10 Best Practices to Bring Your “A” Game to the M&A Table

M&A is serious business. Practice owners owe it to themselves, their teams, and their clients to get properly prepared—and to make the right first impressions—or  deal negotiations can break down quickly for the wrong reasons.

These 10 best practices will help both parties bring their “A” games to the M&A table:

1.     Consensus. First and foremost, you need to know that all partners in the firm are aligned toward M&A. The partners should see the benefit in exploring M&A as an option to reach their objectives, and they should have a unified definition of what the right “marriage” will be. You must also get consensus on timing and the amount of commitment (who and how much time) that needs to be spent in the process. For example, if everything falls into one person’s lap in a multi-person firm, the process may not go as well as anticipated.

2.      Vision, Success and Goals. Each party should have a vision of the combined firm and what results it will produce. Are you looking to build out service lines? Looking to be more dominant in a region? Looking to expand expertise of team members? Are partners looking to exit or stay? Have a clear understanding of what you’re trying to achieve through M&A.

3.      Time frame. All parties need to know how imminent this combination needs to be. One firm may need a deal completed in 90 days. Another firm couldn’t even consider completion in less than six months. When should the process start? Realize what could interfere with that time frame, including busy season and other peak service times. Each side may have different schedule needs. Is there flexibility in your firm’s timing? Have a time frame for the negotiation, the documentation, and the actual launch before you sit down to negotiate.

4.      Turnaround. Both sides should be clear and reasonable about responsiveness and expectations. For example, agree to react to what was covered in a meeting within X days. In a multi-partner firm, turnaround time may be more extended than in a single-partner firm. Turnaround time may also vary by season. If you know your people are going to want to take time off right after tax season, build that into the commitment and ground rules you establish—then live by those rules.

5.      Gather Your Team. This is not a time to fly solo. Plan for and use internal and external advisors to help your firm navigate the M&A process. Your advisors might include a committee made up of key members of your team, third-party experts such as consultants, investment bankers, and lawyers—or a combination. Advisors will help validate key components of the deal, including due diligence findings. They can provide oversight on the documentation process and ensure key issues are not overlooked. Experts who are not personally invested in the M&A outcome can be particularly helpful. 

6.      Communication. A deal is more than just a dollar figure on a piece of paper. There are internal and external stakeholders who need to be brought up-to-speed on negotiations and the finer points of the deal, through every step along the way. This isn’t a time to rely on memory. Take notes and document items of business—and then figure out how and when notes will be distributed and to whom. Come to meetings with questions and agendas. Discuss external, post-closing communication, including collaboration between the parties.

7.      Data. Walk into your first meeting knowing what kind of data you should have available, even if you’re not ready to divulge some of it yet. Be able to speak to essential metrics early in the conversations. Think about what the other firm is going to want to know about you. Be prepared to be transparent about your firm’s  core information, such as employees, services, and client industries. There may be more data shared after confidentiality agreements are signed.

8.      Anticipate Hurdles. All parties should ask themselves early on where they see difficulties ahead. Do you think you’ll lose clients or employees? Will the timing have to be extended because of tech and tech compatibility issues? In a small firm, if several partners want to retire around the same time, that is a hurdle. Think about what the integration will look like after the deal is signed and what hurdles will arise then. Both sides have issues.  Figure out what it will take to work through them. 

9.      Explore Anxieties. Unlike hurdles, anxieties are more personality-based. Owners are often anxious about losing control–it’s not going to be their firm anymore. They wonder how accountable they’ll have to be. Put your anxieties and worries out there early on. Acknowledge that both sides have them. Some people think that exposing vulnerabilities is a sign of weakness—but those anxieties tend to manifest themselves at the beginning of M&A discussions, and they can derail the entire process. It’s important to understand fears and acknowledge them before the letter of intent gets signed.

10.   Do Marketplace Homework. To enter M&A discussions, you need to better understand what’s happening around you. Find out how to best determine the value of your firm. What are some appropriate yardsticks for compensation? What are the current trends for deal terms like this one? If you’re merging into another firm with an executive committee, should you expect to be a member? What sort of influence will you have on decision-making? Some of this may depend on your niche or book of business, but you should get as much information as possible from outside experts, colleagues, seminars, or other sources.

One final note of caution: Don’t make assumptions! Don’t think that just because your firm has gone through M&A before, you can copy the process this time. Every firm and every transaction are different. Some firms think they don’t need to prepare because the other side has M&A experience. and will “handle” it. That is a recipe for disaster.

Walk into discussions with a solid understanding of and adherence to these M&A best practices. Handling the M&A process right from the start can help you achieve the success you want.

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Ira Rosenbloom, CPA (LR) leads Optimum Strategies, where he assists small-to-mid-sized CPA firm leaders in optimizing their competitive advantage by improving performance and profitability, positioning firms for successful M&A, and engineering strategies for succession plans. Rosenbloom is known as “The Merger Master” for his objective and masterful guidance in evaluating and completing M&A transactions. Before founding Optimum Strategies in 2010, Rosenbloom served as managing partner of a mid-sized regional accounting firm, practice director for a national firm, and regional partner in a national CPA M&A advisory firm, among other positions.