Mergers and Their Impact on Strategy

Mergers and Their Impact on Strategy
CPA Leadership Report Mergers and Their Impact on Strategy

Accountants Advisory Group www.AccountantsAdvisory.com
Strategic consulting to CPA firms Leadership, management and strategic direction Advisory services pertaining to partnerships agreements, partner compensation & retirement agreements, etc. Marketing, new business development and public relations strategies Merger and acquisition consulting Human capital and recruiting programs Partner retreat facilitation Recruiting partners and managers Objective and independent advice Practical experience from industry specialists Network of resources

Trends and Predictions in the CPA Profession
3

Gender Unfunded Retirements Increased Competition Leadership
The “Perfect Storm” Consolidation Retiring CPAs Quality CPAs Gender Unfunded Retirements Increased Competition Leadership 4 4 4

The “Perfect Storm” The regional, mega-regional, and national firm “franchise” concept taking hold and creating competitive issues for attracting staff and clients for smaller firms. Local mergers escalating, both with medium and large firms from three to 20 partners. One storm is categorized by the significant merger activity at the local, regional, and national level that is progressing at a rapid pace and is quickly reshaping the landscape of the accounting firm environment. 6 6

Sample 2011/20122 Merger Activity
Larger Firm Smaller Firm Minneapolis based Larson Allen, 20 offices, 140 partners Le Master & Daniels of Spokane Clifton Gunderson (Clifton Larson Allen), 47 offices, 210 partners merged 7 firms in Indiana, Missouri, New Mexico, and California Clifton Gunderson merged & formed Clifton Larson Allen KPMG acquired Equa Terra, a global outsourcing consulting firm Grant Thornton acquired firms in Dallas & Chicago BDO acquired NYC based, 65 person, Salibello & Broder

Larger Firm Smaller Firm Cleveland based CBIZ, 150 offices and 415 partners a Utah-based employee benefits firm, a Baltimore-based consulting firm & a Tampa Bay firm Richmond, VA based Cherry Bekaert & Holland, 15 offices and 45 partners Mergers in Atlanta, Florida & Virginia Bloomington, MN based RSM McGladrey, 85 offices, 708 parters Caturano & Co, #5 Accounting firm in Boston New York City based O’Connor Davies, 7 offices and 60 partners PKF NY and Marien + Co. in CT New York City based Marcum, 12 offices, 140 partners Los Angels based Stonefield Josephson, 150 person firm

Larger Firm Smaller Firm Princeton, NJ based Withum Smith & Brown, 12 offices and 82 partners Eisner Lubin, NYC 10 partner firm Charlotte, NC based Dixon Hughes Virginia’s Goodman & Co. to form Dixon Hughes Goodman Enterprise, AL based Carr Riggs & Ingram, 16 offices, 80 partners merged in Florida and Texas firms Roseland, NJ based J.H. Cohn, 15 offices and 175 partners Future combination with Reznick Group, based in Bethesda, MD, 10 offices and 106 partners Combined with Farmington, CT based Kostin Ruffkess, 20 partners

Larger Firm Smaller Firm NYC based Citrin Coopermann, 5 offices, 100+ partners Schwartz & Hofflich,10 partner firm in Connecticut and mergers in NYC, NJ and Philadelphia. Miami based Morrison, Brown, Argez & Farra, 9 offices NY based ERE Michigan based Rehmann, 20 offices and 60 partners 3 wealth management practices in Ohio & Florida Milwaukee based Wipfli, 20 offices, 140 partners practices in Illinois & Washington Birmingham based Warren Averett, 1 office and 105 partners 3 other firms in the Gulf Coast to become an $84 million firm

Future Classification of Firms
International “Big 5” Small National Large Regional/Local Mega-Regional Large National Consolidation / mergers will take place at a rapid pace and as a result, the future classification of firms will change and will look like: Still formingInternational=second tier bdo, grant,rsm Large national-cbiz,bkd Small national=jh cohn 11 11 11 11 11 11

Partnership Structure
The partnership structure will fade away and be replaced by a “franchise / corporate-type” structure in the top 300 firms in the country. Partnership Structure “Franchise / Corporate-Type” Structure 12 12

Firm Classification Large National Firm Offices Revenue $MIL McGladrey & Pullen (USA) 85 1,370 Grant Thornton 56 1,146 CBIZ BDO (USA) Clifton Larson Allen Crowe Horwath Small National Marcum JH Cohn Baker Tilly Virchow Krause UHY Advisors

