Despite the current economic recession, 2008 was a record year for CPA firm mergers. There probably haven't been as many mergers since the influx of public company consolidators produced a record number in 1998. Now that the dust has settled, it's interesting to find that mergers and acquisitions are one of the three big growth drivers at most Top 100 CPA firms today (the other two being organic growth and recruitment of high-level lateral talent).

What made 2008 an interesting year was the resurgence of CBIZ, which completed two significant transactions involving Top 100 firms (Mahoney Cohen and Tofias). Today, they represent one of the few cash options available to CPA firms. However, I predict that we will see more cash options in the future as other financial services companies, such as private equity groups, enter the CPA firm arena. (Note: Smart & Associates actually sold their firm a couple of years ago to a private equity group, and last year, had the capital markets not tumbled, a major New York private equity group was close to announcing the rollup of a handful of Top 100 CPA firms that would have had combined revenues of over $500 million!) Having said that, most mergers today remain simply that: mergers. Firms take their volume, combine it with the bigger firm's volume and then receive deferred compensation benefits and, unless they are retiring, partners become equity partners in the larger firm.

A couple of years ago, I was at an M&A conference and shared a statistic that still holds true: That approximately 90 percent of all merger discussions typically end up going nowhere. Whether because of incompatible cultures, ego, financial terms, or a host of other issues, I find that often times the acquiree is looking for perfection, but the reality is that it simply isn't possible. Take a six-partner firm I recently consulted with: The two "overachieving" partners were both in favor of the merger, as they saw it as a way to increase their earnings, job satisfaction and future growth opportunities. The two "underproducing" partners saw the merger as a threat, and questioned whether they would stay as partners after the merger. Truth be told, the two overachieving partners were earning less because they were subsidizing the two underachieving partners who felt, because they had the title of "partner" and had been on the ground floor in terms of starting the firm, that they were somehow entitled to an earnings level greater than what their production and results warranted for the firm. The two partners in the middle were where the real tug of war took place, as five of the six partners had to approve the merger. In the end, the two "middle" partners voted against the merger, as they felt a certain loyalty to the underachieving partners.

This illustrates what can take place in a merger discussion when all partners aren't on the same page. It's critical to not only hear what is important to all partners, but also to have the flexibility as an acquirer to try to deal uniquely with each of the partners' challenges or concerns.

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