Navigating Through Preliminary Merger Discussions

Most M&A deals typically go through five stages: preliminary discussions; transactional detail meetings and negotiations; an initial agreement outlined in a memo of understanding or letter of intent; due diligence; and the transaction agreement and signing of the partner/shareholder agreement.

Quite often, I am asked what are the pertinent types of questions that should be asked by the selling firm in an M&A transaction in the first few meetings. The following are some examples:

Vision, Strategic Planning & Future of the Firm

  • What is the vision and strategy for the firm for the next five years?

  • What is the culture of the firm?

  • Does the firm have an annual partner retreat and/or strategic planning meeting?

Partner Compensation, Management & Risk

  • How is partner compensation determined?

  • Do partners have annual goals and objectives? If so, how often are the partners counseled?

  • Are partners held accountable?

  • Describe your partner governance structure.

  • When was the last time you updated your partnership agreement?

  • Do you have partner meetings?  How often do you meet?

  • How is partner equity determined?

  • What are your average partner billing rates? Staff rates?

  • Has the firm gone through a de-merger or terminated any partners in the last five years?

  • Do you have any professional liability claims that have not been settled?

  • What has been your claim experience in the last five years?

  • What is the structure of your IT department?

Succession Planning and Professional Staff

  • How many equity and non-equity partners do you have?

  • Are any partners planning to retire in the next few years?

  • Do you have partner retirement payment projections for the next 10 years? Does the firm have a “cap” on retirement payments?

  • What is your staff turnover rate?

  • Describe your training program.

  • How often do you counsel staff?

  • What methods do you use to recruit staff?  Have they been successful?

  • Do you hold staff meetings?

  • What is your current staff-to-partner ratio?

  • Who oversees scheduling?

  • What is the structure of your HR department?

Partner Marketing Activity

  • What is the source of most of your new business? (If it is from referrals, what types of individuals and companies?)

  • How many partners bring in new business? How many are “rainmakers?”

  • For marketing purposes, is your firm organized into industry/service teams?

  • Are the partners held accountable for their marketing efforts?

  • Do you have new client acceptance criteria?

  • What does the firm do to identify additional service opportunities with existing clients?

  • Have you ever conducted a client satisfaction survey?  If so, what were the results?

  • What is the structure of your Marketing department?

Service Offerings

    • What are the firm’s strongest niches?

    • Is the firm known as an expert in any industry?

    • What percentage of the firm’s revenue is compliance vs. consulting/advisory services?

    • What percentage of revenues is assurance vs. tax?

    • Does the firm offer financial services? If yes, to what extent?

If you have further questions about what your firm should ask in M&A transaction meetings, or if you would like to schedule a complimentary M&A consultation and evaluation, please contact Joseph A. Tarasco, Chief Executive Officer and Senior Consultant of Accountants Advisory Group, LLC. Joe can assist you in evaluating the right course for your firm, whether it is remaining an independent firm or a merger into a larger firm.

Jacqueline Cordone