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Transcript of Mergers of Accounting Firms: The Why, How and With Whom to Affiliate Joel Sinkin, President...
![Page 1: Mergers of Accounting Firms: The Why, How and With Whom to Affiliate Joel Sinkin, President Transition Advisors.](https://reader036.fdocuments.net/reader036/viewer/2022062409/5697bff11a28abf838cbb02d/html5/thumbnails/1.jpg)
Mergers of Accounting Firms: The Why, How and
With Whom to AffiliateJoel Sinkin, PresidentTransition Advisors
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Transition Advisors◊ About Us
• Merger and transition advisors exclusively serving the accounting industry
• Customized solutions• Hundreds of transactions, over 20 years of experience• Represent the buyer or seller• Services include:
• Buyer-seller introductions• Merger and acquisition transaction structure• Document preparation/review, valuation and due diligence• Post-transaction business planning• General consulting and coaching
www.transitionadvisors.com ◊ 866.279.8550 ◊ [email protected]
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If there are 50 things you need to think about in a transaction…….
……the smartest of us will think of only 35
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Reasons Why Firms Merge
Firms fall into 2 categories:
1. Firms seeking growth bycombining with another firm
2.Firms seeking to solve a problem
Know your reasons… Know the other firm’s reasons…
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Why is Activity So High?
• Competition• Economy• Technology• Niche Development• Aging of the partners/staff• Buyers’ or Sellers’ market• Whose in trouble in the future?
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Three Ways to Grow
• One Client at a time
• Develop marketable niches
• Merge or acquire another firm
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Have a Goal Prior to Merging
◊ BIGGER is not always better
• Be wary of mergers for pure overhead reduction
• Having a specified purpose for a
merger helps in identifying the
target and helps you relate to deal
structures that accomplish your plan
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Standard Goals of Merger for Growth
• Growth of Billings• Addition of Talent• Cross Selling• Adding a New Marketplace• Succession
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Growth of Billings• Cash flow
• Synergies or increases in costs
• Treat as an acquisition
• Capacity to take on the workload
• Continuity to retain clients or pass on deal
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Addition of Talent
Are they: ●Bringing a niche?
●Bringing excess capacity? ●Bringing a book of business?
◊ You cannot get a star with empty offers though
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Cross Selling
• You’re selling their clients
• They’re selling your clients
• Compensation
• Licenses
• Commitment from partners and staff to take a proactive role in marketing
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Adding a New Marketplace
• To cross sell• To attract new clients• Technology is making
it easier to attract additional staff/partners
• Strong communication, routines, plans, and guidelines are the keys to success
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Mergers for Succession
1. Have agreed upon time tables for role reductions of retiring partners
2. Have everything in place before you start• Terms … economy impacts terms
• Are clients partner-loyal or brand-loyal?
• Transition Plan
• Capacity to takeover the retiring partners
• Space, staff, firm name
TWO STAGE DEALS
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Building an Internal Succession Team
• The mini-merge
• Cannot get a star with empty offers
• Create benchmarks, time frames
• Replace the role, not the body
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General Guidelines◊ Equity
• The poker chip method• What does equity mean?• Additional factors …
Profitability Staff Rates Assets Niches More
• Look-back periods to adjust equity• The 10,000 lb. gorilla … minority equity
partners
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General Guidelines◊ Compensation
• Start off by remaining whole when possible
• Handle perks/benefits as part of the package
• Avoid immediate increases
• Accountability
• Buyouts
• Compensation – fixed or contingent
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General Guidelines◊ The Process
• How long should it take?
• Making the deal the priority
• Why time kills all deals
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Mergers
◊ Compensation
• Book of Business vs Equity Ownership
• All for One and One for All
• Profit distribution … equity vs formulas
• Relative compensation as a proxy for culture assessment
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Retirement: Partnership Agreement
◊ Voluntary• Mandatory age vs vesting• Notice• Valuing equity
EquityCompensationFunded vs unfundedCapital accountsWork backwards formula
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Retirement: Partnership Agreement
◊ Terms• Payout periods• Retention periods• Tax Structure• Caps• Penalty buyouts
Premature exit Exit without appropriate notice Getting booted out
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Death or Disability
• Definition of temporary disability vs permanent
• Where insurance fits in re disability
• Death• Where insurance fits in re death
• If notice is required for retirement, how is death or disability handled?
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Termination
• Voting• Grounds• Non-Competes• What is cause?
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Miscellaneous
• It is a living agreement
• Limit retirement timing
• Create benchmarks, time frames
• Replace the role, not the body
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De-Merger Clauses
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Due Diligence◊ Do Your Homework!
• History and background of the firm
• Client retention rates
• Billings vs. Collections, billing rates
• Compensation packages of all firm members
• Employee Manual, employee contracts
• Furniture, equipment, assets and leases
• Pricing, billing and collections
• Profitability
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Due Diligence◊ Clients
• Who does the work?
• Where is the work completed?
• How many clients require face time?
• Fees
• Industries served
• Services for clients
• Collections - age analysis of A/R and cash flow (per month)
◊ Focus on how you will run the firm, NOT how it is currently managed
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Due Diligence• Firm Culture
• Potential exposure issues
• Quality control issues
• Retention rate of employees
• Work papers
• Leases or other obligations
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Other Thoughts
• General “chemistry” between the parties
• Continuity of relationships will help retain clients
• A good deal is a fair deal
• Remember, it’s the package, not the individual variables
• Staff merging
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Transitioning Clients◊ What are the Client’s fears?
•Is the Partner/Owner I trust still there?•Is it going to cost me more money?•Do I have to travel far to meet with my new accounting firm?•Is the staff I am accustomed to working with part of the successor firm?
CHANGE IS A DIRTY WORD.THE EMPHASIS NEEDS TO BE ON
CONTINUITY.NOT THE LOSS OF, BUT THE GAIN OF
……..
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For More Information
Please visit our website for resources including
FREE reports, whitepapers and case studies.
Joel [email protected]
1-866-279-8550www.TransitionAdvisors.com