Firm Classification Mega-Regional Firm Offices Revenue $MIL Dixon Hughes Goodman (SE & CR) Parente Beard (MA) EIDE Bailly (MW) Moss Adams (W) Plante Moran (GL) Wipfli (GL) Carr, Riggs & Ingram (GC) Cherry Bekaert & Holland (SE) Reznick Group (MA)

Firm Classification Large Regional Firm Offices Revenue $MIL Rehmann (GL) Novogradac & Co. (W) Withum Smith & Brown (MA) EisnerAmper (MA) Rothstein Kass (MA) O’Conner Davies (MA) 7 75 WeiserMazars (MA) Citrin Coopermann (MA) Warren Averett (GL) MBAF (Morrison Brown) Armanino & McKenna (W) 5 84 SS&G (GL) 9 71

Siege on Philly Citrin Cooperman Clifton Larson Allen Mitchell & Titus
CBIZ MARCUM WeiserMazars EisnerAmper Withum Smith & Brown Crowe Horwath 16 16 16 16 16 16 16

The “Perfect Storm” Retiring accountants outpacing new accountants by 3:1. “Baby Boomer” partners entering their 60s at a rapid pace. 10,000 Baby Boomers a day are turning 65. A Baby Boomer turns 60 every 8 seconds. The # of partner-quality “rainmaker “ accountants not adequate for succession planning. Shortage of practice development partners and quality staff is a significant factor in merger discussions. The % of partner retirement pay to net fees is averaging over 4%, up from 2% in 2000 ,and is starting to reach cap levels at some firms. This trend will continue and force upward mergers or firm splits.

Inability to Retain Women in the Profession
Adding to Succession Planning Problems Very few firms have been successful in designing and implementing flexible and part-time career paths. 18 18

The “Perfect Storm” Over the last 5+ years, 55% of new hires were women, who represent only 20% of all partners, creating a void in succession planning. Over 90% of all firms have unfunded partner retirement plans. Firms are experiencing significant voids in leadership as founding partners retire. 19 19

Predictions More partners will work beyond the normal retirement age due to lack of sufficient partner level talent and unfunded buy-outs. The new 65 will be 70. Mergers & acquisitions will escalate significantly in 2015 and beyond, especially with firms between 2 and 10 partners. Firms will begin to incorporate more equity buy-outs (cash) in their merger deals to attract quality merger candidates. 20 20

Predictions Medium size regional and small national firm mergers will become more common, especially on the west coast and in the south east. Firms will require new partners to buy equity in the practice. No more freebies. “Skin in the game.” Non-equity partner positions will become less common. Smaller firms will fail or split-up due to succession planning problems and a lack of partner consensus on the vision of the future of the firm. 21 21

Predictions-More Firms Will Split-up
Eisman, Zucker, Klein & Ruttenberg L.L.P., a certified public accounting and consulting firm in White Plains, is being dissolved and its partners are moving on to other firms. The move is effective June 13, according to Howard Klein, a partner in the 10-year-old firm known as EZKR. “The partners came to realize that they no longer shared fundamental common goals and long-term visions for the future,” Klein said. “So while it’s sad to see the firm end, the people are going to continue and they’re going to continue in this community.” Klein said he and several other former EZKR partners are joining the accounting firm Citrin Cooperman in White Plains while others are going to O’Connor Davies Munns and Dobbins L.L.P., which has offices in Harrison and New York City.

% of Traditional National Revenue
Predictions 50% of the firms below the Top 200 will merge upward, laterally merge, or split-up in the next 10 years due to succession planning problems and a lack of partner consensus on the vision of the future of the firm. Approximate # of Firms % of Traditional National Revenue 2012 2025 Tier 1 4 5 50% 55% Tier 2 100 150 20% 30% Tier 3 14,000 7,000 10% Tier 4 30,000 15,000 5% 23 23

Predictions 24

Predictions-Lateral Mergers on the Rise
More firms will choose lateral mergers as a succession and growth strategy to maintain more control of their destinies and avoid culture shock. These lateral mergers will develop with firms choosing not to merger-up or who are not desirable merger candidates to larger firms. There will be a shift from a seller’s market to a buyer’s market as larger firms get more selective in the merger market and there are more baby boomer partner firms coming on the market, there by increasing lateral merger transactions.

