Q&A With … Stephen Penn of KPMG

By Dennis Boone

Stephen Penn is the office managing partner for KPMG in Kansas City.

Q. Six weeks into the carnage, what’s the damage assessment report you would deliver on the state of regional business?

A. There’s probably a lot more going to unfold, but we’ve probably seen enough to know where, in some industries, this all may be heading. I would say there’s probably some runway left before we get settled down, so we’re early on from knowing how it will affect everybody. This is different, though, the speed with which it occurred and certainly the depth, from an economic perspective, is really unprecedented.

Q. Can you tell us which sectors have been particularly challenged?
A. The way we are looking at this, there are two or variables to how companies are impacted. One is how much this is changing their business model. The second is the reality of how quickly we can expect demand in their industry to return. We went into this economically with very good times, yet some companies were still carrying a fair amount of debt. With those levels of debt and the depth of this and the likelihood of varied recovery times, that sets up different scenarios for different industries, and some are going to really struggle to come out the other side. Leverage as much as anything is a big contributor to how significantly companies are impacted. It’s been fascinating to watch how interrelated all this is and how quickly we went from perhaps the best economy on record to where we are now.

Q. Do you think the damage may run deeper than the most visible examples we’ve seen with hospitality, travel, food supply chain and health care?
A. A bit. Transportation, retail, brick and mortar are going to be in that category. Depending on how long this lasts, commercial real estate could be hit. Insurance, too. And within that broader transportation area, auto and ag manufacturing. Higher education, as well.

Q. Which sectors are going to emerge from this stronger?
A. Ones that are set up well to come out of this are large pharma, some ag sciences, which are very strong in Kansas City, telecom and communications equipment. Anyone associated with life science or eCommerce, and to a lesser extent, some of the private equity and wealth-management businesses.

Q. What happens to the book of business with accounting firms once the washout has been completed with companies that lacked sufficient liquidity going into this?
A. Our clients by and large are holding up well. And as a firm, we are well positioned with audit, tax and advisory services, so we’re a diversified group, and those services are still in need. We’re working 100 percent remote since the middle of March, by and large have not missed a beat. In terms of competition, there will be a lot of M&A opportunities coming out of this-there is a lot of money on the sideline as investors wait to see how this will shake out. But a lot of firms in our space will see opportunities through debt or equity restructuring, so there will be a lot of competition.

Q. Is it too soon to get a preliminary feel for what the tax consequences of a two-month loss of revenue might be for the survivors?
A. There are already opportunities from a planning perspective, and we’re talking to companies about those. The CARES Act created a lot of issues for folks to think about. With taxes, though, there will be some larger issues with states and municipalities; they will be hard hit from loss of tax revenue, especially states with a lot of revenue from energy production.