The Changing M&A Market for Accounting Firms

Source: Accounting Today

Sellers’ Market May Not Last

It is a sellers’ market now, but that may change according to several consultants interviewed. Most firms today want to merge in smaller firms. Many see it as a way to avoid marketing. It is also an alternative to hiring increasingly scarce talent. 

But some of the same factors make merging up attractive. More and more smaller firms will want to sell because of staff shortages, the increasing amount of time needed to deal with technology, the need to offer a diversity of services, the aging of baby boomers, and competition from other industries such as banks. Because of these factors, sellers may outnumber buyers in the future.

Downside to Mergers

There are also negatives to mergers. These include ego, culture, the wrong transaction terms, weak transition plans, and absence of a win-win attitude in structuring the transaction. Another problem is the need to properly explain the value to clients and staff. Finally there is often a failure to evaluate the other firms’ standards because you don’t want to offend them.

The Value of Your Firm

• Write-up and tax clients may command a price of 1.5 times annual revenue. 

• Firms under $1 million in revenues often sell for multiples of 1.2 to 1.3.

• Problems such as high concentration in the client base, pending lawsuits, or problem partners can reduce valuations.

• Some consultants see down payments diminishing.

• Acquisitions under $1 million in revenue often have a 30 percent down payment.

For the complete article, see Accounting Today, January 24, 2005, or

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