Data Needed to Evaluate Your Merger

I have always been a big believer in the buyer and seller exchanging financial and operating information as early in the merger process as possible. Numbers aren’t everything, but they do speak volumes. The data enables each firm to gain an understanding of the other in a manner that is not always possible in conversation.

The data is also a good way to corroborate things that are said verbally. Here are some examples:

• In conversation, the buyer says his realization percentage is “strong.” But the data shows 82%, for which the word “strong” would never be used.
• In conversation, the sellers say that their partner charge hours are high. But the data shows an average of 1,000, clearly not a figure anyone would consider high.

Data speaks volumes.

Prior to exchanging the data, each firm should sign a non-disclosure and confidentiality form.

Exchanging financials early on can corroborate the strength of a solid merger candidate, raise red flags about a firm that is overstating their strengths or provide insight into a certain aspect of the other firm that was either intentionally or inadvertently omitted in conversations.

Many merger discussions stop at this point because the financial data of one party is such a turn-off to the other that the latter no longer is interested in the merger. So, exchanging data early in the process can avoid a lot of wasted time.

CPA Firm Mergers: Your Complete Guide, was written because every year thousands of mergers are taking place but relatively few buyers and sellers have much merger experience in one of the largest transactions their firms will ever be a part of. We address: ►the keys to successful mergers ►the 21 steps in the merger process ►how to assess cultural fit, benefits of merging upward ►why buying a firm for one times fees is a steal ►what larger firms should expect to see from smaller firms & vice versa ►how to negotiate a merger – from both buyer and seller view ►14 things the letter of intent should address ►data that should be reviewed ►due diligence and other issues.

Purchase your copy today!

Key data you need to exchange:

1. Financial statements for the last 3 years and the latest statements for the current year.
2. Revenues and expenses that will not continue when the firm is sold, such as:
   • Rent, employees that you know will not move to the new company, etc.
   • Personal expenses that will not continue after the sale.
3. Earnings of each partner for the past 3 years.
4. A schedule of all personnel, partners, and non-partners, part-time and full time, currently and formerly employed, who worked at your firm for the most recently completed fiscal year.
5. Billable hours for the firm, by month, for the most recently completed year.
6. List of clients (not all, but those that compose 80% of the revenue)
7. If a firm has more than one owner, a breakdown of client billings by the owner, including gross fees, net fees, and realization percentage on each partner’s client base.
8. Software used.
9. Aged work in process summary.
10. Aged accounts receivable summary.
11. The number of returns processed by type and the average fee.
12. Breakdown of practice by service line.
13. Industries that comprise 5% or more of the firm’s revenue.
14. The last two peer review reports.
15. List of assets that seller wishes the buyer to purchase.
16. Promotional materials (brochures, newsletters, etc.).

Data review is a key step in determining if a merger makes sense. From here you may choose to part ways or proceed on to gather additional information and have internal discussions about making the merger happen.

What other data have you evaluated to determine if a merger makes sense?