Best Practices in Post-Merger Integration

Art Kuesel President, Kuesel Consulting
Moving Your Firm Forward

There’s no denying that merger and acquisition (M&A) activity in the accounting profession has been making headlines. New deals are in the news almost daily. This, of course, is being fueled by several factors: succession planning, the talent crunch, firms’ desires for growth and expansion of services, and private equity entering the profession, among others.

Many of you reading this may either be thinking about or have already immersed yourself in this trending market by seeking to sell a practice or acquire one—and with good reason. But before you get ahead of yourself, I’d suggest you take some time to create a post-merger integration plan, as it’s the most critical step for long-term M&A success.

Recently, I had the pleasure of sitting down with Jeffery Mowery, CPA, JD, LLM, CFP, managing partner at Mowery & Schoenfeld, and Katie Thomas, CPA, CFP, CGMA, president and CEO at Honkamp, to ask them some top-of-mind questions. Both Mowery and Thomas have been through several M&A deals in the past few years. Here, they share their keys to success in this space.

How many deals have your firms completed in the past four years? And, approximately how much revenue and how many team members have joined your firms as a result?

Mowery: We’ve closed three deals, adding approximately $11 million in top-line revenue and 15 full-time associates.

Thomas: In the past four years, we’ve completed four acquisitions, adding approximately 55 team members and $9.5 million in revenue.

While considerable effort and time comes before any deal is signed, what percentage of the “work” would you say comes after the ink is dry?

Mowery: I’d say 80% comes after the deal closes. The primary reason is that prior to signing, only the leadership teams are involved. Once the deal is signed, all the employees and clients become involved, and then technology, operations, processes, and procedures come into play to effectively execute the merger.

Thomas: I’d estimate that 90% of the “work” happens after. With each acquisition we’ve completed, we’ve learned new lessons and have continued to improve both our integration process and the quality and quantity of work we do upfront. However, in our experience, the pre-merger phase typically lasts less than 90 days from start to finish, while the integration phase can last up to two years for larger acquisitions. The pre-merger work is important and necessary, but the real work starts upon the closing of the transaction.

What are some of the key steps in a successful post-merger integration process?

Mowery: Our process includes key steps in client notification, staff onboarding, training, and work allocation. It’s important to keep in mind that integration impacts all aspects of office operations, human resources, systems training, tax and audit processes, quality control, technology, client communication, and more. Then there’s the need to align key operation functions, like marketing, administrative support, and practice management.

Thomas: We assemble an acquisition transition team as soon as we sign a letter of intent; this team starts with the pre-merger work and plans for post-merger integration very early in the process. Having a transition team in place is essential to strategically handling all aspects of the integration, including the areas of human resources, IT, marketing, learning and development, quality control, etc. We believe some of the most important steps include making sure that all new employees are onboarded and welcomed into our team, the clients are notified and are comfortable with the acquisition, and the transition of systems and technology is seamless.

In your opinion, what are the three most important considerations in a post-merger integration?

Mowery: I’d say number one is getting the new team acclimated, followed by getting the clients acclimated, then looking at work allocation to make sure everything is appropriately balanced.

Thomas: For me, the three most important considerations are talent retention, client retention, and operational integration, in that order.

How has your integration process evolved over the years?

Mowery: We’ve become more focused on business combinations that bring in clients who are a good match to the clients we already serve. A key step for us is carefully reviewing the top 10 clients of the firm being acquired or merged to evaluate if they’re a strong profile match with our existing top 10 clients. We’ve also refined our client transition process, which is especially important when a partner expects to retire within a few years of the deal closing.

Thomas: Honestly, our process continues to evolve each time we complete an acquisition. For example, we learned the hard way how challenging it can be to transition an acquired firm off their tax software. Now, unless there’s a reason why we must move quicker, we typically allow the acquired team to stay on all of their familiar software (except time and billing) until after the first completed busy season. I’d like to think that we continue to learn from our mistakes; each time we make another acquisition, it goes a little bit better than the last.

Have you ever had to reverse a merger or acquisition due to issues arising during integration?

Mowery: No, but we’ve thought about it! With 80% of the work happening after the deal is closed, the integration process can uncover challenges that aren’t easily identifiable in advance—even with the most conscientious due diligence. The lesson? Expect some surprises along the way.

Thomas: Thankfully, we haven’t had to reverse an acquisition. However, there are always things that we wish we knew in advance, or things that weren’t exactly as we understood them to be. Anyone making an acquisition should expect this, and if you do a thorough job of assessing culture and doing your due diligence, anything that pops up shouldn’t be more than just minor bumps in the road.

What’s your advice to a managing partner embarking on their first transaction?

Mowery: Expect the unexpected. Analyze your target’s internal processes and structure for portability. The better systems they have in place, the more easily they’ll be able to adapt to your systems.

Thomas: As I mentioned, we continue to learn with every acquisition and have made more than our fair share of mistakes. While I have plenty of advice, my top three tips are these:

1. Make sure you like the firm you’re acquiring. If you genuinely like the leadership team of the target firm, things tend to go well. I’ve heard plenty of horror stories of acquisitions done purely to meet a revenue or geographic goal despite the teams not liking each other.
2. If you’re serious about starting to acquire firms, build a great cross-departmental acquisition team before you even find your first target and start to develop your pre- and post-merger plans so you’re ready to move quickly when a deal presents itself.
3. Don’t underestimate the people side of the transaction. Being acquired often means that partners in a firm are selling their baby that they built from the ground up. It’s very difficult to go from being in charge of a firm you built to no longer being the decision-maker. It’s also scary for employees to be part of something they didn’t sign up for, often with short notice. Take the time to ensure that you have your talent on board and excited for the future, because if done correctly, an acquisition should be a net positive for both sides.

Honkamp is headquartered in Dubuque, IA, with eight additional offices throughout Iowa, Wisconsin, and Missouri. The firm generates $49.7 million in revenue and has 34 shareholders.

Related Content:

• Deal or No Deal? My 2024 M&A Predictions: The merger and acquisition landscape continues to evolve at a rapid pace as firms seek to expand their offerings and accelerate growth.
• Selling a CPA Firm or Small Business: These 10 essential steps will prove a handy guide to any M&A transaction, whether you’re a founder looking for an exit strategy or a CPA advising on another deal.