Focusing On The Customer Base During M&A - with Bill Case

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William Case

[email protected]

Integrate ChangeWare Systems

972.380.4297 phone 214.853.5506 fax

Scott Cytron: Good afternoon all! I'm Scott Cytron and will moderate today's workshop. Thanks for being here today. We are excited about offering our first workshop on mergers and acquisitions. M&As are certainly affecting the accounting industry, but they also are affecting your clients. We are pleased William "Bill" Case with ICWS is here today.

Bill is the founder of ICWS and supervises major client projects in merger integration, multiple organization roll-ups, and strategic change. He has a wide variety of industry and management experience from startups to Fortune 100 businesses. He has served both as an executive and as a managing consultant for major change initiatives including mergers & acquisitions, outsourcing, process redesign, re-engineering, change integration, technology architecture development, strategic systems, and contingency planning.

Our workshop is an interactive format where each participant has the ability, at any time, to join the discussion. As for questions, however, I'll make a note of questions so we will be sure to address them and have time for Bill to cover "the bases."

So, with that...I'll pass it over to you Bill.

William Case: Are there any questions before we get started?

Kristi Wertz: Have you worked with many accounting firms, then?

William Case: Do mean merging them?

Kristi Wertz: Yes, I'm sure your experience with any type of merger is valuable to share. I was just wondering if you'd assisted in many accounting firm mergers.

William Case: I will answer as we go.

Integrated ChangeWare Systems is a regional firm that specializes in merger and acquisition integration. By integration we mean putting the two organizations together in a managed, disciplined way to get the value of the combined organization

Ralph Hendrix: What are the key factors in integrating two firms in a merger?

William Case: Mergers seem to have 7 risk areas to protect the value of the deal.

Risk 1 - What will happen to your customer base while you wait to combine your companies? If a sales rep is unsure about the future of the company, the rep will not have the confidence to sell the product. Most companies budget for a decrease in sales when they could achieve a significant increase.

Risk #2 - Which of your acquisition costs will occur once and which will recur? It is crucial to identify which assets must be sold and then sell them quickly. Companies that wait too long risk letting them fall into disrepair and having to take a much lower price than they expected.

Risk #3 - How quickly will your company be able to make important decisions? Before the merger the two companies made decision just fine, but afterwards either no one is in charge or everyone tries to be in charge and the decision making process comes to a halt.

Risk #4 - What will happen to the major projects you have going or you have planned? There is a natural inclination to abandon major projects, such as installing new computer systems, during a merger when it is actually the best possible time.

Risk #5 - How many good employees will you lose during the transition? Proper use of the acquired and existing talent is key to the success of the ongoing company. Identifying and deploying those individuals so you keep the ones you want and lose the ones you don't during the merger process can save a lot on the backend.

Risk #6 - How will changes in organization affect the company as a whole? Every organization can be divided into three groups, 20% are leaders, 50% are on the fence and 30% are resistant to the change. Most companies spend too much time trying to make the 30% happy, by focusing on the top two categories you will have 70% of the organization on your side. However, do not ignore the resisters, some of the best talent may be in that group and they can become leaders if they are engaged in the process..

Finally, Risk #7 - Do you have the management team in place to get the results you need? The success of any company is leadership. If you have strong leaders, your company can go anywhere.

Most of this should make sense -- but often all of this is overlooked.

Kristi Wertz: Interesting point about the 30% of employees. I think the key is to keep everyone as informed as possible.

William Case: Communication is important but involvement is more important.

Sue McMaster: How do you handle the press in a merger situation?

William Case: All stakeholders, including the press are handled.

Kristi Wertz: We always do press releases. I've had trouble before with the media picking up the story before the clients knew. We had some damage control to do after that. We really wanted the clients to know before the newspapers picked up the story. My problem is this... our partners want to be careful that the newspapers don't know too early. But by the time it's OK to send out the release, it's old news.

William Case: A common message is one of the first steps. Pre-planning is the key. Most org's don't think about all of the stakeholders. Once you are behind the curve on communications it is tough to catch up.

Integration communications need to be prepared 3 weeks before announcement.

Ralph Hendrix: What percent of mergers are considered to be successful?Any %'s on CPA firms?

Kristi Wertz: We usually prepare them early, but then sit on the communications until the deal has definitely and absolutely gone through.

William Case: 83 % are unsuccessful! Soory to be negative.

Kristi Wertz: Wow. I'd think the success rate would be much better. I haven't heard of many that have gone sour.

William Case: I don't have Accounting firm stats. I would guess they would be in line will the 83%. Maybe they don't talk about the ugly baby.

Sue McMaster: Is poor planning the cause for such a high unsuccess rate?

Kristi Wertz: Accounting firms seem a little more careful with merger decisions. Seems like they talk it to death before the final deal goes through. Maybe that helps the success rate.

Sue McMaster: Is the ugly baby related to money?

William Case: Planning and understanding the predictable people dynamics. Money or loss of expected value or return.

Sue McMaster: ROI is ALWAYS the issue! (Right Mike?)

