Why 2+2 Doesn’t Always Equal 4

In full disclosure, math was never my strongest subject.

I was lucky to spell “quadratic equation,” let along solve one. Perhaps though divine intervention, I somehow passed both geometry and trigonometry and after that, left any math elective course safely in my rear view mirror.

Like attempting to find a parking space in Manhattan, I just didn’t need the aggravation. Yet despite my struggles with one of the world’s exact sciences, I’m nimble enough with whole numbers to know when the math doesn’t add up – my checking account was a great teacher in that respect.

And often there’s a similar numeric discrepancy when it comes to a “merger of equals” among CPA firms. Once you take the trouble to go below the surface, it’s often anything but equal.

Case in point: Recently, a multi-partner firm in one of our Northeastern markets was mulling a merger with another firm roughly the same size. They also had entertained an overture from a far larger Top 100 firm that wanted to establish a footprint in our client’s backyard so to speak.

While the final decision still remains to be made, they are leaning toward the smaller firm as a merger partner – and in my opinion for all the wrong reasons.

Here’s why.

One of the benefits of merging upstream, particularly with a T100 firm is that they have resources in terms of capacity – whether it be administrative or pushing down work currently performed by a partner of the seller practice to a senior or a manager of the successor firm.

It also can be invaluable when it comes to partner succession – which is especially relevant in this case since several partners of both firms will be slowing down over the next few years.

So my question to each was who’s going to replace those partners? Using basic math which mysteriously escapes many CPAs on an alarming basis, all I predict as a result of this merger is a huge void in assuming the workload of the exiting owners.

Therefore, just a few years down the road, the firms will have literally doubled their succession problems, something that the merger was designed to avoid.

Still, the owners of both firms remain unconvinced of my logic.

It’s obviously their decision and they enjoy the wonderful luxury of choosing to ignore everything I recommend and doing what they want.

I hope I’m wrong but I predict that I’ll get a phone call or email in the not-too-distant future asking me if I can stop by to help solve a growing problem.