“… what is the criteria to determine the success of any merger? It would have to be that the companies are stronger financially, that they took market share, and they are on a very steady footing in terms of their performance.”
Kevin Rollins, Former President at Dell
Merger “mania” seems to be taking hold in the accounting profession. According to a November 2010 Journal of Accountancy article by Joel Sinkin and Terrence Putney, CPA, “…leaders in the profession believed there would be more mergers and acquisitions in the 10-year period from 2007 to 2017 than in the entire prior 100-year-plus history of the accounting profession in the U.S. The activity since 2007 has proven this assessment to be accurate.”
So, should your firm consider merging? In this blog, we’ll explore the types of transactions that you might consider and also identify some of the good and bad reasons that may drive you to consider a business combination. In future blogs, we’ll explore things to consider when evaluating potential merger or acquisition targets and what to envision in the post-merger period called “integration.”
There are a number of business combinations you can consider, including:
• Merging your firm “upstream” into a larger firm
• Merging with a firm your size, which is referred to as a “merger of equals”
• Merging a smaller firm or an individual practice into your firm
• Acquiring an individual practice where the clients come over, but the practitioner does not
Motivators for a merger or acquisition (M&A) strategy are many, and they are not all healthy. From my perspective, good reasons to consider a business combination include the desire to:
• Join a larger, more established firm to leverage their brand, infrastructure, marketing savvy and potential to invest in your growth
• Enter a new geography, new service or industry niche or diversify your firm’s services in some way
• Add more value to clients by partnering with another firm that has services you can swiftly add to your portfolio and benefit your clients
• Layer in additional clients and/or service delivery personnel who reinforce your firm’s existing product/service mix and will integrate well with your people
• Grow rapidly to remain competitive with other competitors who are gaining girth through their own M&A strategy
• Find a home for clients and/or staff who will need leadership and infrastructure as you and/or your partners retire (due to lack of a true answer to your succession)
On the flip side, negative reasons for considering a merger, which often lead to a failure to find a suitor, consummate a deal or enjoy a successful post-merger integration, include the hope of:
• Finding a buyer who will come in and rescue your firm from poor financial performance, an unprofitable lease or other facilities issues. If this is your situation, expect a low valuation or first get your financial house in order before seeking a match
• Merging with a firm with leadership who will straighten out partner behavior or performance issues that you haven’t been able to resolve. In this case, most firms will shy away from dysfunctional leadership teams unless the deal involves removing the cause of the issues. I recommend that you resolve your unity and behavioral issues before finding a suitor
• Integrating with a firm to find a home for a weak team of successors. Most firms are interested in acquiring only the strongest talent in this market, where many are still seeking clients and projects to fill their own capacity. If your team members are not of the caliber that another firm would hire them if they applied directly, be prepared to consider a transaction that involves transferring clients and downsizing the team to eliminate the weaker players as part of the transaction
There can certainly be exceptions to these, where a firm will see something of strategic value in your firm despite these issues, however, the rule I’d like you to consider is that it’s hard to move or sell your yet-unresolved problem at a valuation or deal structure that you’re going to be happy with.
If your leadership team has decided that an M&A strategy is important to your firm achieving its future vision, stay tuned for my next post where we’ll explore ways to find the right integration partner and how to prepare for conducting and enduring the due diligence process.
Jennifer Wilson is a partner and co-founder of ConvergenceCoaching, LLC, a leadership and marketing consulting and coaching firm that specializes in helping CPA and IT firms achieve success. Learn more about the company and its services at www.convergencecoaching.com.