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or more than 25 years, I've been
a consultant specializing in suc-
cession, retirement, and merger
issues for owners of CPA firms through-
out New England. Based on this ex-
perience, I'll share what I've learned
about mergers involving sole propri-
etors and small local firms who merge
into larger firms. This article presents
the true nature of these mergers and
provides two real-life case examples
to help the reader assess whether a
merger is a viable succession alterna-
tive and, if so, to understand how to
structure a fair arrangement.
Succession Options
If you were to ask any sole proprietor
or partner in a small firm to tell you
what his or her first choice would be in
dealing with his or her future retirement
and succession, it would likely be to
transition clients and the practice to a
person (or persons) already working in
the firm. This option would result in the
continuity of the firm with the continu-
ance of the owner's name and culture.
Unfortunately, however, most sole pro-
prietors and partners in small firms
do not have entrepreneurial-minded
people who have the interest, ambi-
tion, and client development skills to
become owners. So, this option, al-
though favored, is rarely available. Ac-
cordingly, other options need consid-
eration, including:
Hiring and developing future
Working as long as possible and
then "just closing the doors."
Merging in the practice of young
practitioner(s) who are presently op-
erating a smaller firm (a "downstream"
Merging with another firm that is
similar in size (a "lateral" merger).
Merging into (or being acquired by)
a larger firm (an "upstream" merger).
Each of these alternatives has its pros
and cons. Very often, based on the
client base, office location, niches, or
particular needs of owner(s), an up-
stream merger may be the best alter-
native. Furthermore, because of low
growth in the current economy, many
firms are seeking growth by acquiring
smaller firms. Accordingly, 2012 may
be a seller's market for quality small
firms in choice locations. Unfortunate-
ly, many practitioners shy away from
upstream mergers because of fears,
concerns, and misinformation regard-
ing these arrangements.
The Fears and Concerns:
Are They Valid?
Mergers with larger firms often pres-
ent the most financially secure option.
Although most are quite successful for
owner(s) of acquired firms, the fears
persist. These include:
on their decision(s). Although this is
generally true, this often becomes a
relief (i.e., the smaller firm's owner(s)
avoid annoying and time-consuming
administrative matters).
I/wewillhavetochange. ­ Since
"change" is scary to most accountants,
this is a real issue. Smaller firm owner(s)
will have to make changes (and com-
ply with the larger firm's policies/pro-
cedures). I have heard from merged-in
owner(s), however, that although chang-
es were occasionally aggravating, the
new policies, technologies, procedures,
etc., are subsequently (after the difficult
changeover period) better. So changes
usually produce positive results after
the difficult transition.
By Stephen Weinstein, CPA
The Truth About
Merging With a
Larger Firm