CPA Leadership Report Mergers and Their Impact on Strategy

CPA Leadership Report

Mergers and Their Impact on Strategy

Accountants Advisory Groupwww.AccountantsAdvisory.com

Strategic consulting to CPA firms Leadership, management and strategic direction Advisory services pertaining to partnerships agreements, partner

compensation & retirement agreements, etc. Marketing, new business development and public relations strategies Merger and acquisition consulting Human capital and recruiting programs Partner retreat facilitation Recruiting partners and managers Objective and independent advice Practical experience from industry specialists Network of resources

Trends and Predictions in the CPA Profession

The “Perfect Storm”

Gender Unfunded Retirements Increased Competition Leadership

Consolidation Retiring CPAs Quality

CPAs


The regional, mega-regional, and national firm “franchise” concept taking hold and creating competitive issues for attracting staff and clients for smaller firms.

Local mergers escalating, both with medium and large firms from three to 20 partners.

Sample 2011/20122 Merger Activity

Larger Firm Smaller Firm

Minneapolis based Larson Allen, 20 offices, 140 partners

Le Master & Daniels of Spokane

Clifton Gunderson (Clifton Larson Allen), 47 offices, 210 partners

merged 7 firms in Indiana, Missouri, New Mexico, and California

Clifton Gunderson merged & formed Clifton Larson Allen

KPMG acquired Equa Terra, a global outsourcing consulting firm

Grant Thornton acquired firms in Dallas & Chicago

BDO acquired NYC based, 65 person, Salibello & Broder



Cleveland based CBIZ, 150 offices and 415 partners

a Utah-based employee benefits firm, a Baltimore-based consulting firm & a Tampa Bay firm

Richmond, VA based Cherry Bekaert & Holland, 15 offices and 45 partners

Mergers in Atlanta, Florida & Virginia

Bloomington, MN based RSM McGladrey, 85 offices, 708 parters

Caturano & Co, #5 Accounting firm in Boston

New York City based O’Connor Davies, 7 offices and 60 partners

PKF NY and Marien + Co. in CT

New York City based Marcum, 12 offices, 140 partners

Los Angels based Stonefield Josephson, 150 person firm



Princeton, NJ based Withum Smith & Brown, 12 offices and 82 partners

Eisner Lubin, NYC 10 partner firm

Charlotte, NC based Dixon Hughes Virginia’s Goodman & Co. to form Dixon Hughes Goodman

Enterprise, AL based Carr Riggs & Ingram, 16 offices, 80 partners

merged in Florida and Texas firms

Roseland, NJ based J.H. Cohn, 15 offices and 175 partners

• Future combination with Reznick Group, based in Bethesda, MD, 10 offices and 106 partners

• Combined with Farmington, CT based Kostin Ruffkess, 20 partners



NYC based Citrin Coopermann, 5 offices, 100+ partners

Schwartz & Hofflich,10 partner firm in Connecticut and mergers in NYC, NJ and Philadelphia.

Miami based Morrison, Brown, Argez & Farra, 9 offices

NY based ERE

Michigan based Rehmann, 20 offices and 60 partners

3 wealth management practices in Ohio & Florida

Milwaukee based Wipfli, 20 offices, 140 partners

practices in Illinois & Washington

Birmingham based Warren Averett, 1 office and 105 partners

3 other firms in the Gulf Coast to become an $84 million firm

International

“Big 5”

Small National

Large Regional/Local

Mega-Regional

Large National

Future Classification of Firms

Consolidation / mergers will take place at a rapid pace and as a result, the future classification of firms will change and will look like:

Partnership Structure

The partnership structure will fade away and be replaced by a “franchise / corporate-type” structure in the top 300 firms in the country.

