In my first post on mergers, we explored the types of transactions you might consider and the good and bad reasons to consider a business combination. In this blog, we’ll discuss how to get started in your pursuit of a merger or acquisition partner.
First, your leadership team must agree on the benefits you’re seeking from the combination (see my last post for a potential benefits list). Ideally, these will be the specific objectives you most want to accomplish from the merger or acquisition or what will be different or better (and how) once the combination is complete.
Then, you’ll develop agreed-upon qualifying criteria to identify your list of potential integration partners. Initial criteria to define include your potential suitors’ ideal or desired:
• Size – in revenues, employees, locations, and market reach. If you’ve decided to merge your firm upstream, you’ll be looking for a suitor larger than you. A merger of equals and acquisitions of smaller practices or individual books of business dictate the appropriate size considerations, too.
• Location(s) – what area do you want or need their main location (or corporate headquarters) to be? What other locations are you seeking (if applicable)? Define the geographic profile that you feel will mesh with your firm’s growth plan and reasons for undertaking a transaction.
• Leadership and ownership structure – what type of leadership or ownership structure do you feel will best meet your intention for merging? For instance, if your firm is seeking a merger as a succession strategy for an aging owner group, you’ll want to seek merger candidates with younger owners and leaders. If your firm is seeking a smaller, simpler acquisition, you’ll want to seek firms with a smaller number of partners or shareholders.
• Product/service mix – if you’re looking to acquire talent to start up a particular niche or service area, then that will dictate the product/service mix that potential partners must offer to make your target list. If your strategy is to add more capacity to your current service areas, you’ll want to identify firms whose services virtually mirror your own.
Then, assign a team member to use your initial criteria to conduct research and identify firms in your chosen geography and of the size, leadership and ownership structure and offering the product/service mix that fit your criteria. You can find these firms by:
• Conducting web-based research using key words from your initial criteria and then carefully reading web pages, LinkedIn profiles, and other web references to find firms that meet your requirements.
• Letting your trusted referral partners, fellow alliance members, association contacts, consultants, and other key service providers or vendors know of your firm’s intentions and the details of your target profile so that that they can suggest or refer candidates to you.
• Looking at competitors you’ve respected in the past that you feel may meet your initial criteria.
• Using firm lists produced by accounting trade publications or the state society in your target geography to identify potential firms.
These sources will help you develop a first round list of potentials. Ideally, you’ll gather information about each potential partner by reading their web site, social media sites, filings, association affiliations, and press releases. Organize this data into a grid where the prospective suitors are placed as columns and the data you garner about each from your research populates the rows – with a row for each of your qualifying criteria and other rows for other pertinent information you may discover in your first-round research (like their mission statement, values, names and number of partners, niches, and more).
Once you have your “potential targets” matrix populated, gather your firm’s M&A team (which may be a small group) to review and discuss each firm. This process is likely to shed additional anecdotal information on the candidates and may cause you to eliminate or add some based on reputation or other feedback you receive.
During this meeting, you should agree on who from your firm will serve as the point person to reach out to the remaining potential targets to explore their interest in integrating with your firm. This should typically be a high level contact on your side (CEO, Managing Partner, or practice leader) reaching to a senior decision maker on their side to meet for a meal and talk about growth strategies and their interest in a potential combination of the type your firm is envisioning.
With luck, these outreach activities will generate a few interested potentials to begin deeper discussions in earnest. In my next blog, we’ll discuss qualifying criteria to evaluate as you pursue a serious M&A candidate. In the meantime, if you have any ideas about identifying a list of M&A pursuit potentials or any other thoughts on the subject of merging, please share them with us. We’re interested!
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.