Deal or No Deal? There Is More to M&A Than Negotiating.

Since accountants are so comfortable delving into numbers, it should perhaps be no surprise that, in conversations about firm transfers, sales, or mergers (M&A), the emphasis shifts quickly toward financial positions in deciding whether or not the transaction is a viable “deal.”


While it’s clear that firm transactions require fair and intelligent financial terms, there are other very critical factors that influence and predict viability. Unfortunately, focusing on the numbers alone can create deals that should never have been done – or should have been done differently.


Here are four relevant indicators that firms should consider when deciding to deal:

  1. History of staff turnover and personnel leverage. High turnover is an indication that collaboration, delegation and change will be difficult. Remember, no firm has only bad luck and only attracts the worst people. In addition, high partner charge hours for a routine practice may be about more than personnel shortages; it may be about control and rigid standards.

  2. Stability of clients. Lack of client turnover is potentially a compliment, but it can also indicate a failure to provide new services (which might also raise fees), a reluctance to classify time as chargeable, and a fear of effecting change in general. A stratification of clients with a fee history over the past three years will tell a story which could spell opportunity or slippage. More and more firms are finding that pruning the base will produce benefits. Both sides of the negotiating table need to see it the same way.

  3. Accountability avoidance. Exit-oriented players need to know that the successor is committing to specific timeframes and processes, and the successor needs the exit-oriented person(s) to similarly commit. Often, financial penalties will be appropriate for poor compliance. Longer term practice combinations need to have benchmarks and targets which include consequences. Unwillingness to allow for fair and reasonable accountability will lead to disappointing integration and financial performance.

  4. From strangers to changers. It is normal to be troubled by change, and for some change to be more difficult than other types. Parties to the conversation enter as strangers, and can’t read minds. All sides must be candid about apprehensions and difficulties. Partners need to be able to support each other. If you don’t try to understand each other, you can’t be the right kind of partners. If the parties do not express or don't think they have worries in a new relationship, then that would be very unusual -- and may be a red flag!


Probative consultation, questionnaires, or other participation by an outside expert can prove very effective in helping firm leaders widen the lens from just focusing on financial terms to helping each side take off their masks. Getting a more well-rounded picture of M&A and other transactions create a more viable deal and put the new firm on better footing.



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