Why Aren’t There More Lateral Mergers?
Egos, leadership, management and control Name Culture Leases Location Unreasonable expectations Compensation, retirement benefits, and equity Excessive time in negotiating the Term Sheet Insurance Previously undisclosed risks and liabilities

Predictions Firms will again outsource more work overseas (India, China & the Philippines) through outsourcing companies and international affiliations as fees become more competitive and quality accountants will be used for more valued services. There will be more M&A of outsourcing organizations into CPA Firms. Firms in high labor and rent areas will acquire firms in depressed and lower cost areas and shift compliance work to them to maintain fee competitiveness and increase profitability. There will be at least 3 mergers of international associations of accounting firms in the next 5 years as associations lose member to mergers 27 27

Predictions Target marketing will become more of the norm vs. the “shot-gun” approach. Quality internal marketing professionals will continue to be in high demand as firms apply greater resources to practice development. Smaller firms will merge into larger firms to take advantage of the larger firms marketing expertise. The need for continued growth and competitive pressures will drive greater client specialization and expert niche services which will accelerate niche M&A transactions. 28 28

Predictions Larger firms will become more aggressive in specializing in wealth management services and family office practice services and personal business management (i.e. Rehmann $30M of $80M revenue). M&A of high-end individual tax practices will fund this growth. New auditing standards, the move to international standards, new peer review requirements (rotation of peer review auditors, selected by state societies), etc. will challenge small firms and increase M&A activity with firms with high end quality control and review expertise. 29

How Mergers Will Impact a Firm’s Life Cycle

Firm Life Cycle Determined by: Leadership (not management)
Results of critical decisions or lack there of Talent-technical, advisory, experts, specialists Entrepreneurship Ability to adapt to the marketplace quickly Marketing and promotion Partner teamwork Succession planning Critical balance of running the firm like a business vs. a practice Management-partners, staff, admin., HR, marketing 32 32

CPA Firm Life Cycle Start up Growth - Established Mature-Expanding
Challenged Declining Founding and “rainmaker” partners retiring Succession planning problems Establishing a client and referral base New partners Running the practice in a more formal fashion Mergers with smaller practices New partners Attracting experienced staff Establishing niches and specialties Economy and market conditions cause decline in revenues and profits More competition for clients and talent Seek exit options Merger Sale Dissolve Initial Stages of Development

More Firms Will Not Be Able to Score In The RedZone
34 34

Remaining An Independent Firm
The Top 10 Factors of Mergers & Its Impact on Strategy 35

Impact on Strategy Strong leadership and partner accountability for implementing the firm’s short-term and long-term plans Recruit and retain the best entry level and experienced professionals (including partners) that the firm can identify Continuously upgrade the client base and disengage low realization clients 36

Impact on Strategy Market for quality, not quantity
Developing and implementing niche and service specialties Use mergers and acquisitions as part of a marketing and growth strategy Career development and leadership programs for partners and staff 37

Impact on Strategy Provide value added services to clients
A partner compensation system that is based upon contribution to the success of the firm and individual performance A succession plan that is evaluated each year 38

CPA Firm Business Model
Strategic Vision CPA Firm Business Model

The Franchise Chairman & Executive Committee Managing Partner
IT & Workflow Optimization Work Flow Mgmt. Comm Hardware Software HR & Succession Planning Professional Marketing & Strategic Planning Recruiting & HR Public Relations Career Dev & Tech Training Benefits Client Retention, Cross-selling, innovative service Practice Development & Sales Advertising, Public Relations & Branding

Partner Leadership Team —Executive Committee
Chairman Managing Partner COO Strategist & Visionary Practice Growth Mergers & Acquisitions Goals and Objectives Oversight Succession Planning & Talent Mgmnt

Using Talent and Leverage to Build a Firm of the Future

Historical Pyramid Structure
Managers Staff Partners Supervisors Work Flowing Down Work Flowing Up 43

Build a Quality Staff Pyramid … the Clients Will Come
44

The Pyramid & Leverage Many accounting firms have become over-partnered and under-leveraged. The “over-partnered” syndrome has been fueling merger mania over the last 5 years. There is a direct connection between the “partner-to-staff ratio” and the ability of firms to be successful in the long-term and develop succession planning. Need at least a 1:5 partner to staff ratio.

