How to Find the Right Acquisition Candidate

Source: The CPA Journal

This article offers some profound insights into evaluation of potential mergers. (Editor’s note: These issues are relevant to both buyers and sellers because a failed merger will damage both parties.)

• What kind of services does the target firm offer, and can they be provided efficiently and profitably after the merger? The kind of work performed affects culture. For example, firms that serve public companies and not-for-profits may differ culturally from firms that do not.
• Will the merged firm be able to provide continuity for clients of the acquired firm, including where they are serviced from, and staffing requirements?
• Clients with long histories with the firm may demand greater continuity.
• Be sure collections of receivables are effective and will not adversely affect the cash flow of the new firm.
• Can income of the acquiring firm be affected by:
  • Absorption of overhead?
  • The acquired firm’s growth and rate of client retention? Find out how much new client generation is occurring and how long new clients are retained.
  • Partners’ personal finances?
• Are the firms compatible in terms of core values, kinds of partners, roles of partners, kind of work, work/life balance, and attitude?
• Are people accountable? Do they perform according to their promises?
• Is one firm using the merger in an attempt to mitigate negative effects of a problem partner? Beware of this motivation. The merger will not eliminate the problem.
• Are the firms compatible in terms of:
  • Relative values they place on chargeable v. nonchargeable time?
  • Extent to which they delegate authority to staff?
  • Level of community involvement?
• What kind of relationships do partners and staff have with each other? Is there camaraderie in the firm? Are the two firms compatible here?

The article also offers advice on:

• Developing niche practices.
• Structuring services geographically.
• How to locate acquisition candidates.
• Obstacles to successful mergers.
• Unraveling the merger if it doesn’t work.

From The CPA Journal, A Publication of the New York State Society of CPAs, July 2007. For the complete article, click here, then select the article Growth Through Acquisition.