Acquiring another accounting firm may seem like a quick and easy way to boost growth — particularly when compared to the slow slog of building up business organically — but it's really neither quick nor easy.
For many of this year's
For firms that do it right, the rewards go far beyond a bigger bottom line, from a wider range of happier, better-served clients, to a strong, deeper bench of talent for the future.
That's certainly the case at Atlanta-based Top 100 Firm Aprio, which has executed dozens of deals in the past decade. "The proof is in how we operate today," said CEO and managing partner Richard Kopelman. "More than 85% of Aprio's leadership is made up of leaders from firms that joined us."
On the other hand, not making a deal is better than making the wrong one.
"Don't just do an acquisition to do an acquisition," warned Lee Cohen, founder of New York City-based Regional Leader LMC. "Make sure it's right, because a bad acquisition is just going to ruin the whole morale of your firm."
And knowing what the wrong deal looks like starts with having a clearly defined strategy.
Stick to the plan
Florida-based Moss Krusick & Associates has completed close to 20 acquisitions in the past decade, mostly of relatively small firms in the $500,000-$2 million range — and often those deals were guided by the firm's goal of covering the market in the Sunshine State.
"We did have North Palm Beach and Miami Lakes, and we opened offices in Miramar," explained managing partner Ed Moss. "So we have all three counties in South Florida covered and we have offices in Clearwater and St. Pete, and we're trying to get into the Tampa Bay area, and obviously we started here in Orlando … but from Sarasota to Fort Myers is untouched by us, and Jacksonville. We've had a few leads in Jacksonville, but nothing's panned out."
Indianapolis-based Top 100 Firm KSM is looking at geographic expansion "into markets that were good alignments with where we're positioned on the eastern side of the U.S.," said CEO and president Tim Cook — but the firm also knows what kind of practices it wants to consider.
"On the acquisitive side, it's a combination of traditional audit and tax and advisory firms that are what we do that are a good culture fit," Cook continued. "Also, it involves identifying more niche-based firms that either are a strong supplement to something that we already do, or complimentary to what our business does that's a seamless fit and not something that we're trying to be something that we're not."
Creating and sticking to an M&A strategy that clearly identifies the kinds of targets and geographies a firm is interested in is an important first step, and one that many of this year's Fastest-Growing Firms use to narrow their choices.
New York-based Top 100 Firm PKF O'Connor Davies, for instance, is looking to increase its presence in a number of different markets, but it's very picky: "[We're] just being very selective in terms about what we do and where we go after," said managing partner Jonathan Moore. "Not every opportunity is necessarily the right opportunity for us."
With that said, an acquisition target has to do more than just fit a firm's strategy — it has to fit a firm's culture.
Not a pair of pants
Top 100 Firm Springline has a clearly articulated mission of being "a big small firm" — offering the high-touch, personal feel of a local practice with the resources and reach of a national firm — and to make sure it achieves that as it acquires new firms "means finding like-minded firms who value culture and people as a lever for growth," said CEO Tim Brackney.
It also means being ready to say no when the fit isn't there. "So not going for shiny objects, not being too thirsty in a competitive deal environment and just making sure that the firms that you're bringing in, especially in this founding phase, really are accretive to what you're building overall from the inside," he continued.
Finding targets that have the right cultural fit may well be the hardest part of an M&A strategy — and the one that takes the most time.
"It's just the time that it takes to develop relationships with future partners for firms to make the decision to join us," said KSM's Cook. "It's not an overnight decision like buying a pair of pants. It has dramatic impact and it just takes a while for the firms to get to know each other and figure out both the culture fit, how it would work operationally, and to achieve a comfort that this makes the best sense for both."
Accepting the j curve
If making sure the cultural fit is there is the most time-consuming aspect of M&A before the deal, integrating a new acquisition takes up the most time and energy once the ink is dry — but it's time and energy that has to be spent to get long-term value out of the deal.
"With our inorganic growth — where we acquire several like-minded businesses that often have similar service lines, similar profiles of clients and people — we integrate them fully on day one," said Jeremy Dubow, CEO of Chicago-based Prosperity Partners. "And that integration process is often a challenge because they have different systems, different approaches and processes. And the result is we often go backwards for a period of time."
Dubow described it in terms of the "j curve," which initially shows a downward trend, and then a sharp upward rise: "Definitely one of the biggest obstacles to growth is with our new add-on acquisitions, to get them fully integrated, and once they are, we see positive returns."
LMC's Cohen agreed that bringing in a new firm involves a host of difficulties: "Integrating a firm's culture into our culture and their processes and merging processes and new computer systems and everything — that's a challenge sometimes, and it requires a lot of detail, it requires a lot of attention, and it requires a lot of handholding, and sometimes we don't expect how much time it's going to take."
Many of the Fastest-Growing Firms have gone through a number of M&A deals, and developed internal teams with the skillsets necessary to integrate acquisitions quickly and well. Others, like KSM, recognized the need to build those teams.
"We had not done a lot of combinations with other firms up till now," said Cook. "So we had to invest in our ops team to have the ability to scale the firms. … We need to do a great job of fully integrating the firms and the services that we have brought into the mix that are new."
Too much of a good thing?
Getting skilled at bringing new firms on board is particularly valuable for firms that plan to keep M&A as a major pillar of their growth strategies, as many of the Fastest-Growing Firms do.
The reason isn't hard to understand: While M&A requires both hard work and time, the end results can be pretty compelling, as described by Sean Taylor, the CEO of Atlanta-based Top 100 Firm Smith + Howard.
The firm targets practices that are about 25% of its revenue, aiming to make sure its back office and shared services teams can handle the challenges of integration and expansion.
"If you grow that way, it's crazy when you do the math," Taylor said. "If you do that repeatedly, you'll be three times your size in five years. It doesn't seem that way when you think about growing 10% organically and adding about 25% to your revenue, but that's exactly how the numbers work themselves out."
That possibility, along with the introduction of deep-pocketed capital partners into the professional landscape, has many firms eyeing M&A strategies.
Those that build a coherent strategy, shop carefully, and integrate well can expect significant rewards, but those rewards may actually lead to a longer-term problem, warned LMC's Cohen: bare shelves.
"As the market becomes saturated with more and more private equity firms and family offices making investments," he said, "I think there will be less acquirable firms out there, and that may be a challenge for supersized growth."
