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Get ready for the next merger wave in accounting

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Between the pandemic, aging CPA firm owners and staffing tensions, many in the accounting profession anticipate a huge uptick in firm mergers and acquisitions over the next 24 months.

If the predictions and emerging trends are right, it’s important for firm leaders to plan accordingly. Will you start your own research and outreach? Will you wait to be contacted directly by your peers? Will you train your firm’s gatekeepers to appropriately screen the brokers so you don’t waste time on every call and inquiry?

M&A is a profoundly serious matter, and you need to be prepared. Do not schedule any conversations with your competition without tackling the following priorities:

Define success. Both sides in a transaction have to know what success will look like. Generally, success incorporates staffing, expanded client service, enhanced market presence, expertise, broader support, growth, security and profitability. Parties may be looking for different things, but success is achieved when both can deliver it for each other and when the results do not cause conflict for the parties.

Examine anxieties. It is natural to have concerns about change. Thinking through worries that may result either from a problem or from success is crucial to starting a meaningful and productive dialogue. Nothing goes 100 percent right. Both parties need to be realistic and forthcoming in the conversations. Think through and discuss the things that would keep you both up at night.

Know your data. And know what data other firms like to dissect. CPAs are by nature data driven, and the finance culture is validated by data. Billing rates, AR turns, achieved rate, production per full-time employee, and realization by service line are all solid starting points.

Understand strengths and weaknesses. No business is perfect — and no one expects it to be. At the same time, the strongest businesses know what they are and what they are not. Get an objective expert to provide an assessment ahead of meaningful conversations so you know how to protect and pursue your best interests while looking for a firm that complements yours.

Be aware of value and compensation. M&A transactions have a strategic purpose, but, without a fair set of financial terms, the deal is doomed. Be aware of the going ranges for value and the most prevalent compensation models.

Get personal. Mergers are successful when people are comfortable. Firm cultures need to align, and operational priorities need to be in sync. Each side needs to understand what kind of compromise they are ready for, what kind of compromise they may need to make, and an idea of what the consequences might be upon merging. Best practices may be difficult to coordinate if parties have strong preferences. Think through some of the potential culture and personality roadblocks (or synergies), and know where they are rigid ahead of a serious conversation with another firm.

Think about time and timing. All practices have their own rhythm. This rhythm should influence when any transaction would be effective in terms of time of year and time within the professional lifelines of the players. To succeed, the players have to be ready to spend time. Get a sense from experts — whether they are consultants or deal-making firms — as to how long a process the M&A could be. Not putting the right time in early will be in no one’s best interest.

In our current environment, getting contacted about M&A should not come as a surprise, but you may be surprised by the firm contacting you. In the way that every firm prepares for busy season, every firm should prepare itself for M&A conversations. The pandemic has made us all realize how precious time is. Get ready now so you can optimize your time and set yourself up for success when the calls happen.

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