Inverted Pyramid Structure
Managers Staff Managing Partners / Senior Partners Junior Partners Work Flowing Down Work Flowing Up 46

Partner & Staff Structure
Are partners being held accountable for delegating work and increasing profitability on their engagements? Do we have enough “quality” staff in the appropriate positions to have a successful delegation process? Are we properly developing our staff? Is the firm’s scheduling process taking into account the proper matching of work and talent and career development? Is the current partner compensation program demotivating partners to delegate to junior partners or managers?

Top 20 Attraction Factors: 2011 vs. 2006
Rank Top Attraction Factors 2011 2006 Percentage-Point Change 1 Career growth opportunities 91% 80% 11 2 Salary 88% 78% 10 3 Paid personal/vacation time 86% 79% 7 4 Open-door/accessible management 83% 68% 15 5 Comfortable office atmosphere 81% 69% 12 6 Interesting, challenging client projects* 81& 71% N/A Medical benefits 73% 70% 8 Firm’s reputation or prestige 59% 14 9 Retirement savings plan 72% 67% CPE credit reimbursement 65% 50% Source: PCPS 2011 Top Talent Survey. * The 2011 survey asked separately about client and internal projects. The 2006 survey asked about client and internal projects combined.

Top 20 Attraction Factors: 2011 vs. 2006
Rank Top Attraction Factors 2011 2006 Percentage-Point Change 11 Team-orientation of firm 65% 56% 9 12 Frequent client contact 61% 48% 13 Paid sick days 60% 55% 5 14 Flexible work schedule 59% -6 15 Bonus incentives 58% 52% 6 16 Access to the latest, cutting-edge technology 57% 17 Size of firm 44% 18 Dependent medical benefits 50% 37% 19 Regular performance reviews/feedback 40% 10 20 Interesting, challenging internal projects* 49% 71% N/A Source: PCPS 2011 Top Talent Survey. * The 2011 survey asked separately about client and internal projects. The 2006 survey asked about client and internal projects combined.

Attracting Quality Staff

Advertising 51

The competitive edge will be decided by the firms with the best talent
Deloitte reported its revenue Thursday for the fiscal year ending May 31, with aggregate revenues at Deloitte’s member firms around the world growing 8.4 percent over last year in U.S. dollars, despite the stagnant worldwide economy. “We made a number of acquisitions of companies as well as hired a number of partners from other firms that also contributed to our growth,” said Salzberg. “We hired talent, and that talent was a big contributor to some of our growth.” The firm built a training facility in Dallas known as Deloitte University. The physical facility is now in its pilot phase. Deloitte LLP, is now beginning to use it for training. “Our people are now beginning to reap the benefits from a talent perspective,” Salzberg said of the training facility. “Our people have recognized the commitment we have made and that is working out extremely well. It’s in the early stages of its operation, but the feedback we’ve gotten from our people and recruits and clients has been extraordinary.”

Number of Professionals
Staff Model Staff Model $2,000,000 Per Partner Title Billable Hours Billing Rate Number of Professionals Revenue Standard Partner 1,000 $350 1 $350,000 Manager 1,600 $275 $440,000 Supervisor 1,700 $200 $340,000 Senior 1,800 $180 $324,000 Associate $150 2 $540,000 Total Revenue $1,994,000

Defined Roles & Accountability

Implementing the Game Plan

Accounting Today 100 Firms Statistical Analysis—2012
Category Leverage Revenue Per Partner ($ millions) Revenue per Professional ($000’ss) Revenue per Total Employee ($000’s) Big 4 9.4 3.62 341.0 253.0 $200 Mil + 6.0 1.79 296.1 195.3 $80 Mil to 200 Mil 5.7 1.47 257.8 176.2 $50 Mil to 80 Mil 6.64 1.69 254.1 183.8 $30 Mil to 50 Mil 5.65 260.02 172.8

Staying Competitive with a Merger Strategy and Growth

The Choices Invest in the Firm to remain independent
Develop the Franchise Retire with Capital and Goodwill payout Invest minimally for short-term merger or sale Day-to-Day—wait and see—milk it Hybrid—some combination of the above depending on the year. Where will partner's get their best return on their investment of time and profits?

