With the onset of a new year I know I can be sure of two
things. The first is that I will spend an inordinate time on the treadmill
attempting to shed the caloric remnants of another holiday season.
And two, we at our company will make an 11th
hour M&A push before busy season kicks in before our phone calls and emails
will be treated with all the warmth and cordiality of a door-to-door vacuum
cleaner salesman.
So, along those lines I want to launch my first blog of
2020 laying the foundation for the new year by clarifying some frequently
misunderstood concepts about CPA firm M&A.
So, for simplicity’s sake let’s refer to it as Remedial M&A.
First up let’s discuss upfront payments. I can’t tell you
how many times I get asked how much can a mergee expect to get upfront? The
problem of expecting a briefcase of cash is exacerbated by reams of
misinformation constantly put out there by what I refer to as “folding table”
brokers who promise sellers as much as 30 percent upfront. First, the basic
premise of a merger is an exchange of equity – from the seller’s firm into the
successor practice. Not a cash payment. A direct sale is another matter and far
less common since you have the problem of client retention. But that’s fodder
for another blog. We’ve facilitated nearly 900 mergers and the most we’ve ever
seen is perhaps a 10-percent down payment and many times that’s an advance on
the seller’s eventual buyout.
