5 Steps To Get Your Practice Ready For A Merger

There are many reasons why a merger may take place, for example, it could be to increase overall profitability resulting from greater economies of scale, to increase or broaden service offerings, to reduce the amount of administration per partner, or maybe even to transfer the practice administration to a new partner, which enable the partners to ‘focus on their core strengths’. On some occasions it could be to amalgamate offices to introduce efficiency savings. Merging a practice can often be used a logical solution to the issue of succession.

Below we have set out the main steps to focus on in order to correctly prepare for the merger of your accountancy practice

1. Validate your reasons for a merger

Be clear on what you want. There should be strong economic and sensible reasons to consider a merger. It should result in a ‘significant upside or solution to a major problem‘. Interestingly, an article in the Journal of Accountancy suggests that merging to reduce overhead in either firm – to do things like fill empty offices, spread technology cost or use excess staff – has proven not to be a good basis for a merger.

It would make sense to talk to an M&A specialist at this stage to discuss and validate your reasons for merger.

2. Decide How to Market Your Practice

There are two ways to potentially market your practice for a merger; the first is to list it for sale with a specialist Mergers and Acquisition Broker who will typically charge a fee of around 7% of your gross annual fees. If this does not sound an attractive option and you feel you have your own network of contacts you may wish to conduct your own selling program and search for your own potential partner for merging.

3. Develop a Practice Profile

This is a detailed description of the practice and should be titled something like ‘Accountancy Practice Information Memorandum’. For starters, it should contain details such as an Executive Summary, Owner Reasons for Merging, Business Premises, Services/Products Offered and suppliers.

There should also be a section on Client Analysis which should show a review of fee income for the past three years, along with a segmented analysis of the client bases and details of client history/background.

You will also need to provide a detail financial analysis looking at profit and loss for the last three years.

The report will need to include a detailed marketing plan, a human resource analysis, (e.g. staff, skills experience, performance, sick leave etc…), technology review, operating procedures review, industry memberships, SWOT and PESTLE analysis.

Finally, your report should contain a section detailing the key attractions of the firm and the potential partner’s opportunities.

4. Prepare Clear Communication Packs for Stakeholders

For the merger to work effectively, you must have the support of your key stakeholders, namely your clients and your staff. If you do not manage to effectively engage your stakeholders, there is a chance that your merger may be doomed before it even starts. Timing is everything; if you communicate too soon then you may unsettle clients and staff needlessly, but if you communicate too late you could startle clients and make them uncomfortable, causing them to leave. Therefore, work with the marketing team to prepare a clear communication plan to communicate the benefits to all stakeholders and communicate how their needs will be looked after both during and after the merger.

5. Exit Strategy

The Journal of Accountancy points out that agreements for most mergers should provide the ability to de-merge if the deal is not working. Your business should therefore develop an exit plan and strategy prior to merger to as part of good contingency planning
Finals words; whatever the reason may be that you are considering merger, it is important that you take the time to plan the merger if it is to executed effectively. Preparing your practice for a merger is in many ways similar to preparing it for sale. It is still a beauty contest, as the incoming practice is still investing their livelihood in your business. You will therefore need to show that your practice is in the best working order it can be if you want to present it as a viable merger proposition.