Top 10 Accountant's Excuses for Not Implementing a Succession Plan
Deadlines— 4/15, 9/15, 10/15, etc. Our staff is not qualified. Too many client demands right now. I have to take CPE I'm going on vacation 59 59 59

Top 10 Accountant's Excuses for Not Implementing a Succession Plan
I just got back from vacation Client crisis I just engaged a new client—too busy A staff person just quit I have to write an article for the newsletter 60 60 60

Come Ready to Play Every Day

Mergers Mergers and Acquisitions as Part of a Marketing and Growth Strategy Keep pace with the CPA firm marketplace - merger activity will accelerate Diversify service offerings Expand referral network and geographic coverage Over 80% of the Top 100 firms have a defined M&A plan 50% of the MP’s of the Top 100 firms spend at least 25% of their time targeting potential mergers 62

Successful Mergers Growth Strategy Potential Targets Due Diligence
Cultural Integration One Firm Develop & Sustain Successful Mergers

Diversifying Services
Firm Newly Created Service Berkowitz Dick Pollack & Brant Bay Bridge Real Estate Group—consulting Grant Thornton Japan Business Group--consulting Hein & Associates Risk Management consulting group Hill Barth & King HRK Energy—consulting to suppliers of oil & gas companies

Diversifying Through M&A of Non-Traditional Services
Firm Newly Created Service Warren Averett opened a Korean Business Services office in Alabama in the Korean Automotive corridor, which specializes in serving U.S.-based subsidiaries of Korean entities. Reinsel Kuntz Lesher (PA) acquired Senior Living Consulting Group Armanino & McKenna merged in Factory Information Management Solutions Cohen& Co acquired Cleveland based family office practice, The Lipon Group

Marketing and Niche/Specialty Trends
Firm Newly Created Service Clark, Schaefer, Hackett & Co. (Ohio) launched a private equity group due to increased client interest in mergers as a non-bank option for financing Holtz Rubenstein (NY) added five new service groups: debt consolidation, food & beverage, early stage technology, real estate advisory and freight forwarders. Berdon (NY) expanded its family office practice service to entertainers and athletes. Aronson (MD) formalized a new technology practice line to meet the needs of high tech and biotech firms

Firm Newly Created Service CliftonLarsonAllen (Midwest) acquired a wealth advisory firm and outsourcing company Armanino McKenna (California) developed AMF Media Group which provides clients with marketing, branding, public relations and social media strategies Carr, Riggs & Ingram Created a new licensed broker-dealer unit primarily to deal in corporate M&A Weaver Merged with Delong Consulting Services which offers compliance and risk management services to financial institutions

Firm Newly Created Service Baker Tilly Virchow Krause (Midwest) and Burr, Pilger & Mayer (California) became NetSuite (cloud business management/information software) resellers Cohen & Co (Cleveland) acquired a family office practice of the Larson Group Deloitte acquired Canadian progress consulting firm Managerial Design, business analysis software developer Oco Inc., and mobile app developer Ubermind.

Firm Newly Created Service Eide Bailey (Midwest) became an Intacct reseller (cloud accounting software) Weaver (Texas) expanded their energy credit services Glass Jacobson (Baltimore & DC) merged in One Source Financial BKD (Midwest) introduced a mobile app version of its website—HealthcareReformInsights.com, showcasing their healthcare consulting practice.

BKD Launches Android App for Health Care Practice
BKD LLP has introduced a mobile app version of its Web site, HealthCareReformInsights.com, showcasing the accounting firm’s health care consulting practice for Android phone users. The firm launched HealthCareReformInsights.com in June 2010, and released a free mobile phone application for Android devices on Tuesday (see CPA Firm BKD Launches Health Care Reform Site). BKD has taken many of the most useful features of its industry-specific Web site and made them accessible for health care executives on the go. The app provides convenient access to articles authored by the advisors at the BKD National Health Care Group, categorized by industry subniche. Nearly 200 experts are accessible through the mobile app. App users can view contacts, read their biographical information and instantly them for more information. By Michael Cohn, Accounting Today

2012 Top Niche Services

2012 Top Client Categories

Personal Business Management, Wealth Management & Family Office Practice

Types of Wealth Management Services
Estate Planning Income Tax Planning Education Funding Family Business Consulting Capital Management Retirement Plan Advice Family Office Services Charitable Planning Insurance Planning Succession Planning Comprehensive Financial Planning Risk Management

