Preparing Your Firm to Grow

Through M & AThrough M & AJune 23, 2016

Presented by

Terrence E. Putney, CPA

CEO, Transition Advisors, LLC

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of Accountancy (NASBA).

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Upcoming Webinars

Transition Advisors, LLC offers FREE twice-monthly CPE courses

July 7 – The Art of Your Deal

July 21 – How to Structure Your Partnership Agreement

August 4 – Growing Your Firm Through New Practice NichesAugust 4 – Growing Your Firm Through New Practice Niches

August 18 – Preparing Your Firm for an Upstream Merger

Visit transitionadvisors.com/upcoming-courses.php for more

information.

Transition Advisors, LLC

You may obtain a hard copy of this presentation by making a request by e-mail to Nicki Johnston, Marketing Director, Transition Advisors, LLC. Please send your name and

mailing address to

njohnston@transitionadvisors.comnjohnston@transitionadvisors.com

This information will be repeated at the end of the presentation

Transition Advisors, LLC

National consulting firm working exclusively with accounting firms on issues related to ownership transition

Agenda

• Business Plan

• Assessing the Market and Your Firm

• Selling Your Opportunity• Selling Your Opportunity

• The Deal Process

• Deal Structure

• The Four C’s

Polling Question

How many equity partners do you have in your

firm?

1

2-42-4

5-9

10-19

20+

Business Plan

• What are your strategic goals?

• Should dictate what you are looking for and

where– General revenue/client growth– General revenue/client growth

– Partner level growth

– New geographic markets

– New service lines

– Clients to cross-sell existing service lines

– Talent search

Merger v Purchase

• Rules of thumb for each

• When to use a merger

• When to use a purchase• When to use a purchase

• Combo deals

Resources

• Deal terms

• Working capital

• Technology

• Facilities• Facilities

• Training

• Synergistic cost savings

Aligning Your Partners

• Who are your decision makers?

• Identifying obstacles

– Required investment

– Partner compensation– Partner compensation

– Equity

– Client mix

– De-merger clauses

– Acquiring talent versus buying a business

Assessing the Market

• Buyer’s or Seller’s Market?

• Seller motivation

• Competition• Competition

Valuations

• Trends

• Five components of deal terms affect on value

• Assessing the profitability of the acquired firm

• Valuations in mergers• Valuations in mergers

What Are Sellers Looking For

• Fear of uncertainty

• Maintain income

• Immediate sales v slower

transitiontransition

• Cherry picking

• Why so many want a big

down payment

What Mergees Are Looking For

• Upside

• No out of pocket

• Income certainty

• Fear loss of control• Fear loss of control

• Fear accountability

Polling Question

Our current level of interest in M & A is:

Experienced, currently looking

No experience, actively lookingNo experience, actively looking

Not sure, intrigued

Not sure

Seven Step Process

• Identifying target firms

• Preliminary data

• Intro meetings

• Non-binding offers• Non-binding offers

• Due diligence

• Final agreement drafts

• Transition

Identifying Target Firms

• Networking

• Databases

• Consultants• Consultants

• Initial contact

Preliminary Data

On your firm

– Volume

– Employees

– Partners– Partners

– Services

– Industries

– Locations

Preliminary Data

Target Firm

– Volume

– Business v individual clients

– Major clients if any

– Staff makeup

– Partner makeup

– Billing rates

– Lease details

– Profit margin (before owner comp)