Michael Platt: ; - )

William Case: ROI is not always the target. Rentention of people is very high on the list

Kristi Wertz: We've had some very good post-merger meetings that I think have helped with retention.

William Case: Also, we are seeing speed as a very important factor. Did they key people stay engaged? Did sales go up?

Kristi Wertz: Well, with each merger we've had, yes, sales have continued to go up. And we've been able to keep key employees for the most part

William Case: Did you get the synergies?

Ralph Hendrix: Kristi-Did you set up an executive committee or keep the same org structure?

Kristi Wertz: We kept the same org. structure for the most part after each merger. After one merger several years ago, one of the new partners was named to our executive committee. We don't have a formal committee for each merger, I don't believe. The executive committee usually meets and handles the negotiations and decisions.

William Case: Were there any culture issues?

Kristi Wertz: Yes, a few culture issues with the differences in our practices. But it has blended together more and more over the years.

William Case: You sound like you have a very change adaptable culture.

Sue McMaster: Should HR be more or less involved? It might help with those difficult culture issues.

Kristi Wertz: I've been at my firm for 3 years and we've had 4 mergers. They haven't been huge mergers, but they've been significant. Our HR Director has been instrumental in each.

William Case: Having strategic thinker in HR is a key.

Kristi Wertz: Yes, I believe people will tell the HR person their true concerns. HR can be a good buffer.

Sue McMaster: Good point! What about the marketing director?

Kristi Wertz: That would be me... and I've mainly had a hand in just marketing the merger, then making sure the new parties know about firm marketing.

William Case: All parts of the organization must be involved and committed. The committment starts at the top. Someone must be in charge.

Kristi Wertz: Our managing partner is terrific at coordinating mergers and ensuring they go smoothly. Definitely, good organization from the top is key. I agree.

William Case: Kristi must have a very committed and visionary leader.

Kristi Wertz: I think so. Of course, now I'll have to send him this transcript. :-)

Sue McMaster: Lucky dog!

William Case: Leadership is always the most important element.

William Case: Kristi - how long does it take for you to integrate?

Kristi Wertz: I'm usually not involved in the entire process. But from the time the negotiations begin until the final deal is through, I would guess about 6 months. Sometimes more, sometimes less. It has depended on the circumstance and how many legal issues are involved. Retiring partners are always a factor.

William Case: We believe it should take about 3 months -- most lose interest if it takes longer. I'm talking about post close only

Kristi Wertz: I think accountants are soooo careful to cover all of the bases. They like to be really comfortable before and after the final decisions. So that's probably why it takes longer

Sue McMaster: It's just the nature of the beast ... they play by the rules. Both coming and going.

William Case: We have found that financial types are like that

Kristi Wertz: Yes. that's true. I like the fact that they're so complete and careful. No rash decisions. They're very careful to be sure that personalities will mesh, as well as the financial side of the deal.

William Case: What about your clients -- are they as careful? Jump in everyone -- the water is fine.

Kristi Wertz: The clients can be a little more fickle. But not if they have a solid relationship with someone in the company. They stay, even through a merger. We haven't had too much trouble with losing clients.

William Case: I meant your experience with clients merging.

Ralph Hendrix: The clients s/b if we are consulting with them.

Kristi Wertz: I'm not sure about client mergers.

William Case: Ralph -- what is s/b?

Ralph Hendrix: Sorry-Should be careful

Kristi Wertz: I think CPAs probably bring that element of making conservative decisions into the deal.

William Case: What happens to major projects in your deals? Implementing systems type of stuff.

Kristi Wertz: So far it's been OK. We implemented a new system during one merger last year. And, you're right. It was a good time to do it. The new people were having to learn new systems anyway, no sense in them learning the old one.

William Case: You guys are good!!!

Kristi Wertz: We had aY2k issue so a new system was necessary anyway.

William Case: You should be able to command good pricing on deals. Your reputation should be great in the market

Kristi Wertz: So far we've had good success. I know for sure that for one of the mergers, the smaller firm sought US out. I guess that says something.

William Case: Most firm's don't think like this -- what do you think? You must have a strong leadership development program.

Kristi Wertz: My conclusions have been draw mostly from observation of my firm's success. And I'm not involved in the deal so much. But the leaders seem pretty strong. Preparing the next generation of owners is an important area in our firm.

William Case: What is your turnover rate?

Kristi Wertz: Not really sure about the turnover rate. That's something I haven't looked at recently. As far as leadership? We've only lost one partner to retirement since I've worked here.

William Case: Are you holding more going away parties than welcome parties?

Kristi Wertz: On the staff level, we have had a few more going away parties than we'd like. It goes in spurts. But those spurts don't correspond with mergers.

William Case: Any other issues out there for us to chew on?

Scott Cytron: Bill, this has been very informative.

Ralph Hendrix: Kristi-what have you done to keep potential owners with the firm?

Kristi Wertz: I think our strength is the strong growth our firm has seen. Our up and comers really see the potential

Scott Cytron: We appreciate you being here this afternoon with us.

William Case: Thank you!

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