By Bill Carlino

During the negotiations phase of most mergers, the buyer and seller firms tend to focus on the terms of the deal. The truth is that only a minute portion of merger deals derail after the closing due to previously agreed to contract terms. In fact, most of the deals that find themselves on shaky ground or fall apart completely are often due to a poor post-merger integration plan.

Post-merger integration documents should include key operational and financial goals for the combined firm and, more importantly, identify key staff members responsible for respective execution. Perhaps most importantly, post-merger integration strategy should include an achievable timeline for completion. Generally, the critical resources needed to execute an effective post-merger integration plan are the people in your firm, consultants, and outside vendors. Importantly, though, you must be practical regarding key issues such as due dates, budgets, and especially the amount of time and capacity that will be required.

Post-merger integration resources often fall short because successor firms can be unrealistic about the necessary capital needed for a proper execution. Inevitably, though, significant capital will be required to get a deal closed. An area that frequently receives inadequate budget consideration in a post-merger integration plan is technology. As an example, it isn’t unusual that the cost to bring a new firm on to a new IT platform will exceed $10,000 per full-time equivalent. Other areas of post-merger integration expense include legal and consulting fees, investments in working capital, and office expansion.

Total Partner Buy-In

A firm’s leadership team needs to fully commit to making the post-merger integration a priority. You either gain a unanimous buy-in from the owners and principals or your affiliation may be in danger. During post-merger integration, some individuals in the combined firm will resist making required changes; there is understandably a greater comfort level in doing things the way they’ve been done in the past. This habit-thinking can sometimes influence key people in the firm, delaying or sinking needed changes.

Post-Merger Integration and Clients

As with any merger, a combined firm must come to grips with the reality that it will ultimately lose some clients following the close of the deal. That amount, however, should be negligible if the post-merger integration is executed smoothly. Client attrition is standard, and may be due to the fact some clients were already contemplating a change in CPA firms prior to the affiliation. News of the merger gave them an excuse to shop elsewhere for accounting services.

Your post-merger integration must recognize and allow for some level of post-merger client attrition. Obviously, a merger would not be viewed as successful if there is a high level of client exodus. A key to client retention is to communicate often and clearly with clients, emphasizing what synergies are being gained through the merger. Your message should focus on their benefits, such as more resources and a larger platform of services available. If you must introduce changes to the client experience, try to delay the changes that will have the most potential negative impact. Many clients of an acquired firm will be wary of how the merger will affect them. Buy time to demonstrate that the future will only be better by gradually implementing needed, but maybe painful, changes.

Staff Are Key

Mergers can be a frightening experience for staff. They probably had no say in what happened and are often caught by surprise upon the announcement. There are several avenues to help soften the pending uncertainty. Much like how a good post-merger integration needs to promote client retention, share with staff the synergies created by the affiliation, not the loss of their firm. Reinforce the idea that the merger creates more opportunities for the staff as well. Communicate with them early and often, and include details about how this will affect them, no matter how trivial it may seem. Unless people are given the answers to their questions about how they will be affected, they tend to assume the worst. You can expect many of them to embark on a new job search. Some firms assign a “mentor” for each staff person.

Create a New Culture

Firm culture can often be hard to define, so ask yourself three key questions:

• What is it like to be a client with this firm?
• What is it like to be a staff person with this firm?
• What is it like to be a partner with this firm?

Those questions lead you to operational characteristics. How are the clients served and by whom? How are they charged for services? What are the expectations of staff and how is feedback provided? How are partners managed and what roles do they play? How do people in the firm communicate with each other? What is value system of the firm?

A post-merger integration plan should identify where there are differences in the cultures of both firms, and then work toward overcoming them to create one new, cohesive practice that everyone is comfortable with and, most importantly, that will last.

Bill Carlino is managing director of national consulting services at Transition Advisors LLC, a consulting firm dedicated to ownership transition and succession strategies for CPA firms. He can be reached at wcarlino@transitionadvisors.com.

Sign up for weekly professional and technical updates from PICPA's blogs, podcasts, and discussion board topics by completing this form.