What to Discuss at the First Merger Negotiation Meeting

Four businesspeople greeting each otherSmaller, larger firms likely have different concerns.

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.

MORE ON MERGERS: 14 Provisions to Include in a Letter of Intent | Case Studies Reveal Potential LOI Issues | Want to Merge? Ask for Data | Plant Seeds to Turn Up Merger Candidates | Looking to Grow Your Firm? How to Find a Seller in Four Steps

Don’t assume anything. When you sit down for your first merger negotiation meeting:
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Thinking of Merging? Discuss It At a Retreat

Two chess kings on a chessboard with other pieces in backgroundBONUS CHECKLISTS: 9 major merger terms. 13 typical steps in the process. Plus questions to consider in upward and downward mergers.

By Marc Rosenberg

One possible topic for a retreat is a potential merger, whether upward or downward.

MORE ON RETREATS: How to Take Action After a Retreat | 12 Simple Rules for a Retreat | Leave Your Retreat With a To Do List | Every Retreat Needs a Leader, But Who? | Retreats Are No Place for Clowns | Who Should Participate in a Retreat? | Retreat Logistics: How Long, What Kind? | What Should CPA Firms Discuss at Retreats? | Why Do CPA Firms Conduct Retreats?

There are several keys to a successful merger:
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14 Provisions to Include in a Letter of Intent

Smiling businessman holding clipboardAvoid promising to “negotiate in good faith.”

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.

MORE ON MERGERS: Case Studies Reveal Potential LOI Issues | What to Ponder Before Issuing a Letter of Intent | Want to Merge? Ask for Data | One Times Fees Is a Steal! | The Merger Process in 21 Steps | Plant Seeds to Turn Up Merger Candidates | 13 Ways to Screw Up a Merger | 15 Can’t-Skip Merger Terms to Decide | 13 Reasons Accounting Firms Merge | 5 Steps to Take Before Merging

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
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Case Studies Reveal Potential LOI Issues

Model train derailed as model workers look on8 ways to drive a merger off the rails.

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.

MORE ON MERGERS: What to Ponder Before Issuing a Letter of Intent | Want to Merge? Ask for Data | Merger Prep: Getting to Know You | One Times Fees Is a Steal! | The Merger Process in 21 Steps | 13 Ways to Screw Up a Merger

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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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 →

Want to Merge? Ask for Data

Hand tossing a portable driveBONUS CHECKLIST: 17 data points you should exchange. And don’t forget the client list.

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.

MORE ON MERGERS:Merger Prep: Getting to Know You | One Times Fees Is a Steal! | The Merger Process in 21 Steps | Plant Seeds to Turn Up Merger Candidates | 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 | 13 Reasons Accounting Firms Merge

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

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Merger Prep: Getting to Know You

Four people meeting at a restaurantBONUS CHECKLIST: 18 questions to ask and answer.

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.

MORE ON MERGERS: The Merger Process in 21 Steps | Plant Seeds to Turn Up Merger Candidates | 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 | 13 Reasons Accounting Firms Merge | Mergers 101: When Negotiations Aren’t Really Negotiations

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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One Times Fees Is a Steal!

12909723_sThe math might surprise you. 

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.

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.

MORE ON MERGERS: The Merger Process in 21 Steps | Plant Seeds to Turn Up Merger Candidates | 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 | 13 Reasons Accounting Firms Merge | Mergers 101: When Negotiations Aren’t Really Negotiations | 5 Steps to Take Before Merging

The purpose of this chapter 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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The Merger Process in 21 Steps

Numbered bleacher stairsPLUS: 15 potential deal breakers and non-negotiables.

By Marc Rosenberg
CPA Firm Mergers: Your Complete Guide

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

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.

MORE ON MERGERS: Plant Seeds to Turn Up Merger Candidates | 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 | 13 Reasons Accounting Firms Merge | Mergers 101: When Negotiations Aren’t Really Negotiations | 5 Steps to Take Before Merging

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

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