Partnership Structure “Franchise / Corporate-Type”

Structure

Firm Classification

Large National Firm Offices Revenue $MIL

McGladrey & Pullen (USA) 85 1,370

Grant Thornton 56 1,146

CBIZ 150 575

BDO (USA) 41 572

Clifton Larson Allen 73 540

Crowe Horwath 28 530

Small National

Marcum 18 274

JH Cohn 15 243

Baker Tilly Virchow Krause 11 242

UHY Advisors 15 186

Firm Classification

Mega-Regional Firm Offices Revenue $MIL

Dixon Hughes Goodman (SE & CR) 30 295

Parente Beard (MA) 20 170

EIDE Bailly (MW) 19 152

Moss Adams (W) 19 323

Plante Moran (GL) 16 304

Wipfli (GL) 20 142

Carr, Riggs & Ingram (GC) 16 100

Cherry Bekaert & Holland (SE) 15 111

Reznick Group (MA) 10 203

Firm Classification

Large Regional Firm Offices Revenue $MIL

Rehmann (GL) 20 87

Novogradac & Co. (W) 12 72

Withum Smith & Brown (MA) 12 77

EisnerAmper (MA) 8 255

Rothstein Kass (MA) 8 180

O’Conner Davies (MA) 7 75

WeiserMazars (MA) 6 125

Citrin Coopermann (MA) 5 115

Warren Averett (GL) 11 80

MBAF (Morrison Brown) 10 80

Armanino & McKenna (W) 5 84

SS&G (GL) 9 71

Siege on Philly

• Citrin Cooperman

• Clifton Larson Allen

• Mitchell & Titus

• CBIZ

• MARCUM

• WeiserMazars

• EisnerAmper

• Withum Smith & Brown

• Crowe Horwath


Retiring accountants outpacing new accountants by 3:1.

“Baby Boomer” partners entering their 60s at a rapid pace. 10,000 Baby Boomers a day are turning 65. A Baby Boomer turns 60 every 8 seconds.

The # of partner-quality “rainmaker “ accountants not adequate for succession planning. Shortage of practice development partners and quality staff is a significant factor in merger discussions.

The % of partner retirement pay to net fees is averaging over 4%, up from 2% in 2000 ,and is starting to reach cap levels at some firms. This trend will continue and force upward mergers or firm splits.

Inability to Retain Women in the Profession

Adding to Succession Planning Problems

Very few firms have been successful in designing and implementing flexible and part-time career paths.


Over the last 5+ years, 55% of new hires were women, who represent only 20% of all partners, creating a void in succession planning.

Over 90% of all firms have unfunded partner retirement plans.

Firms are experiencing significant voids in leadership as founding partners retire.

Predictions

More partners will work beyond the normal retirement age due to lack of sufficient partner level talent and unfunded buy-outs. The new 65 will be 70.

Mergers & acquisitions will escalate significantly in 2015 and beyond, especially with firms between 2 and 10 partners. Firms will begin to incorporate more equity buy-outs (cash) in their merger deals to attract quality merger candidates.

Predictions

Medium size regional and small national firm mergers will become more common, especially on the west coast and in the south east.

Firms will require new partners to buy equity in the practice. No more freebies. “Skin in the game.” Non-equity partner positions will become less common.

Smaller firms will fail or split-up due to succession planning problems and a lack of partner consensus on the vision of the future of the firm.

Predictions-More Firms Will Split-up

Eisman, Zucker, Klein & Ruttenberg L.L.P., a certified public accounting and consulting firm in White Plains, is being dissolved and its partners are moving on to other firms.

The move is effective June 13, according to Howard Klein, a partner in the 10-year-old firm known as EZKR.

“The partners came to realize that they no longer shared fundamental common goals and long-term visions for the future,” Klein said.

“So while it’s sad to see the firm end, the people are going to continue and they’re going to continue in this community.”

Klein said he and several other former EZKR partners are joining the accounting firm Citrin Cooperman in White Plains while others are going to O’Connor Davies Munns and Dobbins L.L.P., which has offices in Harrison and New York City.

Predictions

50% of the firms below the Top 200 will merge upward, laterally merge, or split-up in the next 10 years due to succession planning problems and a lack of partner consensus on the vision of the future of the firm.

Approximate # of Firms % of Traditional National Revenue

2012 2025 2012 2025

Tier 1 4 5 50% 55%

Tier 2 100 150 20% 30%

Tier 3 14,000 7,000 20% 10%

Tier 4 30,000 15,000 10% 5%

Predictions

Predictions-Lateral Mergers on the Rise

More firms will choose lateral mergers as a succession and growth strategy to maintain more control of their destinies and avoid culture shock.

