MERGERS & ACQUISITIONS

Five Ways to Put Success into Succession Planning

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A robust mentoring program can be critical.

Three climbers helping each other up a hill

By Bill Penczak

Legendary General Electric CEO Jack Welch is reported to have lamented the choice he’d made in his successor, choosing someone based on their personality and ability to navigate the politics of the position instead of someone who could successfully lead the company into a brighter future. Welch was correct. Today, GE is a shell of its former self because of its leadership choice.

MORE: O.D. Lanier: Stepping Into Advisory | Secret to Success? A Growth and Abundance Mindset | Future Firm Growth Requires a Mindshift |The Great Resignation: Five Reasons Accountants Are Quitting | Five Global CPA Leaders: Four Survival Strategies | Planning for Success in 2021 | Do You Have the Guts to Beat the Covid Crisis?
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Welch’s one gaping failure as an otherwise stellar executive started me thinking about the current state of baby boomer-led and owned CPA firms, and how many of them are likely to commit the succession errors of GE. Or worse, do nothing at all in terms of creating and sustaining a CPA firm into its next iteration.

As firms are giddy with the prospect of a new year and with COVID in our rear-view mirrors, here are five considerations for generational succession of a middle market firm:

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Merging? Protect Your Staff

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Five young business people at work in an office setting.If your people matter, show it.

By Marc Rosenberg
CPA Firm Mergers: Your Complete Guide

When a CPA firm acquires or merges in a smaller firm, it is common for the seller’s staff to be employed by the buyer.

MORE: Cherry-Pick Your Merger Partner | 34 Steps to Implement a Merger | M&A: The Six Types of Due Diligence | Why Solo CPAs Need PCAs | Where Mergers Go Wrong
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In this situation, there are two very important documents to be executed between the buyer and the seller’s staff:
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Merger Minded? Go Out on Top!

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Hands raising wine glasses to toastIt’s time to be realistic.

By Marc Rosenberg
CPA Firm Mergers: Your Complete Guide

An aging seller who has no successors on staff has four possible exit strategies:

1. Persist in eternally searching for smaller firms with bright young owners to merge in and eventually take over the firm. But ask yourself: Why in the world would a young, successful firm want to merge with a firm that’s older than dirt? Besides, every firm in the country wants to merge in a talented young firm. The competition is formidable.

MORE: Cherry-Pick Your Merger Partner | 34 Steps to Implement a Merger | Where Mergers Go Wrong | 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
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2. Continue the endless search for that young manager at a bigger firm who is disenchanted working at such a large firm and would jump at the opportunity to become a partner at your firm. Ask yourself: Why in the world would such a manager want to work for a small firm of old guys instead of joining a more vital, sophisticated firm with much more to offer?
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Private Equity Heats Up M&A

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Firms competing in the buyers’ market need to put on some polish. 

By CPA Trendlines Research
The Rosenberg MAP Survey: National Study of CPA Firm Statistics

The accounting industry is seeing an upswing in mergers and acquisitions after a slowdown during the pandemic confusion.

MORE: Why Solo CPAs Need PCAs | Where Mergers Go Wrong | 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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The reasons, according to consultants quoted in the 2022 Rosenberg Survey, are several:

  • Sellers are looking for viability as partners retire.
  • Sellers are looking for funding to upgrade tech and shift to CAS.
  • Buyers are looking for scarce personnel.
  • Buyers are looking for specialized niches.
  • Buyers are looking for something to tempt private equity investment.

What kinds of tips are available for buyers and sellers?

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Cherry-Pick Your Merger Partner

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Young businesswoman putting hand out in "stop" gesture while sipping coffeeIt’s OK to walk away.

By Marc Rosenberg
CPA Firm Mergers: Your Complete Guide

For anything really important in your life, do you opt for the first choice that comes your way? Did you marry the first person you had a crush on? How many jobs did you accept without checking out other opportunities? When looking to hire someone, did you interview only one person? Do you make an investment without considering alternatives? I trust the answer to all of these is a resounding no.

MORE: 34 Steps to Implement a Merger | M&A: The Six Types of Due Diligence | 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 same advice applies to mergers, whether you are a buyer or a seller. The more firms you talk to and negotiate with, the more expertise you acquire with the merger process. As the saying goes, “Information is king.” More knowledge, information and experience are always better than less.
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Outlook 2023: The Unstoppable Forces behind M&A

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Is it the pot size or the players?

By Gary Adamson

The people challenges will intensify with firms looking more to offshoring and beefing up their campus recruiting efforts to chase fewer graduates. Remote work is here to stay – the focus will be on doing it better in terms of work management and people expectations/management.

MORE: OUTLOOK 2023: Top Five Trends | OUTLOOK 2023: Compensation Gets Creative | OUTLOOK 2023: The Office Is Over | 2023 OUTLOOK: Private Equity Comes for Accounting Firms
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Firms will be evaluating how to “keep our culture” in the face of a remote work environment or perhaps the question is what does our new culture look like. M&A is off to the races with pent-up demand because of COVID-19 and the private equity money entering the market. The people portion of the deal will be more important than the client portion.
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34 Steps to Implement a Merger

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Your staff will be much more comfortable.

By Marc Rosenberg
CPA Firm Mergers: Your Complete Guide

Most firms find that it takes three to four years to fully implement a merger. But during the first few months after the merger’s effective date, there are quite a few administrative and procedural issues that need to be attended to immediately.

MORE: M&A: The Six Types of Due Diligence | Why Solo CPAs Need PCAs | Mergers: One Stage or Two?
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Most firms try to get as much of a head start as possible before the effective date.
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M&A: The Six Types of Due Diligence

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BONUS: Ten surprises at the end of negotiations that can threaten a deal.

By Marc Rosenberg
CPA Firm Mergers: Your Complete Guide

The scope of due diligence will differ depending on the deal and should be tailored appropriately. The letter of intent issues, combined with the six areas outlined here, result in a comprehensive list of due diligence procedures that should serve the needs of most CPA mergers.

MORE: Why Solo CPAs Need PCAs | Where Mergers Go Wrong | 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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The six types of due diligence are financial and operational, clients and services, technical product and work quality review, personnel, risk management and legal.
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