Do you have the urge to merge?

Meet Joe "Half of Greater Baltimore's 15 largest CPA Firms are looking to get bigger by gobbling up smaller rivals."is the lead sentence in an article (premium content) by Gary Haber in the Baltimore Business Journal.

When he called me, he was trying to decide if this was a trend, and if so, is it unique to our region.

Given that in 2009 there were 67 CPA firm mergers (in the Top 100 firms) totaling $821 million and the AICPA estimates that the number of firms nationally will shrink from 47,000 to 40,000 over the next five years, my response was welcome to merger-mania - CPA style!

There are several major trends converging that are causing this trend, which is actually global, national, regional, and local.

  1. The Great Recession of 2008 (2009 & 2010) is receding and firms are seeing growth again (although not in the pre-Recession 20% numbers).
  2. Baby Boomer partners are now thinking about retiring again (now that their .401ks are at least back to 40.1ks).
  3. Globalization is real - driven by the Mazars merger with Weiser (NY) and LECG with SMART (PA)
  4. Standards overload - the proliferation of standards (and changes on the Horizon) and regulations (including tax) is making it increasingly difficult for "generalists" to keep up, forcing specialization and mergers or strategic alliances.
  5. Lack of Succession Planning among CPA firms despite the many "wake-up" calls over past five years
  6. Lack of Leadership - leadership development among CPA firms has been lagging other businesses, leaving a major void in many CPA firms.

These are major trends by themselves, taken together and you get merger-mania at all levels.

Here is what I am seeing:

  1. Top 100 firms are working to build out national and international footprints.
  2. Regional firms are looking to strengthen secondary metro markets and broaden their service lines and talent thru acquisitions/mergers
  3. Local firms struggling to keep up with proliferation of standards and regulations are looking to economies of scale, new services, and talent as they acquire smaller practices

So what should you do about this?

It all starts with your vision, purpose, strategy. Does it fit your strategic plan?

  1. Is it about your geographical footprint?
  2. Do you need new service lines for your existing client base?
  3. Do you need to expand within your market and service lines (tuck in merger)?
  4. Do you need talent (watch this as you could be acquiring someone else's problems)?
  5. Lack of Succession planning (lack of funded retirement is one of the biggest reasons smaller firms look to be acquired).

Second is will it fit your culture? This is probably the most significant (and hardest to assess) factor. Do the firms share the same vision and values? Will the people fit together? Despite the focus on compatible systems and structures, none of these matter if the people cannot work well together. remember that all of these inanimate things are driven by? People!

Once you make the decision, I suggest a major collaborative planning session to re-establish the new collective vision, values and strategy which will re-establish your intentional culture. The costs of not doing this can be significant. Planned objectives are not met or delayed, internal people and team conflict consumes firm talent and resources on non-client focused activities, the firm environment decays from within making it unattractive to top talent, and it is simply not fun anymore.

How do you tip the odds in your favor?

Same advice, start with your strategy. Invest in a collaborative strategic planning process to develop a "new" shared vision, strategy, purpose and values and then create a leadership development plan that will reinforce the strategy, purpose, and values (this is how culture reinforcement is achieved). 

The more you invest and the earlier will yield the highest returns. Several leading researchers have talked about ROC as 15X to 20X the competition!

What do you think? Do you have the urge to merge?

Some more resources:

Seven Keys to a Successful Mergerat CPA Trendlines (great checklist from August Aquila)

Mergers & Acquisitions of CPA Firms - Journal of Accountancy, Mar 2009