For those of you who occasionally like to get your hands
dirty, remember back when you could actually perform both major and minor
repairs on your car without the need for computer scopes or space-age tools
that somehow only auto dealers and high-priced garages have access to?
Sadly, automotive technology has sort of phased out what
we used to refer to as the “shade tree” mechanic. And while the DIY auto tinkerer
is gradually becoming a thing of the past, unfortunately many CPA firm owners
still fancy themselves as “shade tree” M&A facilitators.
Almost two years in my consulting incarnation, I’m still bowled
over by the number of small-to-midsized firms who have it in their minds that
executing a successful merger is simply a matter of signing on the dotted line
and going out for a celebratory meal afterwards.
I have a warning label for this: Don’t try this at home.
But nevertheless many still do.
Like the time a practitioner in New Jersey with just over
$200,000 in revenues assured me that he didn’t need our consulting services, that
he was well experienced in M&A. Really? At last report, he’s still at that
revenue figure and about the only potential affiliations he can entertain at
that size would be a seasonal tax-prep franchise or a small home-office
practice.
And he’s hardly in the minority.
I had another Garden State practitioner who revealed he was
engaged in merger talks with a larger firm. When I mentioned that if we don’t
have a direct involvement in the dealings, such as introducing the parties and
arranging the meetings, then we can help structure the transaction.
He thanked me and mentioned that the potential successor
firm had done a few mergers prior to this one. I resisted the chance to inquire
if he knew for certain that they had
done them all the right way.
Many practitioners get excited at the prospect of
merging, and wax on endlessly about getting the best multiple, but sadly,
overlook all the collateral baggage that must be sorted out. How about the
treatment of A/R and WIP? What about new business incentive clauses, firm
valuations, disparate technology platforms? What are the best tax consequences
of the merger?
These critical but sinkhole-causing details are rarely
addressed in the beginning and dealing with them after-the-fact rarely makes
for a smooth transition.
So I tell everyone, that’s why folks like us are here.
To help.
After the first 1,000 or so deals, we’ve become pretty
good at what we do.
M&A and all the ancillary details that accompany it
are not exactly as basic as changing a set of spark plugs and it never comes
with an instruction manual.
Not that you really can change the plugs yourself anymore.
Bill interesting post once again. However I’m left with the question as to why it is so many CPA owners are prepared to pursue the ‘for sale by owner’ route and refuse to take on the services of a professional service firm experienced in M&A activity?
ReplyDeleteAs a close observer of this particular market my thoughts are:
1. Ease of finding buyers:
Demand in the sub $250k market outstrips supply, and with the advent of the Internet, sellers have a number of viable sources to market the sale of their practice. It’s never been easier for sellers to find buyers in the sub $250k market and many CPA’s are well aware of this.
2. CPA’s are well read:
At last count there were 2 books solely on the subject of Accounting/CPA practice M&A, in addition to a collection of excellent published articles from your very own Joel Sinkin covering in detail the various aspects that need to be addressed when completing the sale of merger of a CPA firm.
3. M&A Firms are not differentiating their services:
Transition Advisors aside, the majority of other firms serving the M&A sector do not differentiate their services, leaving CPA’s with a feeling that it’s an ‘ALL OR NOTHING’ choice. They either use a third party firm to handle the whole transaction, or alternatively pursue a ‘for sale by owner’ approach.
I certainly believe that there are many CPA's out there heading into retirement who are keen to maximize the sales proceeds from their business, and are therefore prepared to handle certain aspects of the sale (such as finding and vetting buyers). However, many of these CPA's when faced with the hard realization of the time commitments involved in respect of other M&A tasks, are then very willing to take on professional advice, whether that be in handling the negotiation of terms, drawing up of partnership agreements, or steeping in to mediate to overcome obstacles that have arisen and to drive the deal to conclusion.
My thoughts are that CPA owners are willing to take on professional advice that adds value and at a cost that is reflective and in proportion to the size of the transaction. However, many are not aware that there are firms out there that they can bring in expertise as and when needed.
Daniel Crowley
Accounting Practice Exchange