{"id":52540,"date":"2017-08-10t05:01:39","date_gmt":"2017-08-10t09:01:39","guid":{"rendered":"https:\/\/48e130086c.nxcli.net\/?p=52540"},"modified":"2018-01-10t11:18:24","modified_gmt":"2018-01-10t16:18:24","slug":"esposito-valuations","status":"publish","type":"post","link":"\/\/www.g005e.com\/2017\/08\/10\/esposito-valuations\/","title":{"rendered":"m&a candidates: valuations and vetting"},"content":{"rendered":"
<\/a>plus consultant fee structures and integration committees.<\/strong><\/p>\n by domenick j. esposito<\/i> last year alone, over 200 firms merged up and this year is tracking the same. at this pace, a very large percentage of the approximately 14,000 multi-partner cpa firms (about 90\u00a0percent of which are under $10 million in revenue) will be looking at an upward merger in the next few years.<\/p>\n more on strategic planning: <\/b>m&a: sometimes bigger is better<\/a> | use compensation to shape partner behavior<\/a> | the importance of m&a culture due diligence<\/a> | are you attracting the new breed of equity partners?<\/a> | quality work, quality service not the same thing<\/a> | who will be the next category killer?<\/a> | why is strategy execution so difficult?<\/a> so let\u2019s take a deep dive into what you need to know about merger combinations, which are as much about the addition of talent as they are about the addition of clients. the two typical valuation components in most merger combinations are capital and goodwill.<\/p>\n approaching the market<\/strong><\/p>\n when approaching the market, most cpa firms retain a professional consultant who has significant credentials with m&a and strategy. fees generally are structured as follows:<\/p>\n cumulative <\/u><\/strong><\/p>\n fee<\/u><\/strong><\/p>\n<\/td>\n purchase <\/u><\/strong><\/p>\n price<\/u><\/strong><\/p>\n<\/td>\n<\/tr>\n <\/p>\n identifying viable candidates and working the circuit<\/strong><\/p>\n identifying candidates can be an exhausting process for the ceo so it is important to define what should and should not be looked at. some potential targets, local \u201ctuck-ins,\u201d will be obvious because of local geography. other potential targets are more strategic and require that the \u201ccircuit\u201d be worked. once you have determined the desired geographic markets and strategic add-ons, you have to make contact, develop a relationship with the targets and narrow the candidates down to one or two firms.<\/p>\n making sure it feels right<\/strong><\/p>\n before you decide whether to proceed to due diligence or not, you need to make sure that the targets feel right by chatting with the senior partners about respective histories, cultures, \u201csacred cows\u201d or deal-breakers in a possible transaction and the potential upside and synergies that might be derived. this is the magic sauce that will make a potential merger combination very exciting.<\/p>\n once the senior partners get comfortable with each other, the next step is to create broader buy-in with a meet-and-greet with all the partners from both firms and establish several committees that focus on integration of the different areas in the practice:<\/p>\n due diligence, closing the transaction, integration<\/strong><\/p>\n due diligence consists of three components:<\/p>\n when it comes to kicking the tires, most firms use a cpa firm combination program that drills down into the operational aspects of the target. once potential deal-breakers have been successfully dealt with, attorneys draft a letter of intent that is followed by a detailed combination agreement. the easier part of a merger combination is getting the contract signed; the harder part is the integration of the two practices, which typically takes about two years.<\/p>\n from an acquirer\u2019s perspective, there are wonderful opportunities to grow firms through merger combinations and as long as the marketplace buys\u00a0<\/span>bigger is better<\/strong>, there is no better time than now to capitalize on the opportunities. a word of caution, however. i implore you \u2013 no matter how tempting it may be \u2013 don\u2019t do a merger combination if 1 + 1 doesn\u2019t at least = 3.<\/p>\n","protected":false},"excerpt":{"rendered":"
\n8 steps to great<\/i><\/a><\/p>\n
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\ncpa firm valuations<\/strong><\/p>\n\n
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\n \n \n \n 5% of<\/td>\n the first $1 million of firm revenue, plus<\/td>\n<\/tr>\n \n 4% of<\/td>\n the second $1 million of firm revenue, plus<\/td>\n<\/tr>\n \n 3% of<\/td>\n the third $1 million of firm revenue, plus<\/td>\n<\/tr>\n \n 2% of<\/td>\n the fourth $1 million of firm revenue, plus<\/td>\n<\/tr>\n \n 1% of<\/td>\n any amount in excess of $4 million of firm revenue<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n \n
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