Magazine article The CPA Journal

Unspoken Obstacles Prevent Many Accounting Firm Mergers and Sales

Magazine article The CPA Journal

Unspoken Obstacles Prevent Many Accounting Firm Mergers and Sales

Article excerpt

Based on demographics of the accounting profession, it's commonly accepted that a sizable number of CPA firms should be merging or selling. Many of these firms-ones with maturing ownership and others that need to combine with another firm in order to realize their growth potential-say they recognize the need to merge or sell, and indeed many say they want to. However, only a small percentage follow through. Meanwhile, the list of firms that could or should be selling or merging grows larger by the month. The good news is that there are solutions for both sellers who want to overcome their discomfort and for acquiring firms that are frustrated by their inability to close a deal.

Demographics indicate the types of firms that should be or could be merging or selling at this point are:

* Aging firms without successors;

* Small or midsized firms that have mergers or acquisitions as part of their growth strategy;

* Firms with strong specializations that want to provide a fuller range of services; and

* Firms with other significant challenges, such as recruiting and retention or a need to invest in technology.

Beyond the standard answer of "We can't find the right fit," several fears that rarely get fully articulated prevent CPA owners from speaking with potential buyers or from moving forward once they begin discussions. Unmasking these major stumbling blocks that prevent mergers or sales speaks to the difficulties involved in CPA firm mergers, but allows for the development of practical ways to manage and overcome these obstacles.

Why Do Finns Hold Back?

Based on discussions with hundreds of small and midsized CPA firms that previously indicated at least some interest in selling or merging, the author quantified these often unspoken obstacles, asking acquirers why they believe sellers are reluctant to move forward with deals. Simultaneously, sellers were asked about their biggest concerns and compared the two sets of answers in the Exhibit.

The research illustrates a significant disconnect between the perceptions of sellers and acquirers. The fact that acquirers may not fully understand the obstacles limits the number of deals that are completed and creates a barrier between the buyer and seller. Sellers and acquirers can take steps to bridge the gap.

Issue 1: Don't want to give up control/be "managed." The issue of control is real and perhaps at the crux of almost every potential seller's ambivalence. Stepping away from making all firm decisions, such as signing off on financial statements, tax returns, bills, and the like, is quite difficult. Acquiring firms have an existing structure that the seller will need to work within. But for the right firm and the right "fit," this is a small price to pay.

It's important to remember that during the sale or merger process, everything can be negotiated. In the right merger or purchase, firm owners may be able to better manage how much control they retain or give up, and the transition time for this change. Perhaps for the first six months, the acquired firm operates as a "division of." Perhaps the owner retains certain management duties for an even longer time.

In some cases, despite initial apprehensions about a loss of control, former firm owners find they are relieved not to have certain management tasks. The right acquirer will work with a firm looking to sell in order to be sure its management does not feel marginalized.

Issue 2: Can't find the right fit. CPA firm owners who say they can't find the right fit usually mean they aren't ready. They haven't determined what they really want or haven't documented what they can offer another firm. Most likely, they haven't taken time to analyze and document their business. They need to ask and answer: What are the percentages of the various services offered to clients? The percentages of work done in specific industries or other niches? What kind of role do they want or could they accept in a new firm? …

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