These lateral mergers will develop with firms choosing not to merger-up or who are not desirable merger candidates to larger firms.

There will be a shift from a seller’s market to a buyer’s market as larger firms get more selective in the merger market and there are more baby boomer partner firms coming on the market, there by increasing lateral merger transactions.

Why Aren’t There More Lateral Mergers?

Egos, leadership, management and control

Name

Culture

Leases

Location

Unreasonable expectations

Compensation, retirement benefits, and equity

Excessive time in negotiating the Term Sheet

Insurance

Previously undisclosed risks and liabilities

Predictions

Firms will again outsource more work overseas (India, China & the Philippines) through outsourcing companies and international affiliations as fees become more competitive and quality accountants will be used for more valued services. There will be more M&A of outsourcing organizations into CPA Firms.

Firms in high labor and rent areas will acquire firms in depressed and lower cost areas and shift compliance work to them to maintain fee competitiveness and increase profitability.

There will be at least 3 mergers of international associations of accounting firms in the next 5 years as associations lose member to mergers

Predictions

Target marketing will become more of the norm vs. the “shot-gun” approach. Quality internal marketing professionals will continue to be in high demand as firms apply greater resources to practice development. Smaller firms will merge into larger firms to take advantage of the larger firms marketing expertise.

The need for continued growth and competitive pressures will drive greater client specialization and expert niche services which will accelerate niche M&A transactions.

Predictions

Larger firms will become more aggressive in specializing in wealth management services and family office practice services and personal business management (i.e. Rehmann $30M of $80M revenue). M&A of high-end individual tax practices will fund this growth.

New auditing standards, the move to international standards, new peer review requirements (rotation of peer review auditors, selected by state societies), etc. will challenge small firms and increase M&A activity with firms with high end quality control and review expertise.

How Mergers Will Impact a Firm’s Life Cycle

Firm Life Cycle

Determined by:

Leadership (not management)

Results of critical decisions or lack there of

Talent-technical, advisory, experts, specialists

Entrepreneurship

Ability to adapt to the marketplace quickly

Marketing and promotion

Partner teamwork

Succession planning

Critical balance of running the firm like a business vs. a practice

Management-partners, staff, admin., HR, marketing

CPA Firm Life Cycle

• Initial Stages of Development

• Running the practice in a more formal fashion

• Mergers with smaller practices

• New partners

• Attracting experienced staff

• Establishing niches and specialties

• Economy and market conditions cause decline in revenues and profits

• More competition for clients and talent

• Founding and “rainmaker” partners retiring

• Succession planning problems

• Establishing a client and referral base

• New partners

Start upGrowth -

EstablishedMature-Expanding Challenged Declining

• Seek exit options

• Merger

• Sale

• Dissolve

More Firms Will Not Be Able to Score In The RedZone

Remaining An Independent Firm

The Top 10 Factors of Mergers &

Its Impact on Strategy

Impact on Strategy

1. Strong leadership and partner accountability for implementing the firm’s short-term and long-term plans

2. Recruit and retain the best entry level and experienced professionals (including partners) that the firm can identify

3. Continuously upgrade the client base and disengage low realization clients

Impact on Strategy

4. Market for quality, not quantity

5. Developing and implementing niche and service specialties

6. Use mergers and acquisitions as part of a marketing and growth strategy

7. Career development and leadership programs for partners and staff

Impact on Strategy

8.Provide value added services to clients

9.A partner compensation system that is based upon contribution to the success of the firm and individual performance

10.A succession plan that is evaluated each year

Strategic Vision

CPA Firm Business Model

The Franchise

Partner Leadership Team—Executive Committee

Using Talent and Leverage to Build a Firm of the Future

Managers

Staff

Partners

Supervisors

Historical Pyramid Structure

WorkFlowingDown

WorkFlowing

Up

Build a Quality Staff Pyramid …the Clients Will Come

The Pyramid & Leverage

Many accounting firms have become over-partnered and under-leveraged.

