No one can deny that over the last several years, there have been more mergers and acquisitions in the accounting profession than ever before. The real questions, however, are whether these transactions are really delivering the promised marketing and competitive results, and whether the firms are financially better off now than they were before the merger.
He said: We always hear about the larger mergers. They hit the press and then we don't hear much more about what takes place in the next 12 to 24 months. We also hear about a handful of mergers that are announced and then never take place. What we don't hear is how the firms make the mergers work.
While I think mergers make sense, many are done for the wrong reason, or better yet, for no reason. And some firms are not financially better off now than they were before. There are a lot of reasons why mergers fail -- primarily a lack of effective leadership and a fuzzy strategic direction.
She said: If a firm is interested in a merger primarily to grow for the sake of growth, beware. Organic growth can be tough and isn't getting any easier, but the skills needed to grow your practice are needed whether you have been acquired or not. If a firm wants to acquire skills and expertise from another firm and also wants a presence in a certain geographic location or specialty area, it tends to make more sense. You can't merge away the problem of not having partners who can develop business. Once a merger happens, the need to grow your practice is still there and may be even more pronounced. Partners need to be aware of this going in.
He said: While I hate to agree with you, you are right. Two weak firms do not make a strong one. Let me give you some examples of things that I have seen that almost guarantee an unsuccessful merger. It's really a giant lie when a buyer tells the seller that nothing is going to change. You can be sure that things will change -- software, billing policies, compensation, and maybe even who calls the shots.
Sometimes a buyer will tell the merger candidate that they will address the issues after the transaction is completed. The time to work out the issues is now, not later. Or worse yet, firms put the wrong people into leadership positions.
She said: Issues take time to work out, so you can't expect to work them all out before the merger happens. Let's be honest about that: The knowledge that a merger is not seamless and the conversation around that is important. Many things change. The goal is to decide what makes sense to change, when the change should occur, and how to navigate that change. Changing software? To what? Why? When is the conversion date? Make a plan. Stick with it. Talk about it early and often.
He said: A lot of people will agree to make changes, but then find all sorts of excuses not to make them. Even when partners know that the change is good for them, they are still hesitant about embracing it. No one worries about the integration of the two practices. But someone needs to. When two larger firms merge, it is an even more critical issue. I know of mergers where a year later the two firms are still operating as two separate entities.
She said: More firms should consider bringing in a person with expertise as an option, instead of only considering merging in an entire practice. When you merge two firms, you not only get the desired additions like experts, clients and a market presence, you also get the undesirable staff, clients and problems in their market. Many times the problems outweigh the benefits. Mergers don't solve all of a firm's problems. However, if a merger makes sense, one plus one can equal three. Integrating best practices and having some accountability around how the combined firm will operate can create an outstanding result.
He said: I believe that the most critical element for a successful merger is for the two firms to have a similar culture. They need to do things the same way, have the same values, and behave in similar fashion. You don't want oil and water trying to mix together. It never happens. It's like a firm with a 9-to-5 culture trying to merge with a firm with a 5-to-9 culture.
She said: It is difficult to determine what cultural differences exist. This is true especially because the partners tend to be in "courting" mode when initial merger discussions occur. Leaders get excited about the potential of combining the firm.
Leaders should ask the tough questions about hiring and firing practices, work-life balance policies, professional development, and partner accountability and compensation systems.
He said: That's why firms need to have someone do an independent cultural assessment to get their heads out of the clouds and back to reality.
They said: Mergers are fraught with problems, and more than 80 percent of mergers in all industries do not deliver on their value proposition. We think it is better to be safe than sorry when undertaking a merger. Taking an extra week or so to identify undesirable staff/partners, firming up governance and more is time well worth spending.
August Aquila is a well-known consultant, retreat facilitator and author. Reach him at (952) 930-1295 or email@example.com. Angie Grissom is president of The Rainmaker Companies, which exclusively serves accounting firms. Reach her at (615) 373-9880 or firstname.lastname@example.org.
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