Examples of Top Wealth Management Firms from the Accounting Today 2012 Survey
Staff AUM Plante Moran Financial Advisors, Springfield, Michigan 105 $6,714,316,818 Joel Isaacson, NYC 36 3,948,000,000 RSM McGaldrey, Minneapolis 72 3,942,000,000 Larson Allan Financial, Minneapolis 47 1,900,000,000 Berkowitz Deck Pollack & Brant 162 1,100,000 Dixon Hughes Goodman, Ashville, NC 23 820,000 Citrin Cooperman, NYC 7 650,000

Source: Accounting Today, July 2011
Share of AUM Percentage of total $65 billion managed by the Wealth Magnets $50+ Million Club Rising Stars Source: Accounting Today, July 2011

The Wealth Management Practice Model
CPA Firm (Seamless Services) Insurance & Risk Management Financial Tax Planning Asset Management Trust & Estate Planning Succession & Retirement Planning

External Advisors, & Family Members
Family Office Model Family Office Model: Coordination of Internal Advisors, External Advisors, & Family Members

Wealth Management website examples
KR WEALTH MANAGEMENT Capital Performance Advisors

Profitability Trends

Driving Value & Profitability
Purpose Driven Leadership HR Perf Mgmt Comprehensive Succession Planning Values State of the Art Technology Target Marketing, PR and Practice Development Recruiting the best talent possible at all levels either directly or through M&A Training, Career Development, Succession Planning, Partner & Staff Performance Management Efficient & timely delivery of service Practice & Engagement Management The most successful CPA firms understand that the goal of their organizations are to continuously build value for their owners, clients and employees. This includes all forms of value that determine the level of profitability for the partners and long-term success of their firms. This graphic summarizes the key components. CPA’s, like football players achieve higher level goals when they have a good coach and a system that they can work together as a team. Leading edge services, industry specialization & niches Profits

Profitability Tactics
Increase Fees Earn higher fees through specialization, innovation, adding more value to services. Use marketing to get “better” and more profitable clients not just more work. Avoid the “factory” mentality. Develop specialists and experts within the partner group and staff Invest in new and higher-value services Lower Variable Costs (Delivery Cost for Each Engagement) Improve engagement management performance Increase leverage in the delivery of services Make greater use of paraprofessionals Avoid duplication of effort and unnecessary steps in the delivery of services

Profitability Tactics
Performance Issues Improve underachieving partners and staff or take appropriate action steps Discontinue unprofitable services Disengage unprofitable clients Practice Management Improve speed of billing and collections Monitor profitability on engagements Maximize the use of technology in delivery of services Reduce space and equipment costs

Developing a Merger Strategy to Deal with the Changing Landscape

Consolidation Threats
Attracting & Retaining Staff Opportunity Compensation Career development and training Benefits Environment and quality of life Perception that bigger is better Security

Retaining Partners Resources Leadership and vision Security Compensation Succession planning

Attracting & Retaining Clients Service and niche resources Marketing and promotion Geographic service coverage, including international Availability of staff

Mergers Mergers and Acquisitions—Considerations
Compatibility of cultures and values and the ability to integrate the firms Geographical and management issues Future profitability, succession planning and partner compensation Compatibility and/or diversification of service offerings clients and billing rates Technical competency of partners and staff Due diligence 88

Top 10 Factors of Merger Strategy
Merger strategy should assist in achieving the goals & objectives of the firm’s overall strategic plan. A component of the overall plan Strategic plan drives the merger strategy Clearly define the merger candidate types and criteria and stick to it Get partner buy-in Define the size, parameters, location, niches, services, types, partner ages and buy-outs Have patience—don’t waste valuable time Communicate criteria to brokers

Make it a “Game Changer” Elevate firm to the next level of success Adds significant value Develop a franchise Expand geographically Rainmakers Keep pace with the growth in the CPA marketplace Be creative and shrewd Only take the parts you desire Don’t overpay (compensation, equity, buy-outs) Be honest

Add niches, industry expertise, and service specialties Litigation support, Wealth Management, Estate Planning, IT NFP, Financial Services, Health Care Tax PIC of Mergers Not necessarily MP Able to be involved with multiple deals and brokers Beware of egos and culture Leadership and control issues Personality compatibility No two cultures alike

