CPA Firm Mergers and Acquisitions

Joel L. Sinkin and Terrence E. Putney are the founders of Transition Advisors, LLC, a national consulting firm that provides services exclusively to CPA firms related to ownership transition including mergers and acquisitions, succession planning, owner agreements, and owner compensation plans. www.transitionadvisors.com

About the Authors ix Acknowledgments xi Introduction xiii 1 The Marketplace 1 What Are the Marketplace Trends? 2 The Overall Economy and CPA Firms 2 International Trends 4 Trends in CPA Firm Demographics 4 Technology Trends 7 Gender Trends 8 Where Do Firms Stand on Succession? 9 So, Is It a Buyer s or a Seller s Market? 10 Sizing Up the Seller 11 Shifts in the Mid-Size Firm Market 11 Get Ahead of the Trend 12 Exceptions to the Rule 13 Let s Talk Technology 14 Finding Alignment 15 2 Succession: Getting the Timing Right 17 Let Me Count the Days 17 Where Do Client Loyalties Lie? 19 Unique Skills 20 What Are Your Commitments? 21 Personal and Professional Roadblocks 22 Committing to Retirement or Sale of Ownership 24 Jump Start Change 25 Sooner Rather Than Later 27 Action Agenda 27 3 How to Choose a Successor You and Your Clients Will Love 29 Think About the Four Cs 30 Chemistry 30 Capacity 32 Culture 32 Continuity 33 3 How to Choose a Successor You and Your Clients Will Love continued What Is the Worst That Could Happen? 34 Smart Ways to Smooth the Transition 35 Worth the Effort 38 Action Agenda 39 4 Our Managers Will Buy Us Out, Right? Speed Bumps to Avoid on the Road to Internal Succession 41 What Is on Your Partners Minds? 42 Strengthening the Partnership Agreement 43 Protect Against Risk 44 CoverAll the Angles 45 Be Sure It Is a Workable Plan 46 Who Should Lead? 47 Training Future Leaders 47 Nonequity Partners 49 Using Mergers for Leadership Development 53 Do Not Overlook These Keys to Making a Deal Work 53 The Buyout Formula Must Be Attractive 53 Lifestyle Issues Have Become More Important to Younger Potential Successors 54 Leadership Is a Critical Attribute for Successors 54 Keep Succession in Mind With Each New Hire 55 Teamwork Is Essential to Success 55 Will the Transition Work? 55 Transitioning Client Relationships 57 Identify Critical Issues 58 Don t Forget the Safety Net 59 Action Agenda 59 5 What Is a Firm Worth? 61 External Versus Internal Sales 61 What Is the Multiple? 62 Negotiating an Internal Sale 63 A Willing Seller Still Needs a Willing Buyer 66 Effect of Tax Treatment and Interest on Deferred Payments in Buyout Terms 72 5 What Is a Firm Worth? continued Using Mergers and Acquisitions to Build a Succession Team and Preserve Value 72 Positioning the Firm for Possible Merger 75 What You Need to Know About External Sales 76 Net Tangible Assets 77 The Intangible Value 78 The Structure of an Acquisition 79 Price Equals Value Plus Terms 81 Factors That Affect Value 82 A Practice of Under $1Million 82 Negotiating a Deal for a Larger Firm 88 Types of Clients and Services 88 Staff 88 New Marketplaces 88 Capacity 89 Steps to Increase Value Before You Sell 89 Action Agenda 94 6 Alternative Deal Structures 95 Immediate Buyout 95 The Two-Stage Deal 97 The Cull Out Sale 101 Mergers Versus Acquisitions 103 Combination Deals in Mergers 104 Adding It Up 107 Relative Values of Two Firms in Mergers 107 Compensation Gaps 108 Dealing With Conflicting Policies 111 Other Postmerger Issues 112 Client Transition 112 Advising Clients 112 What Is Left Hanging 113 Perks 113 The Right Deal for You 114 Action Agenda 114 7 Managing Merger Minefields 115 Reasons Some Mergers Fail 115 Mergers for the Wrong Reasons 116 Poor Deal Structure 116 Business Plan Execution 116 Differences in Overhead and Profitability 117 Transition 118 Equity 119 Billing Rates 119 Differences in the Client Experience 120 Differences in Quality Control Systems 121 A Failure to Communicate 121 Ego 121 Timing 121 Poth