The “over-partnered” syndrome has been fueling merger mania over the last 5 years.

There is a direct connection between the “partner-to-staff ratio” and the ability of firms to be successful in the long-term and develop succession planning.

Need at least a 1:5 partner to staff ratio.

Managers

Staff

Managing Partners / Senior Partners

Junior Partners

WorkFlowingDown

WorkFlowing

Up

Inverted Pyramid Structure

Partner & Staff Structure

Are partners being held accountable for delegating work and increasing profitability on their engagements?

Do we have enough “quality” staff in the appropriate positions to have a successful delegation process?

Are we properly developing our staff?

Is the firm’s scheduling process taking into account the proper matching of work and talent and career development?

Is the current partner compensation program demotivating partners to delegate to junior partners or managers?

Top 20 Attraction Factors: 2011 vs. 2006

Rank Top Attraction Factors 2011 2006Percentage-

PointChange

1 Career growth opportunities 91% 80% 11

2 Salary 88% 78% 10

3 Paid personal/vacation time 86% 79% 7

4 Open-door/accessible management 83% 68% 15

5 Comfortable office atmosphere 81% 69% 12

6 Interesting, challenging client projects* 81& 71% N/A

7 Medical benefits 73% 70% 3

8 Firm’s reputation or prestige 73% 59% 14

9 Retirement savings plan 72% 67% 5

10 CPE credit reimbursement 65% 50% 15

Source: PCPS 2011 Top Talent Survey. * The 2011 survey asked separately about client and internal projects. The 2006 survey asked about client and internal projects combined.

Top 20 Attraction Factors: 2011 vs. 2006

Rank Top Attraction Factors 2011 2006Percentage-

PointChange

11 Team-orientation of firm 65% 56% 9

12 Frequent client contact 61% 48% 13

13 Paid sick days 60% 55% 5

14 Flexible work schedule 59% 65% -6

15 Bonus incentives 58% 52% 6

16 Access to the latest, cutting-edge technology 57% 52% 5

17 Size of firm 57% 44% 13

18 Dependent medical benefits 50% 37% 13

19 Regular performance reviews/feedback 50% 40% 10

20 Interesting, challenging internal projects* 49% 71% N/A

Source: PCPS 2011 Top Talent Survey. * The 2011 survey asked separately about client and internal projects. The 2006 survey asked about client and internal projects combined.

Attracting Quality Staff

Advertising

The competitive edge will be decided by the firms with the best talent

Deloitte reported its revenue Thursday for the fiscal year ending May 31, with aggregate revenues at Deloitte’s member firms around the world growing 8.4 percent over last year in U.S. dollars, despite the stagnant worldwide economy. “We made a number of acquisitions of companies as well as hired a number of partners from other firms that also contributed to our growth,” said Salzberg. “We hired talent, and that talent was a big contributor to some of our growth.”

The firm built a training facility in Dallas known as Deloitte University. The physical facility is now in its pilot phase. Deloitte LLP, is now beginning to use it for training.

“Our people are now beginning to reap the benefits from a talent perspective,” Salzberg said of the training facility. “Our people have recognized the commitment we have made and that is working out extremely well. It’s in the early stages of its operation, but the feedback we’ve gotten from our people and recruits and clients has been extraordinary.”

Staff Model

Staff Model$2,000,000 Per Partner

Title Billable Hours Billing RateNumber of

ProfessionalsRevenue Standard

Partner 1,000 $350 1 $350,000

Manager 1,600 $275 1 $440,000

Supervisor 1,700 $200 1 $340,000

Senior 1,800 $180 1 $324,000

Associate 1,800 $150 2 $540,000

Total Revenue $1,994,000

Defined Roles & Accountability

Implementing the Game Plan

Accounting Today 100 FirmsStatistical Analysis—2012

Staying Competitive with a Merger Strategy and Growth

The Choices

1. Invest in the Firm to remain independent Develop the Franchise Retire with Capital and Goodwill payout

2. Invest minimally for short-term merger or sale

3. Day-to-Day—wait and see—milk it

4. Hybrid—some combination of the above depending on the year. Where will partner's get their best return on their investment of time and

profits?