Term sheet/Letter of Intent Develop a draft quickly Should drive the deal and discussion Tough issues are a priority Preliminary Info and Risks As much as possible before the first or second meeting Preliminary due diligence

Discuss post-merger activities prior to closing the deal Leadership Communications Marketing and promotion Software and programs Include a term sheet Voting and EC

Marketing Your Firm to Merger Candidates
Implement a targeted marketing campaign to attract quality merger candidates in a “sellers” market. Quality merger candidates and partners can have their pick of firms to join. Those firms that do the best job of marketing and selling to merger candidates will increase their chances of success of attracting the best merger candidates in this dynamic and fast paced marketplace. Many of the best M&A candidate firms are “not for sale.” Marketing can play a large role in attracting such M&A candidates and “getting them to the table” in order to sell the benefits of a merger with your firm. Develop a Merger Prospectus

Marketing Your Firm to Merger Candidates
Developing PowerPoint presentations and collateral materials to outline the benefits of merging with your firm and creating “Dog & Pony” shows that get the interest and attention of potential M&A candidates. Implementing public relations and advertising strategies to promote your firm to M&A candidates.

Finding Merger Candidates
Notify your bankers, attorneys, and professional liability broker you are seeking a combination with a quality firm. State Society committee members. Direct mail—target selected firms. Brokers and consultants.

Creating the Prospectus
Following are many of the items that might be included in a prospectus. Although this outline is not exhaustive, it represents a good start. Firm Strategy and Combination Rationale What is your strategic intent? (Be candid) How does M&A fit in? In particular, how would the combination further the intent? What plans do you have for the merger candidate/

Firm Overview Brief firm history (tie in strategic intent) Demographics (note any holes or gaps) Partners, principals, and staff Gender and ethnic demographics Firm growth Office locations—purpose and history if each Representative clients (core clients and those you can gain with the combination) Three- to five-year revenue history Community/civic commitment, etc. (important to show values and culture) Firm values Top rankings and accolades Professional development policy, systems, etc. (How committed are you?) Technology use/strategy HR & staff career development

Strategic Intentions Growth objectives Geographic objectives Staff recruitment philosophy Niches, specialties, etc. Affiliations, alliances, etc. Criteria for Evaluating Merger/Acquisitions Opportunities Key leaders involved in evaluating opportunities Key Criteria—strategic, economic, cultural

Firm Management Structure Management/Executive Committee Terms, limits, elections, etc. Managing Partner, Chair, President Administrative Management (Finance, Human Resources, Marketing, etc.) Committees (Marketing, HR, IT) Management Philosophy Partner Equity, feedback, mentoring

The Need for Strategic Positioning in the Marketplace as Part of Long-Term Strategy
Strategic positioning is defining how your firm will best compete now and in the future for clients and talent. Strategic positioning is established by developing a business model that includes: service offerings fee structuring establishing and enhancing niches and specialties establishing additional business locations to expand the firm’s geographic reach developing leaders and professional talent maximizing operational effectiveness All of which are synchronized, with the goal of developing a successful firm of the future.

Build The Model The type of positioning model determines which decisions and approaches to business activities (Human Resources, Technology, Marketing, Controllership, etc.) that the firm will devote its resources towards in a comprehensive and consistent approach to achieve the goals and objectives of strategic positioning. For example: Marketing and sales strategic positioning determines how a firm creates value in their services and how and to whom they market these services. The goal is to maximize the firms ROI on the combining of service and niche offerings, while competing effectively with other firms. In other words, the firm excels at delivering the types of higher value services that clients truly desire and need.

Build The Model Positioning the firm through mergers and acquisitions to grow the practice and obtain the necessary talent to provide the right combination of service offerings and to expand the firm’s geographic reach is a necessary strategy in today’s world of consolidation. Keeping up with your local competition for clients and staff while the profession consolidates is a key objective of strategic positioning. Having the proper number of quality staff at all levels, especially with a strong manager group, to allow partners to be in a position to leverage themselves as much as possible. Competition for quality manager level professionals will intensify as baby-boomer partners retire over the next 5-10 years.

Build The Model Establishing career development programs and proper training are critical factors in developing talent to support the partner group in achieving the firm’s positioning goals and objectives. Accountability by the partners in achieving the firm’s strategic positioning business model is critical to the implementation of the plan. Develop a partner compensation system that recognizes performance and appropriately distributes firm

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