10 M&A questions to ask in a buyer’s market for accounting firms
When it comes to mergers and acquisitions in the accounting world, the word “robust” only begins to describe what’s happening.
The volume and pace of CPA firm M&A over the past 10 years, along with the current age demographics of firm owners, has created what appears to be a buyer’s market — that is, one in which there are more potential sellers than buyers. And those sellers are increasingly concerned about who will buy their firms.
In a buyer’s market, certain strategic questions must be answered, depending on what side of the table you sit on. The questions that follow should help both buyers and sellers navigate the current M&A landscape.
5 questions for buyers
1. What is your goal for the transaction? If you know what you are looking for, you will be able to appreciate an opportunity and turn the transaction into a success. Put your time to good use by building a profile of your firm, an ideal profile of your target firm, and some basic goals to help you filter decisions.
2. Would you accept the terms you are offering if you were the seller? Just because it’s a buyer’s market doesn’t mean you can throw out numbers that completely undervalue — and insult — prospective partner firms. Too many people think they’re going to get a “steal.” First impressions are lasting, so being unreasonable or ultra-aggressive may come back to haunt you.
3. Are your team members on board? Many deals have been derailed because consensus has not been reached by all of the partners or the broader management team. Vet your team’s worries and motivations. Some will be new to the M&A process or have had bad experiences in the past, so they may have good reasons for being reluctant.
4. Can you deliver what you say you can? Sellers are becoming more anxious. The less worried they are about the successor or buyer, the better off you will be. Know what you need to do to be ready to take over and to deliver the goods upon closing the deal.
5. How many transactions are you looking for and what is the timing? A buyer’s market could spell multiple opportunities. However, the process will be different for each transaction, and pulling off more than one in a short time frame is difficult — and risky. Set realistic expectations based on your firm’s past performance and your goals for M&A. Your team needs to know what is expected of them. Sellers will also want to know whether you will be distracted from focusing on your deal with them.
5 questions for sellers
1. What will it take to get a top offer? Doing your homework is crucial ahead of any transaction, but even more so in a buyer’s market. Understanding your current value, your potential and your vulnerabilities is extremely important and can help set up your firm for success.
2. What does your target buyer look like? The worst thing you can do is complete a transaction at discounted terms with a firm that is not the right match. Be exacting about what the buyer’s attributes need to be, and be ready to get creative on some terms of the transaction.
3. Have you considered all of your options? Merging is not for everyone, and selling may require a certain amount of security to make sense. Understand what options exist to rightsize or collaborate to mitigate concerns without necessarily being as rigid as transferring the practice.
4. What are your control hang-ups? If you are feeling pressure to sell or merge, you must be prepared to relinquish some control. Understand what the transition will mean — and what your tolerance for it may be.
5. What is the risk for personnel dissatisfaction? Generally, successors don’t have excess personnel, so continuity of personnel will be important. Furthermore, there’s a good risk of client flight with high staff turnover. Understand your staff’s commitment, motivations and fears for smoother integration.
It’s an exciting time for CPA firms, yet it’s also a challenging one due to personnel needs. Smaller firms are pursuing mergers, not necessarily as an exit plan, but as a way to continue to grow and to service. Larger firms are looking at smaller firms to merge in for new services and to redeploy personnel.
Whatever the motivation, asking the right questions and being comfortable with the answers is critical to confidently find the place and solution that fits your firm.