Upward Mergers from the View of Successful Solos

The CPA profession is several years into a period of “merger frenzy” with no letup in sight. Speakers at conferences and authors of publications are usually buyers of firms. We rarely hear what seller candidates think. Until now.

My Chicago roundtable group (25 of the largest local CPA firms in the Windy City),  recently invited two highly successful sole practitioners to share their attitudes and thoughts about merging up. The panelists were Rick Winer, 63 and Marty Albert, 54. Neither is ready to retire. They kept their financial data confidential, but were OK with me telling the group that their earnings exceeded most of the people in attendance. Here are some gems.

What is your image of what it would be like to be a partner in a multi-partner firm? Paralysis through analysis. One of the reasons why our small firms are so successful is swift decision-making. Other perceptions (which the larger firms said were “misconceptions”): Loss of control, lose the freedom to come and go as I please, buyers will want to make dramatic changes to how we do our work. Oh, and having a boss sounds pretty repugnant.

What would be merger deal breakers for you? (1) Buyers not willing to totally accommodate my staff, (2) A buyer whose culture and personality would not mesh with ours and (3) A firm being unable to accept that I am out of the office a lot with my clients.

What would happen if you were incapacitated for several months? How would your firm survive? Winer: “We have hired young, aggressive staff who have met all of our clients.” Trust is important – neither firm has non-compete agreements with their staff.

Don’t any of your staff want to be partner? Albert: “No, they are happy being doers. They are happy in their situations; all are in their 50s. I make sure they have the same flexibility of work hours that I do as an owner. They don’t need to ask for time off or flexible hours. They all know that the first priority is getting client work done.”

If you merged up, what do you think the benefits might be? A lot of headaches would disappear. Greater opportunities for collaboration with people who have different skills.. More support. More opportunities for my staff. Also, I would have no misconception that I would be a 2nd tier partner at a bigger firm…and I would be OK with that.

Thoughts about growth. Neither of the two is concerned much about growth; they are more focused on weeding out undesirable clients. One of the MPs suggested that if they stop growing, they will be less attractive to buyers when they eventually do merge. Another MP said that, at his firm, in order to maintain their present income levels, they would have to grow their practice.

Maintaining their present income as part of a larger firm. Due to Marty and Rick’s high level of profitability, the MPs believe that it would be unlikely, though by no means impossible, to maintain their current incomes at a larger firm. Why? (1) Experience has shown that the high level of efficiency of smaller firms is not easily transferable to larger firms and (2) larger firms invest a lot more in their firms than smaller firms. Examples: sending people to leadership conferences, hiring people that may not be immediately necessary, investing in the future while building a firm that is sustainable in the long-term and being content with earning less while these investments are made.

How many firms in the audience wanted to talk to Rick and Marty about merging them in? Most said yes but three were hesitant, citing these concerns: (1) Their quality control practices (2) Their client work would be too low-level (though the solos insist they make “good money” on this work), (3) The solos would not accept the compensation reduction that would inevitably have to occur: High earning solos often expect a high sales price for their firm, and continuing to receive the same compensation  within the buyer’s structure and economics leaves few financial benefits to the buyer, and (4) no specialties.

Note: These concerns created hesitancy, but by no means outright rejections of the merger opportunities with these two highly skilled, profitable sole practitioners.

No two mergers are the same and each has to be evaluated from the point of view of both buyer and seller. Our monograph CPA Firm Mergers: Your Complete Guide offers insight into each party’s perspective and how best to create a win-win scenario for both.