Mergers
Mergers are too often overlooked and misunderstood. Yet they provide all of the benefits of a sale or an acquisition of a CPA firm with very little cost, and few, if any, tax ramifications.
Benefits to the Smaller Firm
- Relieving the smaller firm of many financial, administrative and human resource responsibilities
- Access to technical and managerial support
- Keeping ones existing book of business
- Offering clients additional services and resources resulting in increased billings
- Growth of firm tied to larger firm, not limited by size of smaller firm
- Built-in Exit Strategy upon Retirement, Death or Disability
Benefits to the Larger Firm
- Provides a proven pool of talent
- Access to a loyal client-base for cross-selling opportunities
- Access to New Markets and/or Services
- Increased Cash Flow and Profitability
- Economies of Scale
- No Cash is Required
Partner-level Professional for Exit Strategy
Benefits to Both Merger Candidates
- Mergers are easier and less expensive from a legal perspective
- May be a Tax-Free Transaction for both Parties
- Ability to Attract Larger or Different Clients
- Attract Superior Staff with Larger Firm
- Enjoy more professional opportunities and resources
- Increased profit for both parties due to economies of scale
- No cash required by either party, except brokerage and/or legal fees
- Built-in Exit Strategy
- Quickest and least-expensive expansion strategy
Mergers Solve Common Infrastructure Problems
- Rainmakers – This limited resource is difficult to replace but essential in a market characterized by fierce competition for clients
- Technicians – Whether entering a new market or expanding existing services, good technicians are always a valuable asset
- Quality Control – Top firms are always looking to improve quality control and thereby their competitive edge.
- Management & Administration – Many mid-size firms suffer from a lack of management and administrative infrastructure. Merging can provide a viable solution.
- Excess Capacity – Many firms suffer from excess capacity outside of tax season. Merging with a firm that provides year round cash flow is a common motivation.
Structuring Creative Transactions
Mergers lend themselves to creative transactions that can lead to a win/win for both firms. Some of the important issues are listed below. Perhaps most surprising, is that mergers usually include the potential for a larger compensation package for the smaller firms’ partners, while a larger buy-out for the larger firm’s partners.
- Keeping their own PA or Not
- How each Partner’s Book will be handled
- How will Growth and New Leads be handled
- Billable vs. Non-Billable Hours
- Responsibilities
- Voting Rights
- Salaries
- Distributions
- Benefits
- Allocation of Equity/Profits
- Capital Contributions
- Who will be Managing Partner
- New Firm Name
- Location(s)
- Settling Disputes
- Outside Commitments
- De-merger Agreement
- Expulsion, Death or Disability of Partners
- How New Partners will be Handled
- Exit Strategy: Price and Terms upon Retirement
Call us directly, or our Live Chat line, to discuss your merger questions and/or objectives.
