Guest Article: Navigating Through Preliminary Merger Discussions

Joe Tarasco

Joe Tarasco

Joseph A. Tarasco, CEO of Accountants Advisory Group

Most merger and acquisition 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 a merger and acquisition transaction in the first few meetings. The following are some examples:

Vision, Strategic Planning and 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 and 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 versus tax?
  • Does the firm offer financial services? If yes, to what extent?