MERGERS & ACQUISITIONS

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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