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In each of the two situations described
below, I was retained by the smaller
firm as a consultant/advisor. I helped
the owner(s) clarify exactly what they
really wanted to achieve, what they
specifically wanted to avoid, and the
nature of the deal that they expected. I
gave them the facts and a real-life real-
ity check. I then located and contacted
the most suitable candidate firms and
screened these firms to ensure that
they understood what my client wanted
and determine whether they would be a
good fit both culturally and financially.
To maximize my client's confidentiality
(i.e., so that no one would know who
was seeking a merger), each screened
candidate firm was required to sign a
non-disclosure agreement before being
told the name of the firm that I was rep-
resenting. We then initiated meetings
with the screened firms, developing the
terms of the deal in the negotiations.
(age 66)
A sole proprietor
$375,000 tax-oriented practice
Desired to work two years full-
time and then continue part-time
Casual (not "stuffy") work environment; a
firm that would maintain an office close to her location;
to find a young near-term future partner; a fair finan-
cial deal (getting the biggest amount possible was not
her priority).
After meeting a few individuals to hire
and a few partners of larger firms, she realized that an
upstream merger was really her best option. After sev-
eral meetings with three firms starting in July, she fo-
cused on two firms who subsequently made excellent
offers. She chose the one she felt would be the best fit.
She received a practice value
of one times gross, with 20 percent cash advanced at
closing, with the remainder paid over five years (start-
ing after her two years of full-time work) with interest,
and with 75 percent of the value treated as "goodwill"
(capital gain rates). She received a fair compensation
for two years. Client retention was evaluated based on
third year's collections (with any reduction in gross be-
ing shared). The new firm leased her office space, which
allowed the new firm to have an office in her city.
The outcome:
Susan is very happy with the partners
and the new firm, as well as her reduced hours and
pressures. She has worked out of both offices (a half
hour apart) and has adjusted to the firm's policies, pro-
cedures, and technology. Dealing with the larger firm's
quality control requirements was a minor aggravation,
since it slowed down her ability to "bang work out the
door." She has begun her third year, now working part-
time and mostly in tax season. Client losses have been
negligible, and total fees obtained from her clients have
actually increased slightly. She has also been rewarded
for bringing in new clients.
(age 63) and
(age 65)
Partners in a three-partner firm
The third partner (age 54) had
announced that he wanted to
leave the state within six months.
$1,500,000 diversified client base
with audit and tax services
A quick merger since Bill only wanted to
work two years and Betty full-time for three years (and
then continue part-time); a firm that would maintain
their office (in their small town) and be capable of doing
their audit work; maximizing the financial deal (getting
the biggest buyout possible since their nest eggs were
not adequate); a firm willing to employ them full-time
for two to three years (at their existing compensation
levels) and also willing to allow Betty (and possibly Bill)
to continue part-time.
What happened:
After meeting several larger firms,
they focused on three, who subsequently made of-
fers ("letters of intent"). They chose the best offer and
merged on June 30, 2010.
Key terms of the deal:
The bigger firm continued to
rent their office for two years; Bill and Betty retained the
A/R and work in progress at closing (which was paid
to them as collected); the practice was paid for (with
$100,000 down) at 100 percent of gross (with 10 per-
cent at capital gains' rate); payments were to be made
over seven years; the firm paid their full salaries for two
years as full-time partners; the retention look-back was
based on collections received from their client base in
the second year (any client losses were allowed to be
replaced by new clients that they brought in after the
merger date).
The outcome:
So far, the merger has been very
successful for the smaller firm's owners. They have
worked as they wanted and have been paid fairly. Based
on preliminary numbers, it seems extremely unlikely
that there will be any adjustment to the purchase price.
Case Study #1
Case Study #2
The Truth: Real-Life Case Studies