Top 10 Accountant's Excuses for Not Implementing a Succession Plan

1. Deadlines— 4/15, 9/15, 10/15, etc.

2. Our staff is not qualified.

3. Too many client demands right now.

4. I have to take CPE

5. I'm going on vacation

Top 10 Accountant's Excuses for Not Implementing a Succession Plan

6. I just got back from vacation

7. Client crisis

8. I just engaged a new client—too busy

9. A staff person just quit

10. I have to write an article for the newsletter

Come Ready to Play Every Day

Mergers

Mergers and Acquisitions as Part of a Marketing and Growth Strategy

• Keep pace with the CPA firm marketplace - merger activity will accelerate

• Diversify service offerings

• Expand referral network and geographic coverage

• Over 80% of the Top 100 firms have a defined M&A plan

• 50% of the MP’s of the Top 100 firms spend at least 25% of their time targeting potential mergers

Successful Mergers

Diversifying Services

Firm Newly Created Service

Berkowitz Dick Pollack & Brant Bay Bridge Real Estate Group—consulting

Grant Thornton Japan Business Group--consulting

Hein & Associates Risk Management consulting group

Hill Barth & King HRK Energy—consulting to suppliers of oil & gas companies

Diversifying Through M&A of Non-Traditional Services


Warren Averett opened a Korean Business Services office in Alabama in the Korean Automotive corridor, which specializes in serving U.S.-based subsidiaries of Korean entities.

Reinsel Kuntz Lesher (PA)

acquired Senior Living Consulting Group

Armanino & McKenna merged in Factory Information Management Solutions

Cohen& Co acquired Cleveland based family office practice, The Lipon Group

Marketing and Niche/Specialty Trends


Clark, Schaefer, Hackett & Co. (Ohio)

launched a private equity group due to increased client interest in mergers as a non-bank option for financing

Holtz Rubenstein (NY) added five new service groups: debt consolidation, food & beverage, early stage technology, real estate advisory and freight forwarders.

Berdon (NY) expanded its family office practice service to entertainers and athletes.

Aronson (MD) formalized a new technology practice line to meet the needs of high tech and biotech firms



CliftonLarsonAllen (Midwest)

acquired a wealth advisory firm and outsourcing company

Armanino McKenna (California)

developed AMF Media Group which provides clients with marketing, branding, public relations and social media strategies

Carr, Riggs & Ingram Created a new licensed broker-dealer unit primarily to deal in corporate M&A

Weaver Merged with Delong Consulting Services which offers compliance and risk management services to financial institutions



Baker Tilly Virchow Krause (Midwest) and Burr, Pilger & Mayer (California)

became NetSuite (cloud business management/information software) resellers

Cohen & Co (Cleveland) acquired a family office practice of the Larson Group

Deloitte acquired Canadian progress consulting firm Managerial Design, business analysis software developer Oco Inc., and mobile app developer Ubermind.



Eide Bailey (Midwest) became an Intacct reseller (cloud accounting software)

Weaver (Texas) expanded their energy credit services

Glass Jacobson (Baltimore & DC)

merged in One Source Financial

BKD (Midwest) introduced a mobile app version of its website—HealthcareReformInsights.com, showcasing their healthcare consulting practice.

BKD Launches Android App for Health Care Practice

BKD LLP has introduced a mobile app version of its Web site, HealthCareReformInsights.com, showcasing the accounting firm’s health care consulting practice for Android phone users.

The firm launched HealthCareReformInsights.com in June 2010, and released a free mobile phone application for Android devices on Tuesday (see CPA Firm BKD Launches Health Care Reform Site ).

BKD has taken many of the most useful features of its industry-specific Web site and made them accessible for health care executives on the go. The app provides convenient access to articles authored by the advisors at the BKD National Health Care Group, categorized by industry subniche. Nearly 200 experts are accessible through the mobile app. App users can view contacts, read their biographical information and instantly email them for more information.

