Rick Telberg
Rick Telberg

Firm Mergers: What Could Go Wrong?

Plenty. The real work starts when the deal is done. Meanwhile, how’s tax season so far? Join the survey; see the results.

January 19, 2010
by Rick Telberg/At Large

As if busy season wasn’t busy enough, many accountants are finding themselves weighed down by the added burdens of integrating a new practice merger or grappling with a new restructuring.

Either way, you may be dealing with change you didn’t expect. And yet, the post-merger or post-restructuring period will determine your and your new organization’s ultimate success or failure.

“Integration is the hardest part of doing a merger,” according to Dom Esposito, chief operating officer at J.H. Cohn & Co., a coast-to-coast super-regional with offices in New York and Los Angeles.

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And yet, the tempo of mergers among accounting firms seems to be picking up.  “Mergers are happening at a quicker pace,” confirms Glenn Friedman, managing partner of the Metis Group CPAs. One explanation: “The economy has made it so that larger firms need to grow their top lines like never before. And smaller firms need economies of scale in things like technology, overhead and specialized experience.” In the last five years, Metis has doubled in size, mostly through mergers. In the next 12 years, according to Friedman’s estimates, 75 percent of all CPAs will become eligible for retirement.

Through 2009, RF Resources tracked 27 New York metro area deals, the same as the year before, and just shy of the 2007 peak — and all the 2009 deals have yet to be reported, so there’s probably more to surface.

Ted Felix knows what it’s like to live and thrive through an upstream merger.  After about 40 years in business, he guided the merger of his firm, Lazar Levine & Felix, into a deal with what is now Parente Beard.

But Felix wasn’t expecting to be acquired. “The opportunity came to use as we were looking to buy,” he says. “At first, no, we weren’t considering merging up. Then someone said, Well, what if … ?” And last year at about this time, Lazar Levine & Felix’s staff of 100 joined the then 550-person Parente Randolph. Since then Parente has merged with Beard Miller to create a New York-to-Philadelphia regional powerhouse of 1,250 people.

Friedman has heard Felix’s story before. “Everybody starts out thinking they’re a buyer,” he says. “There’s no shortage of buyers. But brokers don’t need any more buyers. They’re looking for sellers.”

“It can’t be an ‘us-versus-them’ atmosphere,” cautions Esposito. “Many firms are good at getting the paperwork done, but not really good at making things happen after that.” That’s why, at JH Cohn, they create a kind of SWAT team to manage the integration.

An elite crew of partners and staff are paired with counterparts at the incoming firm to both mentor the newbies and glean new best practices that can be spread throughout the new firm. “They’re making sure that, in the process of merging, everybody understands that we’re all building a bigger, better team together with everyone contributing.” You can’t rush the process, Esposito says. “It takes about two years.”

But the biggest obstacle for most sellers is that they understand, perhaps all too well, that their staff, systems and processes may not be up to snuff. For the buy-side firm, that may represent opportunity to fatten margin. For the sell-side firm, that could mean painful changes “Their biggest fear,” Felix says, “is that they know they aren’t doing things right. And now they’ll have to embrace things like timesheets and going paperless, whether they like it or not.”

“The hardest thing for most sellers is giving up control, “ says Friedman. After all, they started their own practices because they wanted to work for themselves and no one else. “But after the merger, they come in, sit at their desk and ask themselves: I’m a managing partner, but now what do I do?”

If you start now, by upgrading your people, plans and processes to the state-of-the-art, you may never need to ask, “What do I do now?” Well, until you’re sipping a daiquiri on a sunny beach somewhere.

JOIN THE CONVERSATION: What’s the outlook for busy season? Join the survey; get the results.

COMMENTS: Rants, raves, ideas or questions? E-mail Rick Telberg.

Copyright © 2010 CPA Trendlines/BSG LLC. All Rights Reserved. Used by Permission. First published by the AICPA.

About Rick Telberg

Rick Telberg is editor at large/director of online content.

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Disclaimer: Any views expressed in this article do not necessarily reflect the views of the AICPA or CPA2Biz. Official AICPA positions are determined through certain specific committee procedures, due process and deliberation.