When it comes to accounting firm mergers, there have always been big fans—and those who want to keep their distance. Life in the COVID-19 economy has not changed those approaches. Some advocates are passionate and bullish; some are more negative or, at best, complacent.
Whether to be in merger mode or not these days is heavily oriented around timing, opportunity, and business benefit—and even these factors change depending on which side of the table you sit on. Factor in consensus among your key players and it can turn into a quagmire quickly! Here are some top considerations in the three areas mentioned.
Timing
To an acquirer, timing is weighted around capacity—i.e., what do you have in place to facilitate and integrate a transaction? The risk of insufficient infrastructure and talent to transition is far too great to accept in the time of COVID-19. To a seller, timing hinges on issues such as lease renewals, technology costs, growth investment, and retirement schedules.
Opportunity
Opportunity for an acquirer will be focused on bulking up lines of service, offering new (comfortable) lines of service, adding talent, and possibly venturing into a new geographic area. Acquirers will want to be true to their strategic plan and be disciplined around what they want and do not want. In general, adding clients will not be enough of an opportunity unless there has been a significant drop in client revenue. Opportunity for a seller will likely hinge on adding talent, accessing better technology, growing service, and protecting the client base.
Business Benefit
Business benefit has to be quick and meaningful for firms on every side of the M&A table. Five stimulants to “merger mode” include:
Profit. Both parties to the transaction need to see more profit (after normalization) by the end of the first year. Investment in growth may come out of profit dollars, but profit has to be programmed realistically for the first twelve months.
Technology. Implementing better technology and automation to create profit and efficiencies needs to be a readily available asset. Often, being able to spread the costs over more people is appealing, but a common commitment to advancing technology and adapting to changes in methods of operation are critical.
Depth and Expertise. Each party must become intellectually stronger right out of the gate. Sometimes it comes from filling missing talent slots, other times from redeploying resources, and frequently from adding in-house skills instead of outsourcing.
Continuity. Both parties need to experience more robust career paths for the employees, better grooming and development of leaders, and enhanced client and staff retention.
Optimization. Putting people to their highest, best use must be set into motion as the transaction is being planned. Freeing chargeable producers from administrative work is a common strategy for optimization, but, without realistic comfort or a plan, it can’t be achieved.
Good times and bad require that entrepreneurs consider options. Firms that would like to be in merger or transaction mode need to be prepared to move quickly. Planning and readiness are essential.
Deciding whether to pursue a merger or similar transaction is an age-old question. COVID-19 should be a motivator to address the question deliberately and intelligently—without emotion coming into play.
The best decision for you about your firm and M&A will come from assessing your timing, opportunity and business benefit needs, and making a thoughtful decision that is right for your firm’s future.
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