How Mergers Can Go Wrong

Lack of candor.  When parties to the merger are not honest with each as to the assessment of their own firm – why they are doing the merger and what they expect from it – when they’re not truly willing to follow through on what they said during the negotiations – the match is doomed. We’ve seen it time and again: the seller resists transition; the buyer doesn’t have a clear plan to take over the seller’s clients; the merger tanks.

Large locals and regionals merging in firms outside their traditional borders.  Due to the difficulty of growing organically, larger firms are increasingly merging in firms in cities where they are not located.  This seems like a “too good to be true” scenario for sellers because they largely maintain their autonomy while receiving the benefits of affiliating with a large, reputable firm (the security of the partner buyout and access to marketing and recruiting know-how).  However if a seller had serious problems before the merger, those issues won’t be resolved after the merger because when they’re not under the same roof the seller won’t have access to the buyer’s management expertise. Sooner or later, the buyer will see what they got into, and the deal could easily implode.

Excessive focusing on financial terms sometimes puts the cart before the horse.  Sellers have a natural tendency to  focus on negotiating a high sales price and other financial terms.  As Terry Putney, president of Transition Advisors, a consultancy that works with CPA firms on succession strategies explains, getting “caught up in the minutiae of financial terms” is misguided if it causes the seller to overlook the most important criteria for selecting a merger partner: a good personality and culture match. In the long run, sellers may actually be happier with a deal that provides a good cultural match even though the sale price was a little lower than they had hoped for.  Money isn’t everything.

Getting sellers to undergo an ego-ectomy.  The smaller the seller, the more dangerous this delicate “ego-ectomy” becomes.  Buyers must understand that when they acquire a sole practitioner, there has been absolutely no dividing line between the seller’s personal life and his/her practice for 30-40 years. The solo lived to work; their firm revolved around them 100%.  Even though they  may “say” they are ready to retire, they often aren’t.  So buyers beware:  Give yourself comfort that the seller can function in your environment when he/she is no longer allowed to be a “control freak.”

Working forever will always be better financially for the seller than selling his/her firm and retiring. That’s the way the math works.  So, for the sale to be attractive to the seller, there must be quality of life issues that make it worthwhile.