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BONUSES: Smaller firm to larger, 25 questions to ask and 17 data points to request.

By Marc Rosenberg
CPA Firm Mergers: Your Complete Guide

There are always three intangible factors that greatly influence the extent to which merger terms and issues are negotiable:

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1. Negotiation ability of each firm. Some people are “tough” negotiators, continuously trying to impose their will on the merger partner, while others are more malleable and tend to go along with whatever the other side wants.
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Plus thirteen questions to ask.

By Marc Rosenberg
CPA Firm Mergers: Your Complete Guide

The smaller firm in a proposed merger should make an objective, realistic assessment as to whether or not merging upward is a good business decision.

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Every small firm evaluating the feasibility of merging should consider these questions in as much depth as possible:

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Seven topics for the first negotiation meeting.

By Marc Rosenberg
CPA Firm Mergers: Your Complete Guide

Mergers succeed in direct proportion to the effort made by both firms to

1. ask lots of questions,
2. agree on as many merger implementation issues as possible before the merger takes place and
3. openly share as much of their “dirty laundry” as possible to minimize surprises.

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Don’t assume anything. When you sit down for your first merger negotiation meeting:

1. Start the meeting by confirming and agreeing on the agenda.

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Fourteen provisions to include.

By Marc Rosenberg
CPA Firm Mergers: Your Complete Guide

Letters of intent should be drafted cautiously and with as much detail and precision as possible. This avoids potentially fatal misunderstandings or disagreements around key terms later in the process.

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An LOI is too often seen as a non-binding jumping-off point, with no real consequences. This is not exactly true. For starters, an attempt by one party to change a material term in the LOI can be characterized by the other party as an act of bad faith or a breach of trust, which can

• derail an otherwise healthy merger,
• give a party excessive or unwarranted leverage or
• reopen the entire negotiation.

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Eight ways to derail a merger.

By Marc Rosenberg
CPA Firm Mergers: Your Complete Guide

As you will see from reading these examples of issues I have seen arise at second meetings, touchy or sensitive items are much more easily dealt with before the letter of intent is prepared than after.

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The discussion at this second meeting steers the parties closer to a mutually acceptable transaction in the direction that the seller is looking for, thus minimizing contentious issues that often arise when an LOI is issued that amounts to a “stab in the dark” by the buyer.

Here are some agenda items for second meetings I have recently led:

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Five items for the second meeting.

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.

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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 →

Seventeen data points you should exchange.

By Marc Rosenberg
CPA Firm Mergers: Your Complete Guide

I have always been a big believer in the buyer and seller exchanging financial and operating information as early in the process as possible. Numbers aren’t everything, but they do speak volumes. The data enables each firm to gain an understanding of the other in a manner that is not always possible in conversation.

The data is also a good way to corroborate things that are said verbally.

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Here are some examples:

• In conversation, the buyer says his realization percentage is “strong.” But the data show 82 percent, for which the word “strong” would never be used.

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It’s time to get to know each other.

By Marc Rosenberg
CPA Firm Mergers: Your Complete Guide

All merger discussions have to begin somewhere. After merger candidates have been identified, there obviously needs to be an initial meeting for the two firms to get acquainted.

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Everything is confidential and informal. No exchange of financial statements. The two parties simply spend an hour or two – you guessed it – getting to know each other. Many firms like to convene this meeting over breakfast or lunch because meeting at a restaurant gives the encounter an air of informality and sociability. Other firms like to do this in the larger firm’s office so that the smaller firm can get a “house tour.”

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Do the math. You might be surprised.

By Marc Rosenberg
CPA Firm Mergers: Your Complete Guide

Partners in accounting firms are familiar with the rule of thumb that a CPA firm’s goodwill is worth one times fees; however, like many “rules of thumb,” this notion is often incorrect.

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When buyers begin to think about how much they will pay for a smaller firm, they often have this one-times-fees notion in the back of their minds. Then, when sellers are bold enough to ask for a price in excess of one times fees, buyers often balk because they feel that the asking price is too rich.

The purpose of this article is to demonstrate that buying a small firm for one times fees is a steal (for the buyer). In fact, it’s still an outstanding investment at a premium price, say, as high as 1.3 times fees. Let me illustrate.

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PLUS: The proper process in 21 steps.

By Marc Rosenberg
CPA Firm Mergers: Your Complete Guide

It’s important to understand the flow of the entire merger process.

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Every merger has its unique aspects. It’s impossible to choreograph, from A to Z, exactly how the process for all mergers will work. The steps in the process listed below appear in the order of how they commonly occur.

But again, because all mergers are different, the flow of the steps might vary from merger to merger.

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Never stop looking.

By Marc Rosenberg
CPA Firm Mergers: Your Complete Guide

Firms that are serious about merging in smaller firms on a regular basis understand that doing mergers is all about planting seeds. A buyer has to have this attitude:

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Every day of every year, at least one firm decides to test the merger waters. If our efforts to identify sellers are made continuously throughout the year, every year, sooner or later, we will find at least one interested merger candidate and probably more than one.

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