When delving into the realm of CPA firm mergers and acquisitions (M&A), two aspects remain steadfast. Regardless of the shifts in players, financial terms, valuation, and structure, M&A is invariably centered around the twin pillars of money and advantage. The entities involved in a transaction have consistently and will continue to seek these elements. The silver lining is that as long as money and advantage serve as the driving forces, astute transactions will materialize, and more robust businesses will emerge. It is crucial, however, to have a clear understanding of what fulfills the need for money and advantage.
Acquirers and Successors: The Emphasis on High Performers
Acquirers and successors, particularly those with private equity backing, are inclined to place significant emphasis on high-performing firms. These are firms that boast high profitability and technologically advanced platforms. They view high performers as a more reliable means to generate money and a quicker path to achieving their goals. The valuation for high performers is always on the higher side, and the competition to acquire such firms is intense.High performers offer a plethora of advantages. They provide an accelerated route to revenue growth, a penchant for innovation, a cross-selling culture, excellent clients, a history of offshoring and outsourcing, creative services, and talent with substantial growth potential. When high-performing firms are selling or aligning, they too seek lucrative financial outcomes but may need to be prepared to face higher performance pressures.The advantages that high performers seek include deeper service offerings, accelerated financial upside for emerging potential partners, advanced technology, diverse talent, and increased motivation and stimulation. High performers are accustomed to operating differently and taking risks.Finding the Right Successor or Acquirer
When searching for a successor or acquirer, a common mission and culture are essential. This provides owners looking to exit with strong confidence and offers others optimism about the prospects of a better and more sustainable business model.However, the M&A market is not solely about high performers. It also encompasses average firms and specialty firms.Average Firms: Steps to Competitive Success
Average firms would do well to focus on three critical aspects to enhance their competitiveness and present the potential for money and advantage to all parties. Firstly, they should study their practice metrics and implement a two-year improvement and upgrade program. Successors will make money when the clients of a target firm are comfortable with market-based fees and services that are attuned to the market. Secondly, they need to create a roster of expanded services that will resonate with their clients. Finally, they should cull out the low-end clients and fees.Specialty Firms: Navigating the M&A Landscape
Specialty firms may fall into the high-performing category depending on their achievements, but they may also not have focused sufficiently on their key performance indicators (KPIs) and client selectivity. Depending on the specialty, the metric benchmarks will differ, and the criteria for accepting the right fit for a client will also vary. Specialty firms need to have a solid understanding of their competitive positioning as an expert relative to other similar firms to create a more compelling option for acquirers.There is a significant difference between fixer-upper firms and those on the cusp of excitement. Acquirers are not inclined to bid low and take on a fixer-upper. They are more likely to negotiate for firms that have upside, especially upside that they believe they can nurture quickly and potential that they feel others may overlook.There are no flawless businesses, but there are excellent ones. Smart acquirers uphold excellence by pursuing money and advantage. Smart sellers need to make it evident that money and advantage are within reach and show their willingness to make partnership a reality. Average firm owners need to be prepared to accept incentive components rather than fully secured terms. They are seeking enhanced financial security (money) and enhanced business viability (advantage).As long as CPA firms prioritize being businesses first and foremost, M&A will continue, and various players will be involved. Make money and advantage your mission, and the rewards will follow.READ MORE