I believe firms go through four distinct phases to progress from indecision to a successful merger or acquisition. The process can take 10 years or more, but an experienced guide can speed the process and ensure you’re not leaving your firm, and the value you’ve created, up to chance.
- Awareness – Depending on which survey you read, 50%-90% of firms do not operate with a viable, written succession plan. Baby Boomers are still very much in charge at most firms, and the labor shortage means the line of future buyers may be a short one. Leaders must take a hard look at whether the firm has the right number of up-and-coming leaders and young partners to run the firm and pay out retirement obligations. Without a strong bench, an external sale is the most likely solution to realize the firm value you deserve. Answers about sustainability can reveal themselves slowly, in two to 10 years.
- Adjustments – After concluding the firm can’t sustain itself over the next generation, many firms still aren’t ready to announce they’re looking for a buyer. In the meantime, firms can make themselves more attractive by culling standalone 1040 clients, boosting rates, improving margins and increasing profits. Implementing those improvements, however, means big changes and difficult conversations, but the upside is more offers and higher valuations. A practice management consultant can guide you through this challenging phase, which could take several years.
- Education – Most firm leaders believe valuations should be higher than what the market bears, so it’s critical to learn about the types of offers most likely to come along. A generalist practice in a slow-growth market, with low margins, less profitable clients and no specialized niches will be worth less than the opposite. Mulling over the timing, coming to grips with losing control, and mentally preparing for the next stage can take two years or so, but during that time the value of the firm decreases as partners and clients age.
- Combination – Don’t settle for just any buyer. A merger is more than a sale, it means joining a new organization. We can help you form a clear picture of the best buyer for your firm and then start the match-making work, which is rooted in finding the right cultural fit for your partners, your staff and your clients. That involves meeting with potential buyers, establishing trust and conducting due diligence, which takes knowing what to look for, asking the right questions, and examining the criteria established by both sides. The process typically takes about six months.
The best advice I can offer is to start thinking now about whether a merger is the right move. The sooner you put a plan in place, the better position you’re in.
Don’t wait until you’re out of gas, the firm is in decline and the value of your asset is diminished. It’s best to merge when you have several years of runway, with an attractive, viable asset and team. Planning ahead can help you extract the real value that’s been built over the years.
Kuesel Consulting, a trusted merger advisor, can guide you through each of these phases, from idea stage through closing, easing the process each step of the way.
