CPA Merger Mania: Why Aren’t We Jumping For Joy?

Baby boomer partners have had a nice run.

They have enjoyed 25 years or more of doing work they love for clients they cherish.  They’ve owned their own businesses, earning fabulous incomes compared to most jobs. And they’ve enjoyed the privilege – well most of them – of not being held accountable.

But now this great “run” is nearing its end. Advancing age coupled with the difficult challenge of developing young partners to succeed them has put firms in this predicament.  They have little choice but to seek an upward merger as their succession plan.

The following scenario is all-too common:  A firm with severe succession planning problems explores upward merger opportunities and suddenly finds itself the recipient of a fair and generous offer from a large firm.  The partners discuss it, agree that they should do the merger, but hesitate because one partner asks:  “Why aren’t we jumping for joy?”

“Jumping for joy” is an unfair and unrealistic barometer for assessing whether or not to merge up.  Merging out of existence is an “end of an era” feeling that is bound to happen.  It’s entirely natural.  But that doesn’t mean it’s a bad decision.

Here are some reasons we have heard from textbook upward merger candidates for NOT pursuing an upward merger:

Reason #1:  We fear a loss of control. Response: What do you fear?  Name one thing.  I have yet to talk to a “hesitant firm that can name even one specific, valid fear.  The loss of control issue is more a mindset or fear of the unknown that dissipates once the merger takes place.  However, if you fear being held accountable for things you know you should be held accountable for (like collecting your receivables, billing your WIP, getting your timesheet in on time), then the fear may be valid.

Reason #2:  We feel like we’ve failed the firm by merging out of existence. Response: What’s the alternative – dying in your chair?  Seeing the firm deteriorate to a shadow of itself while the partners hang on in their dotage?  By merging, the partners are being proactive about preserving their clients, providing jobs for their staff and giving themselves a way to retire gracefully.  There’s no shame in merging up –  my  research on the life of CPA firms shows that as many as 80% of all firms never survive the first generation.  Choosing to merge with another firm to strengthen your future is a courageous step forward, not something to be remorseful about.

Reason #3:  We hear a lot from other firms that mergers don’t work. Response:  My experience is that mergers do work…if you do them right.  Doing mergers “right” means (1) doing your due diligence, (2) carefully examining the fit of the two firms’ personality and culture, (3) getting crystal clarity on what will be expected of you at the new firm and (4) understanding what your role will be at the new firm.  Mergers DO work when you do them right.

When people talk to partners from firms that merged up and ask if the merger worked, it’s not uncommon to get a less-than-enthusiastic response.  But it’s not because the merger didn’t “work.”  It’s because things changed.  Many of the old things they were used to changed.  Accountants don’t like change.  Never have.  Never will.

The problem is that the right question wasn’t asked.

The proper way to measure if a merger “worked” is to look at the reasons why you did the merger in the first place and see if those goals were met.  (1) Did you firm up your buyout? (2) Did your clients react well to the merger and were they retained? (3) Did the firm you merged with provide you with younger partners and bright young staff that you didn’t have before the merger? (4) Has being part of a larger given you more ways to satisfy your clients and attract new ones? (5) Are you making more money?

Should you be jumping for joy after deciding to merge up?  Wrong question!  You should be asking:  Will we be better off with the merger?  Will we achieve our goals for doing the merger?  If the answer to those questions are “yes,” then you should feel good about your decision.

For more information on navigating the merger market order Marc Rosenberg’s monograph:
How to Negotiate a CPA Firm Merger