*The M&A Market and Your Future

Source: CPA Insider

Here are some results from the 2012 PCPS Succession Survey:

Nearly 80 percent of CPA firm owners surveyed expected succession to become a major issue in the next 10 years.
Fewer than half of all multi-owner accounting firms had formal succession plans. For smaller firms, the numbers were even smaller: Firms with eight to 15 professionals – 33 percent; firms with three to seven professionals – 25 percent; firms with one or two professionals – 14 percent.
Only 6 percent of sole proprietorships had practice continuation agreements (PCAs).
A firm's size and location are the determinants of value to buyers. Small firms in densely populated areas are operating in a seller's market. Small firms in remote areas are operating in a buyer's market.
Smaller firms (in densely populated markets) represent good acquisition targets for bigger firms, but until recently relatively few of the smaller firms have come on the market because of their strong business and internal sales. But that is changing.
More smaller regional firms are (or will be) finding insufficient resources or talent for an internal succession plan and will seek a merger or acquisition. This is creating a larger supply of these firms, resulting in downward pressure on value.
Down payments have fallen also and there has been a trend toward stronger emphasis on retention periods for smaller firms, which tend to have partner-loyal client bases.
Firms with strong niches, strong talent, and growing client bases can be exceptions to this trend, and engender higher values.

The implications for CPA firms without succession plans will be addressed in next month's installment.

From CPA Insider, June 10, 2013, www.cpa2biz.com.