Evaluating a Merger: What Information do You Need?

Source: CPA Trendlines 

The following includes excerpts, reproduced with permission, from an article by Marc Rosenberg.

Following is the essential data needed for a sound merger evaluation process.

Start with… 

Financial statements for the last three years and the most current financial statements for the current year.

Then add:

For the most recent financial statement year, which revenues and expenses:

• Would not continue when the firm is sold, such as rent, employees whom you know will not move to the new company, etc.
• Are personal in nature and wouldn't continue when the firm is sold.

1. Earnings of each partner for the past three years.
2. A schedule of all personnel, partners and non-partners – part-time and full-time – currently and formerly employed, who worked at your firm for the most recently completed fiscal year. [A recommended list of data for each person is included.]
3. Billable hours for the firm, by month, for the most recently completed year.
4. List of clients. Try to follow the 80-20 rule – list the top 20 percent of the clients that comprise 80 percent of the fees. If not 80-20, then 70-30, etc. [A recommended list of data for each client is included.]
5. If a firm has more than one owner, a breakdown of client billings by owner, including gross fees, net fees, and realization percentage on each partner's client base.
6. Software used for accounting and write-up, tax processing, tax research, audit, document management, time and billing, office suite.
7. Aged work-in-process summary.
8. Aged accounts receivable summary.
9. For tax returns processed, the number of returns and average fee per return (individual, corporate, partnership, estate, trust).
10. Breakdown of practice (in percentage of total revenue) by audit, reviews, compilations, bookkeeping, tax – 1040s, tax – other, consulting (broken out by type).
11. Breakdown of annual fees by clients (number of clients, under $5,000 per year, $5,000 to $20,000 per year, $20,000 to $50,000, over $50,000, total).
12. List of all industries that comprise five percent or more of the firm's annual fees.
13. Last two peer review reports.
14. List of equipment and furniture you want to sell to the buyer (if a sale).
15. Promotional materials (brochures, newsletters, etc.).

For the original article, read “17 Things You Need to Know Before Talking Merger. ” 

From CPA Trendlines, April 10, 2014, http://cpatrendlines.com