The Physics of Accounting Firm Mergers

Pendulum desk toyWhat led to the succession crisis? Inertia.

By R. Peter Fontaine

Sir Isaac Newton was truly a genius for the ages. He lived 85 years, worked his way through Cambridge, invented calculus, had a seat in Parliament, was knighted by Queen Mary and now rests quietly in a prominent Westminster Abbey crypt.

MORE: A Lawyer’s Guide for Spring Cleaning Your Accounting Firm | 6 Types of Due Diligence Procedures | Cultural Optimization: Making Mergers Successful | Why Due Diligence Is Done | What to Ponder Before Issuing a Letter of Intent | The Four Ways ‘Non-Competes’ #FAIL in the Social Media Age
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While best known for the unsubstantiated tale about a falling apple that led to his theory of gravity, Newton’s three laws of motion have withstood the test of time. These principles are remarkably applicable to modern-day accounting firm mergers.
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A Lawyer’s Guide for Spring Cleaning Your Accounting Firm

mop cleanSeven administrative chores you overlook at your peril. 

By R. Peter Fontaine
NewGate Law

Now that the 2016 busy season has finally come to a close, it’s time to turn our thoughts to more pleasant and less stressful activities – like spring cleaning.  We're talking about those pesky “housekeeping chores” that frequently end up on the backburner because they generate no revenue, are less urgent, and largely uninteresting. They are, nonetheless, critical to an accounting firm’s risk management health. There is no time like the post busy season lull to start cleaning.

Here is our list of seven spots that frequently need some major scrubbing:

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6 Types of Due Diligence Procedures

Cyfra szeAvoid the temptation to concentrate on some and breeze through others.

By R. Peter Fontaine
NewGate Law

My approach in writing this post is to give you a comprehensive list of due diligence items for your consideration, and to let you select the reviews you wish to perform. The ultimate decision rests with you.

MORE ON MERGERS: How to Merge Sole Practitioners | Thinking ‘Downstream’ Merger? Check These 25 Potential Problems First | 20 Terms to Settle When Merging Up | 13 Questions to Assess an Upward Merger | What to Discuss at the First Merger Negotiation Meeting | What to Ponder Before Issuing a Letter of Intent | One Times Fees Is a Steal! | Looking to Grow Your Firm? How to Find a Seller in Four Steps | 14 Keys to a Successful Merger

The scope of due diligence will differ depending on the transaction, and should be appropriately tailored. However, your Letter of Intent combined with the six areas outlined below result in a fairly comprehensive list of due diligence procedures that should serve the needs of most CPA mergers.
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Cultural Optimization:  Making Mergers Successful

The Rational Optimist
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How to begin successful post-merger integration strategies before the contracts are written.

By R. Peter Fontaine
Newgate Law

Rereading The Rational Optimist by British author Matt Ridley revived my belief in “cultural optimization” when it comes to accounting firm acquisitions. Ridley’s perspective is quite simple – over the millennia, human cultures have only progressed when the interaction between societies was collaborative.  People are better-off today because of the ancestral exchange and integration of ideas, language, beliefs, skills, customs, habits, technology and social structure; rather than as a result of isolation or cultural dominance and extinction.

MORE PETER FONTAINE:  What to Ponder Before Issuing a Letter of Intent  |  Why Due Diligence is Done   |  The Four Ways 'Non-Competes' #FAIL in the Social Media Age  |

While Ridley’s notion of optimizing cultural differences makes perfect sense, it does not seem to be regularly applied in the context of accounting firm M&A activity. READ MORE →

Why Due Diligence Is Done

Businessman sitting in office and reading documentsAnd the 5 steps you can't skip.

By R. Peter Fontaine
NewGate Law

Few CPAs enjoy the due diligence part of a merger. It’s like proofreading legal agreements or checking the answers to a test before handing it in to the teacher. It’s not very exciting.

MORE ON MERGERS: How to Merge Sole Practitioners | 13 Questions Between Merger Equals | 18 Concerns About Merging in Smaller Firms | What to Expect When Merging Up | 16 Reasons Merging Up Causes Anxiety | 14 Provisions to Include in a Letter of Intent | Want to Merge? Ask for Data | The Merger Process in 21 Steps | 13 Ways to Screw Up a Merger | 13 Reasons Accounting Firms Merge

By the time due diligence begins, the parties have usually decided they want to come together and due diligence is viewed as a process to confirm a decision which, for the most part, has already been made.
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What to Ponder Before Issuing a Letter of Intent

Generic business letter of intentThe difference between the first and second meetings.

By Marc Rosenberg and Peter Fontaine*
CPA Firm Mergers: Your Complete Guide

For now, let’s define the letter of intent as a written offer made by the buyer to merge in or acquire the seller. (A thorough definition is given later in this post.) It is a relatively short, simple, non-binding offer, subject to

  • further negotiations,
  • performance of due diligence and
  • a formal vote by the buyer’s partners.

MORE ON MERGERS: Want to Merge? Ask for Data | Merger Prep: Getting to Know You | One Times Fees Is a Steal! | The Merger Process in 21 Steps | Looking to Grow Your Firm? How to Find a Seller in Four Steps | 13 Ways to Screw Up a Merger | 15 Can’t-Skip Merger Terms to Decide | 14 Keys to a Successful Merger | Mergers 101: When Negotiations Aren’t Really Negotiations | 5 Steps to Take Before Merging

Before the LOI Is Prepared

The first meeting was the “get-to-know- you” meeting. The purpose of this meeting was simply to introduce each firm to the other, give each a chance to “kick the tires,” get a feel for the personality and style of the other and to share some very basic information, all of which is designed to help each firm decide if they wish to go to the next stage. READ MORE →

The Four Ways ‘Non-Competes’ #FAIL in the Social Media Age

How friending, liking, connecting or Tweeting can come back to haunt you. 

By R. Peter Fontaine
NewGate Law

It is axiomatic that the only true assets of any accounting firm are its clients and its people.  These relationships are typically protected through a legal agreement between the firm and its people.  Known as restrictive covenants (or, colloquially, as “non-competes”), under these contracts former partners and employees are prohibited from soliciting or serving firm clients, and soliciting or hiring firm employees.

Restrictive covenants are becoming increasingly more significant in the accounting industry because of the growing mobility of and competition for a scarce workforce and partner and employee “fallout” following a merger. The ever expanding popularity of social media only contributes to the uncertainty surrounding the enforceability and effectiveness of post-employment restrictions.

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