.3% from the prior-year period. BDO is the sixth-largest accounting firm in the U.S., based on 2022 revenue. 

BDO’s recent efforts and Ernst & Young’s failed separation of its audit and advisory businesses are both aimed at continuing to be economically and professionally viable, said W. Robert Knechel, an accounting professor and director of the international accounting and auditing center at the University of Florida. Accounting firms are grappling with funding partner retirements, attracting new skilled workers and generating enough cash flow for extensive investments in technology, he said. 

“These firms are all wrestling with how you essentially take a 100-year-old business model and update it in a much more fluid, dynamic, financially oriented market,” Knechel said. 

Write to Mark Maurer at [email protected]