MERGERS & ACQUISITIONS

The ABC’s of PCAs for CPAs

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Overhead view of two businessmen meeting in lobbyIt’s a favor. Treat it like one.

By Marc Rosenberg
CPA Firm Mergers: Your Complete Guide

A practice continuation agreement (PCA) is a written contract between a sole practitioner and another firm for the latter to take over the solo’s practice, either permanently or temporarily, in the event of a sudden, unexpected event (most commonly a health issue) that prevents the solo from working.

MORE: Where Mergers Go Wrong | Twelve Tips for Negotiating Mergers | Buying a Solo | Why Merging in Smaller Firms Is Fabulous | 13 Reasons to Merge Up | Thinking Merger? First Ask Why.
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Logically, it would make total sense for every one of the 30,000 sole practitioners in the U.S. to have a PCA in place. After all, solos have no partners to take their place, and in the vast majority of cases, their staff doesn’t have the skill level or the certifications needed to run the practice in the absence of the owner.
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Fourteen Rules for Lateral Partner Hires

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Two women in office shake handsBe clear about their client base.

By Marc Rosenberg
CPA Firm Mergers: Your Complete Guide

It’s fairly common for law firms to hire partners from other firms, a practice termed “lateral partner hires.” CPA firms do this but much less often.

MORE: Where Mergers Go Wrong | Twelve Tips for Negotiating Mergers | Buying a Solo | Why Merging in Smaller Firms Is Fabulous 13 Reasons to Merge Up | Thinking Merger? First Ask Why.
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The main reason for this difference is that law firms cannot legally have nonsolicitation or noncompete covenants in their partner agreements. Most CPA firms do have such provisions, which severely restrict the movement of partners from firm to firm.

Despite these nonsolicitation provisions, CPA firms do sometimes make lateral partner hires (LPs). There are several variations:
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Where Mergers Go Wrong

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Industrial metal number 5Don’t be rushed by deal fatigue.

By Marc Rosenberg
CPA Firm Mergers: Your Complete Guide

Few CPAs enjoy the due diligence part of a merger. It’s like proofreading legal agreements or going back to our school days when we had to double-check our answers before turning in a test.

MORE: Mergers: One Stage or Two? | What Your Merger Letter of Intent Needs | 61 Things Buyers Should Explore with Sellers | Thirteen Ways to Woo Potential Firm Buyers | Thinking Merger? First Ask Why.
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By the time due diligence begins, the parties have usually reached a handshake agreement on the deal terms and decided they want to merge. Due diligence is a process that confirms a decision that, for the most part, has already been made. It’s like checking references after you’ve interviewed someone and decided to make the hire.
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Twelve Tips for Negotiating Mergers

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Four businesspeople, left handshakePlus: Guarding against deal fatigue.

By Marc Rosenberg
CPA Firm Mergers: Your Complete Guide

After you’ve identified a merger partner.

After you’ve convened a get-to-know-you meeting.

After you’ve exchanged financial and production data.

After you’ve received letters of intent,

MORE: Mergers: One Stage or Two? | What Your Merger Letter of Intent Needs | 61 Things Buyers Should Explore with Sellers | Thirteen Ways to Woo Potential Firm Buyers | One Times Fees Isn’t the Only Way | Four Reasons to Fear a Merger
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… now you’re ready to get down to business! It’s time to begin arguably the most critical of the dozen or so major steps in the merger process: negotiating the deal. READ MORE →

Mergers: One Stage or Two?

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When each is most common.

By Marc Rosenberg
CPA Firm Mergers: Your Complete Guide

After settling financial and operating issues, we turn to two-stage vs. one-stage mergers.

MORE: Buying a Solo | 23 Questions for Mergers of Equals | Selling Your Firm? What to Expect | One Times Fees Isn’t the Only Way | Four Reasons to Fear a Merger
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In the end, it’s all about the math.

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What Your Merger Letter of Intent Needs

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Fontaine

BONUS: A 19-point checklist for sellers.

By Marc Rosenberg
CPA Firm Mergers: Your Complete Guide

NOTE: This post was written in collaboration with attorney Peter Fontaine, the founder and managing partner of NewGate Law, a firm of lawyers that work with CPA firms exclusively. He served as legal counsel at Arthur Andersen and RSM for more than two decades. He can be reached at pfontaine@newgate.law or (617) 513-2440.

At the onset of the merger process, most sellers contact at least two to three potential buyers. This positions the seller to select one buyer to commence negotiations with, in earnest.

MORE: Buying a Solo | 23 Questions for Mergers of Equals | 61 Things Buyers Should Explore with Sellers | Why Merging in Smaller Firms Is Fabulous | Selling Your Firm? What to Expect | Thirteen Ways to Woo Potential Firm Buyers
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After an exchange of financial and operating data and meetings to clarify the information, but before serious negotiations begin, it is customary for the qualified buyers to issue letters of intent (LOIs).
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Buying a Solo

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Two people sitting across from each other at a deskWhat to negotiate, plus key operating and financial issues.

By Marc Rosenberg
CPA Firm Mergers: Your Complete Guide

The approach to orchestrating a merger differs depending on the nature of the transaction. Is there a true survivor? In substance, not form, is the deal more an acquisition than a true merger?

MORE: 23 Questions for Mergers of Equals | 61 Things Buyers Should Explore with Sellers | Thirteen Ways to Woo Potential Firm Buyers | One Times Fees Isn’t the Only Way | Four Reasons to Fear a Merger
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When a sole practitioner is the seller, virtually all deals are true acquisitions. Solos intend to retire in just a few years. Their primary focus is on the negotiation of financial terms, such as the purchase price, payout term, down payment and compensation for the time they work. Issues related to the operation of the buyer are generally of minor importance to the solo. In other words, when a buyer acquires a retirement-minded solo, the transaction is fairly simple and straightforward.
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23 Questions for Mergers of Equals

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Five businesspeople shaking hands under office skylightWhat do you want, and who will manage getting there?

By Marc Rosenberg
CPA Firm Mergers: Your Complete Guide

Mergers of equals or firms close to equal (some call these sideways mergers) are much less common than mergers in which there is a clear survivor. But they do occur.

MORE: 61 Things Buyers Should Explore with Sellers | Why Merging in Smaller Firms Is Fabulous | 13 Reasons to Merge Up | Thinking Merger? First Ask Why.
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There are two reasons that mergers of equals are rare.

First. Mergers of equals are much more difficult to negotiate. In traditional mergers where there is a clear surviving firm, the buyer is in a strong position to dictate the deal terms and governance policies, and the seller respects this.
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