BY MICHAEL COHN, ACCOUNTING TODAY

http://www.healthcarereforminsights.com/

http://www.accountingtoday.com/news/CPA-Firm-BKD-Launches-Health-Care-Reform-Site-54706-1.html

2012 Top Niche Services

2012 Top Client Categories

Personal Business Management, Wealth Management & Family Office Practice

Types of Wealth Management Services

Estate Planning

Income Tax Planning

Education Funding

Family Business Consulting

Capital Management

Retirement Plan Advice

Family Office Services

Charitable Planning

Insurance Planning

Succession Planning

Comprehensive Financial Planning

Risk Management

Examples of Top Wealth Management Firms from the Accounting Today 2012 Survey

Firm Staff AUM

Plante Moran Financial Advisors, Springfield, Michigan

105 $6,714,316,818

Joel Isaacson, NYC 36 3,948,000,000

RSM McGaldrey, Minneapolis 72 3,942,000,000

Larson Allan Financial, Minneapolis 47 1,900,000,000

Berkowitz Deck Pollack & Brant 162 1,100,000

Dixon Hughes Goodman, Ashville, NC 23 820,000

Citrin Cooperman, NYC 7 650,000

Share of AUMPercentage of total $65 billion managed by the Wealth Magnets

$50+ Million Club Rising Stars

Source: Accounting Today, July 2011

The Wealth Management Practice Model

Family Office Model

Family Office Model:Coordination of

Internal Advisors, External Advisors, &

Family Members

Wealth Management website examples

KR WEALTH MANAGEMENT

Capital PerformanceAdvisors

http://www.cpawms.com/twcs.asp

http://www.krwealth.com/

http://www.ccwmlp.com/

http://www.mossadamswealthadvisors.com/pages/index.asp?SPID=89796&OrgID=2660

http://www.cpacapital.com/

http://www.weaverllp.com/Services/FinancialAdvisory/wwm.aspx

http://www.sdwealthmanagement.com/pages/index.htm

http://www.bkdwealthadvisors.com/

Profitability Trends

Driving Value & Profitability

Purpose Driven Leadership

State of the Art Technology

Target Marketing, PR and Practice Development

Recruiting the best

talent possible at all levels

either directly or through

M&A

Training, Career

Development, Succession Planning, Partner &

Staff Performance Management

Leading edge services, industry

specialization & niches

Efficient & timely delivery

of service

HR Perf Mgmt Comprehensive Succession Planning

Practice & Engagement Management

Values

Profits

Profitability Tactics

Increase Fees Earn higher fees through specialization, innovation, adding more value to

services.

Use marketing to get “better” and more profitable clients not just more work. Avoid the “factory” mentality.

Develop specialists and experts within the partner group and staff

Invest in new and higher-value services

Lower Variable Costs (Delivery Cost for Each Engagement) Improve engagement management performance

Increase leverage in the delivery of services

Make greater use of paraprofessionals

Avoid duplication of effort and unnecessary steps in the delivery of services

Profitability Tactics

Performance Issues Improve underachieving partners and staff or take appropriate action steps

Discontinue unprofitable services

Disengage unprofitable clients

Practice Management Improve speed of billing and collections

Monitor profitability on engagements

Maximize the use of technology in delivery of services

Reduce space and equipment costs

Developing a Merger Strategy to Deal with

the Changing Landscape

Consolidation Threats

Attracting & Retaining Staff Opportunity

Compensation

Career development and training

Benefits

Environment and quality of life

Perception that bigger is better

Security


Retaining Partners Resources

Leadership and vision

Security

Compensation

Succession planning


Attracting & Retaining Clients Service and niche resources


Geographic service coverage, including international

Availability of staff

Mergers

Mergers and Acquisitions—Considerations

Compatibility of cultures and values and the ability to integrate the firms

Geographical and management issues Future profitability, succession planning and partner

compensation Compatibility and/or diversification of service offerings

clients and billing rates Technical competency of partners and staff Due diligence

Top 10 Factors of Merger Strategy

1. Merger strategy should assist in achieving the goals & objectives of the firm’s overall strategic plan. A component of the overall plan

Strategic plan drives the merger strategy

2. Clearly define the merger candidate types and criteria and stick to it Get partner buy-in

Define the size, parameters, location, niches, services, types, partner ages and buy-outs