Polling Question

Please send me a copy of a Practice Summary

Sheet

YesYes

No

Introductory Meetings

• Share your business plan for the

merger/acquisition

• Seller motivations and desired objectives

• Find out as much as you can while selling the • Find out as much as you can while selling the

benefits of joining your firm

Goal is to have no more than one or two

introductory meetings before you decide and

proceed

Non-binding Offers-Acquisitions

• General deal structure

• Partner roles and compensation

• Business plan for the combination

• Treatment of existing facilities • Treatment of existing facilities

• Timing and remaining steps in the process

Non-binding Offers-Acquisitions

• Deal terms

– Pricing

– Retention adjustment

– Treatment of new business– Treatment of new business

– Tax treatment

– Treatment of AR, WIP, FF&E

• LOIs versus Offer Letters

Non-binding Offers-Mergers

• Your owner agreement

• Defining what equity means and determining

it

• Compensation issues• Compensation issues

• Capital contributions

• Business plan for combined entity

• Upside opportunities

Due Diligence & Agreements

• Why wait to perform due diligence

• What to review

• Tips on agreements

Transition

• What defines a good merger or acquisition?

• Continuity-behind the door and in front of the

door

• Communication-the five questions very client • Communication-the five questions very client

asks

• Selecting and preparing the messengers

Polling Question

What issues do you see affecting your practice

most in next year?

Succession for retiring partners

Admitting new partnersAdmitting new partners

Client retention for retiring partners

Need for growth

Deal Structure-Two Stage Deal

Stage One-usually up to 5 yrs

• Seller merges into buyer’s firm

• Starts the transition process

• Maintain reasonable control over • Maintain reasonable control over

clients

• Take on a principal’s or non-

equity partner role

• Maintains compensation level

Deal Structure-Two Stage Deal

Stage Two-paying for the practice

• Seller transitions to a part-time or

retired role

• If working, comp @ a per diem rate

• Purchase is now based on a practice

that has ALREADY transitioned

Deal Structure-Merger Mechanics

• Standard owner agreements

• Partner criteria

• Identify what is being exchanged for what

• Identify exceptions and commitments• Identify exceptions and commitments

• Bridge agreement

Four C’s

• Chemistry

• Capacity

• Continuity

• Culture• Culture

Articles

CPA Firm Succession Series

July, 2013 thru June, 2014

www.transitionadvisors.com/succession-planning.php

CPA Firm Valuation Series

October, 2014 thru December, 2014October, 2014 thru December, 2014

www.transitionadvisors.com/valuing-accounting-firm.php

The Culture Test

May, 2014

www.transitionadvisors.com/succession-planning.php

How To Maximize Client Retention After a Merger

April, 2014

www.transitionadvisors.com/due-diligence.php

For More InformationVisit the AICPA Succession Planning Resource Center

http://www.aicpa.org/InterestAreas/PrivateCompaniesPracticeSection/StrategyPlanning/center/Pages/default.aspx

• Gary Adamson, Adamson Advisory• Bonnie Buol Ruszczyk, bbr marketing• Sarah Dobek, Inovautus Consulting• Angie Grissom, The Rainmaker

Companies• Dustin Hostetler, Boomer Consulting

• Tamera Loerzel, ConvergenceCoaching

• Terry Putney, Transition Advisors• Rick Solomon, Thriving Firm• Carrie Steffen, The Whetstone Group• Sandra Wiley, Boomer Consulting

#SuperConf15

• Rita Keller, Keller Advisors• Roman Kepczyk, Xcentric

• Jennifer Wilson, ConvergenceCoaching

www.cpaconsultantsalliance.com

Bridging the Gap: Strengthening the Connection Between Current and Emerging Leaders in the

CPA Profession

Amazon.com

$49.97

Free White Papers on Industry Trends

• CPA Firm Leadership: Communication Drives New

Possibilities

• Measuring Happiness at Work: How Firms Can Win • Measuring Happiness at Work: How Firms Can Win

With a Happy Culture

• Top CPA Firms Succession Challenges

Download at: www.cpaconsultantsalliance.com

Transition Advisors, LLC

You may obtain a hard copy of this presentation by making a request by e-mail to Nicki Johnston, Marketing Director, Transition Advisors, LLC. Please send your name and

mailing address to

njohnston@transitionadvisors.comnjohnston@transitionadvisors.com

This information will be repeated at the end of the presentation