it’s ok to walk away.
by marc rosenberg
cpa firm mergers: your complete guide
for anything really important in your life, do you opt for the first choice that comes your way? did you marry the first person you had a crush on? how many jobs did you accept without checking out other opportunities? when looking to hire someone, did you interview only one person? do you make an investment without considering alternatives? i trust the answer to all of these is a resounding no.
more: 34 steps to implement a merger | m&a: the six types of due diligence | twelve tips for negotiating mergers | buying a solo | why merging in smaller firms is fabulous | 13 reasons to merge up | thinking merger? first ask why.
exclusively for pro members. log in here or 2022世界杯足球排名 today.
the same advice applies to mergers, whether you are a buyer or a seller. the more firms you talk to and negotiate with, the more expertise you acquire with the merger process. as the saying goes, “information is king.” more knowledge, information and experience are always better than less.
equally important, it’s always advantageous to be in a position of having multiple firms to choose from so that you can ultimately make the best merger choice.
sellers. the most difficult step for sellers is the decision to at least dip your toe in the water and look into merger opportunities. after having your own firm for 30 years and loving every minute of it, it’s extremely difficult to make a decision to merge into a larger firm. for purposes of what follows, let’s assume we are talking about a seller who sooner or later must merge up and who knows it. the seller must merge because the person has no successors in the firm and is at an age where the need to retire is closing in. it’s just a question of when.
i always advise sellers that a merger is actually a two-step process.
- making the decision to explore opportunities, not necessarily to merge. if you are a two-partner firm without any successors on board and both partners are in your 60s, don’t you owe it to yourself to at least explore what’s out there? wouldn’t you like to know what buyers think of your firm? if they will find you attractive and why or why not? what might life be like if you were part of a bigger firm? (remember, bigger doesn’t have to mean a huge local or regional firm. it simply means the buyer is bigger than the seller. it could be a $4 million firm merging in an $800,000 practice, a $10 million firm merging in a $2 million firm, or a $20 million firm merging in a $5 million firm.) what might the deal terms be? if you have certain nonnegotiables, would buyers agree to them?
here’s the key. you can always talk to two or three buyers, hear what they have to say, and decide not to go forward. there is no obligation to do a deal with any firm you talk to. at this early stage, there is no exchange of financial or other documents.
many sellers hear all this and are still reluctant to talk to buyers because they feel it would be somehow immoral, unethical or unprofessional to “lead” a buyer on and then abruptly pull out. nothing could be further from reality. buyers know that the merger process is all about planting seeds. they talk to 10 prospective sellers for every merger they do. if the seller tells the buyer no, it means, “not yet.”
by going through this talking process, sellers are educating themselves. they know in their heart that ultimately they will merge. until the day of that decision, at least the seller has something to think about.
- deciding to actively enter into negotiations and do the deal. you do everything in step #1 and you decide to enter into negotiations and ultimately merge. step #2 can happen a week, a month, six months or two years after step #1.
buyers. most experienced buyers reject way more merger candidates than they accept. why didn’t they merge with the rejected firms? the reason could be any of these:
- the buyer talked with several sellers and picked the most attractive firm. because they can do only one deal at a time, they rejected the other candidates. one factor in a buyer’s decision is often that one seller candidate moved too slowly and/or was unresponsive to the buyer’s attempts to move things along.
- the seller didn’t meet the buyer’s parameters (size, age of partners, services provided, profitability, billing rates, etc.).
- the buyer felt that there would not be a good culture and personality fit.
- the seller wasn’t ready to get serious about doing a deal.
so again, information and experience are king. merging in a firm is a big deal. i don’t care how many mergers you’ve done before. the more firms you meet and negotiate with, the more skilled you become at the merger process. i defy any firm to tell me they did as good a job researching, selecting and negotiating with their first merger as they did with their last one.