Have patience—don’t waste valuable time

Communicate criteria to brokers


3. Make it a “Game Changer” Elevate firm to the next level of success

Adds significant value

Develop a franchise

Expand geographically

Rainmakers

Keep pace with the growth in the CPA marketplace

4. Be creative and shrewd Only take the parts you desire

Don’t overpay (compensation, equity, buy-outs)

Be honest


5. Add niches, industry expertise, and service specialties Litigation support, Wealth Management, Estate Planning, IT

NFP, Financial Services, Health Care

Tax

6. PIC of Mergers Not necessarily MP

Able to be involved with multiple deals and brokers

7. Beware of egos and culture Leadership and control issues

Personality compatibility

No two cultures alike


8. Term sheet/Letter of Intent Develop a draft quickly

Should drive the deal and discussion

Tough issues are a priority

9. Preliminary Info and Risks As much as possible before the first or second meeting

Preliminary due diligence


10. Discuss post-merger activities prior to closing the deal Leadership

Communications


Software and programs

Include a term sheet

Voting and EC

Marketing Your Firm to Merger Candidates

Implement a targeted marketing campaign to attract quality merger candidates in a “sellers” market. Quality merger candidates and partners can have their pick of firms to join. Those firms that do the best job of marketing and selling to merger candidates will increase their chances of success of attracting the best merger candidates in this dynamic and fast paced marketplace.

Many of the best M&A candidate firms are “not for sale.” Marketing can play a large role in attracting such M&A candidates and “getting them to the table” in order to sell the benefits of a merger with your firm.

Develop a Merger Prospectus

Marketing Your Firm to Merger Candidates

Developing PowerPoint presentations and collateral materials to outline the benefits of merging with your firm and creating “Dog & Pony” shows that get the interest and attention of potential M&A candidates.

Implementing public relations and advertising strategies to promote your firm to M&A candidates.

Finding Merger Candidates

Notify your bankers, attorneys, and professional liability broker you are seeking a combination with a quality firm.

State Society committee members.

Direct mail—target selected firms.

Brokers and consultants.

Creating the Prospectus

Following are many of the items that might be included in a prospectus. Although this outline is not exhaustive, it represents a good start.

1.Firm Strategy and Combination Rationale

a) What is your strategic intent? (Be candid)

b) How does M&A fit in? In particular, how would the combination further the intent?

c) What plans do you have for the merger candidate/


2. Firm Overviewa) Brief firm history (tie in strategic intent)

b) Demographics (note any holes or gaps)

a) Partners, principals, and staff

b) Gender and ethnic demographics

c) Firm growth

d) Office locations—purpose and history if each

e) Representative clients (core clients and those you can gain with the combination)

f) Three- to five-year revenue history

g) Community/civic commitment, etc. (important to show values and culture)

h) Firm values

i) Top rankings and accolades

j) Professional development policy, systems, etc. (How committed are you?)

k) Technology use/strategy

l) HR & staff career development


3. Strategic Intentions

a) Growth objectives

b) Geographic objectives

c) Staff recruitment philosophy

d) Niches, specialties, etc.

e) Affiliations, alliances, etc.

4. Criteria for Evaluating Merger/Acquisitions Opportunities

a) Key leaders involved in evaluating opportunities

b) Key Criteria—strategic, economic, cultural


5. Firm Management Structure

a) Management/Executive Committee

a) Terms, limits, elections, etc.

b) Managing Partner, Chair, President

c) Administrative Management (Finance, Human Resources, Marketing, etc.)

d) Committees (Marketing, HR, IT)

e) Management Philosophy

f) Partner Equity, feedback, mentoring

The Need for Strategic Positioning in the Marketplace as Part of Long-Term Strategy

Strategic positioning is defining how your firm will best compete now and in the future for clients and talent. Strategic positioning is established by developing a business model that includes: service offerings

fee structuring

establishing and enhancing niches and specialties

establishing additional business locations to expand the firm’s geographic reach

developing leaders and professional talent

maximizing operational effectiveness

All of which are synchronized, with the goal of developing a successful firm of the future.

Documents

CPA Leadership Report Mergers and Their Impact on Strategy