Is Merger the Best Growth Strategy?

Source: CPA Practice Management Forum

J.H. Cohn, Roseland N.J., grew from $18,000,000 to $120,000,000 in revenues in the last eight years, much of it from 14 mergers. Tom Marino, CEO, says most mergers are really acquisitions, rarely mergers of equals. J.H. Cohn has developed some well-defined principles to guide its merger activities:

·          Don’t merge if you don’t realistically expect more profit than before the merger.

·          Buy people, not volume.

·          Buy boutique practices.

·          Recognize deal-breakers early in the process. J.H. Cohn will not change its name and will not accept low standards of quality.

·          Compensation of partners cannot be ego-based and must be equitable. Guaranteed compensation to new partners can be in effect for no more than two years.

·          Offer merged partners a choice: sell their partnership interest at, say, one times annual revenue, or join the existing plan. Typically older partners choose the former, and younger partners choose the latter.

·          Don’t try to increase billing rates immediately. It will result in a migration of clients.

·          Don’t offer cash up front.

·          Don’t merge with firms that have no rain makers.

·          Do the transaction quickly or not at all. Don’t rely on lawyers to help with business decisions.

·          Assume there will be no expense synergies.

·          Expect no benefits in the short run (under two years).

For the complete article, see CPA Practice Management Forum (CCH Incorporated), February 2005, p.13.