Growth strategies: Shopping tips for the best firm mergers

Is your firm exploring potential mergers? If so, then get prepared using ideas from a firm that has made a success of mergers and acquisitions.
Been there, done that – and succeeded. The firm J.H. Cohn (Roseland, N.J.) may not have mergers and acquisitions down to a science, but it’s pretty close. The firm’s decision to pursue mergers as a growth strategy has been more than successful – resulting in growth from $19 million in 1995 to approximately $215 million today. Along the way, the firm became expert in the merger process.

What makes mergers – and merger partners – attractive?  A merger with a strong firm is often a good answer for CPA firms with succession issues and a lack of resources to retire or buy out senior partners. Growth is an issue for many firms as well. Those interested in mergers are seeking ways to grow – or even to continue to exist.

Administrative challenges, lack of quality staff, the desire for better quality referrals, partners wanting to maintain their level of compensation and grow that compensation in the future – all of these reasons have helped to provide merger candidates for J.H. Cohn. A key attraction is that incoming partners’ compensation doesn’t drop as long as they maintain the volume of their practice.

Eight steps for successful mergers or acquisitions

Whether you want to buy or be bought, Michael Cohen, office managing partner at the firm’s Roseland headquarters, recommends an eight-step checklist for merger success, developed over years of negotiating and closing merger deals:

1. Determine long-term goals. Where do you want your firm to go? And realistically, where can it go, given the current practice mix, revenues, partners, culture, and philosophy?
   
   
2. Look at your culture. Good cultural fits will enormously increase the chance for a successful merger, so you need to understand your own firm’s culture first before you can look for a partner that will mesh well.
   
   
3. Identify candidates. You can look for merger candidates yourself or hire a search firm to do the looking for you. Whichever way you proceed, Cohen suggested that you consider your reasons for merging (geography, niches, etc.) and make sure candidates fit with your goals.
   
   
4. Conduct due diligence. Areas that must be covered include:
• Any litigation matters
• Results of external and internal peer reviews
• Review of selected work papers, financial statements, and tax returns,
• Review of the client mix
• Review of systems and procedures
• Insurance coverage before and after the merger
• Billing practices and rates
• Accounts receivable, especially aging issues
• Partner and staff retirement plans
• Leases or employee contracts or other contracts
• Assumed liabilities
  
  
5. Structure the deal. While there isn’t a true cookie-cutter approach that will work for every deal, J.H. Cohn has been able to work out some parameters due to the volume of mergers it has undergone.
   
   
6. Factor in compensation. This is paramount for the partners, of course—partners won’t approve a merger on either side if they are not content with the terms.
   
   
7. Integrate firms. Post-merger actions – including spending time with staff and administration – are especially important, Cohen explained. He emphasized the actions must come from the new – not the old – owners.
   
   
8. Measure success. What is “successful” in a merger will depend on the goals your firm had in the first place, Cohen advised. Set the measurements you will pursue during merger negotiations: financial targets, clients to be acquired, and expansion goals in an industry or geographic area, for example.

The goal that has served J.H. Cohn well, is to “ensure that the whole is more than just the sum of the parts,” Cohen stressed, Understanding how well – or not – the merger worked will help you in future merger decisions.

From the June 2008 issue of Accounting Office Management & Administration Report.
Copyright © 2008 IOMA, Inc. The Institute of Management and Administration.

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