trying to merge? make sure your firm isn’t guilty of any of these.
by marc rosenberg
the rosenberg practice management library
merger talks hitting a bump in the road? is a potential buyer losing interest?
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here’s a list of obstacles buyers have cited. not every buyer will consider each one of these issues a turnoff. think of this as a universal checklist.
- stickiness of the seller’s clients. clients may be overly attached to one of seller’s partners. buyers buy firms with clients that will stay.
- too many standalone 1040s and writeup work and not enough business clients.
- seller has an equity partner who really is not a partner; no origination or leadership. works like staff.
- seller with income in the stratosphere (usually a solo) who is unwilling to take a pay cut; seller doesn’t understand that he/she can’t make the same income in the buyer’s overhead structure.
- seller’s staff is weak; low billable hours, low competence, too old, no upward potential.
- if seller’s staff does not have partner potential, they should at least have good client relationships and engagement experience.
- seller not a good strategic fit. buyers want sellers with the potential and desire to cross-sell their ancillary services. buyers are most interested in sellers with specific areas of expertise and least interested in sellers with the same generalist practice they already have.
- seller wants to work way past retirement age. buyers don’t like old guys hanging on.
- work quality gap between seller and buyer too wide. seller’s clients won’t be profitable conforming to the buyer’s work standards.
- seller wants ridiculous terms re: sales multiple, high down payment, etc. too many “must-haves.”
- seller has too many partners; buyers reluctant to make all sellers’ partners an equity partner.
- seller provides wealth management services but won’t change their broker-dealer to the buyers’. or, seller does not provide wealth management.
- seller is retirement-minded, wants out too quickly to properly transition clients. staff too weak.
- seller who is slow in responding to buyer’s efforts to move the merger along.
- seller office lease has too many years left.
- seller has key people who won’t stay or has problem partners whom seller wants buyer to “fix.”
- seller woefully behind on technology. will learning curve be too steep?
- low billing rates. low realization. low-level clients. concerns over compatibility between buyer and seller.
- seller has lots of bank debt, almost always because of partners overpaying themselves. seller often wants buyer to take on the debt, which will never happen.
- seller has one or more branch offices that are not successful.