5 Ways an M&A Can Help Your Firm's Growth Strategyby
A merger with another firm can actually help yours grow, maybe in ways you didn't expect. Lee Frederiksen of Hinge Marketing explains a few reasons why you may want to consider a merger and acquisition, as well as signs an M&A will only spell trouble for your accounting business.
Mergers and acquisitions can be a great way to grow your accounting firm, but this, ultimately long-term strategy comes with challenges. Combining two accounting practices can easily result in many new issues that did not exist before. Operating in multiple markets, a larger and more diverse customer base, a more complex services portfolio and greater staffing and operational complexity are all potentially risky elements of many M&A scenarios. So when might an M&A make sense for your firm?
Getting Bigger Strategically
Mergers and acquisitions make perfect sense in a variety of financial and strategic situations. For example, the right acquisition can provide a quick cash infusion to shore up a shaky bottom line or as an investment in diversification. But this post is not about financial M&As – that’s best left to financial experts. We’re interested in strategic mergers and acquisitions as part of a growth strategy in which the primary goal is to secure an opportunity that will either achieve physical growth in a current market or provide an area of expansion by adding to the service line in a market not currently being served. Perhaps an opportunity presents itself that requires fast, decisive action. Or maybe a competitive threat compels a defensive move to get bigger, faster.
“But wait,” you’re thinking, “isn’t disciplined, organic growth always a better, less risky approach?” Well, not always. Sometimes a good, old-fashioned M&A is exactly what’s needed.
Here are five ways an accounting firm can take advantage of strategic opportunities quickly and efficiently through an M&A:
1. Fill critical gaps in services or client lists
Today’s business world turns on a dime, and a firm can find itself lacking critical services that are suddenly in high demand or stuck with a client list that has lost value because companies on a competitor’s roster have become the market’s key players overnight. A strategic merger can quickly remedy these two situations.
2. Acquire top talent
Top accounting and financial professionals are hot commodities in a relatively closed market, especially if they’re loathe to move from their current position and firm. Acquiring the entire practice can be a good way to gain the skill set, visibility and coveted client list of a recognized and respected expert.
3. Adding or changing a business model
Is your accounting firm’s business model product-neutral or product-inclusive? Do you deliver your services for a retainer, for a project fee or with hourly rates? Whatever your model, there might be options worth exploring, and the easiest way to develop and test something new is to acquire a firm that is already successfully using that model.
4. Leverage synergies to add value
A well-thought-out M&A can add value by taking advantage of the two firms’ compatible features to create efficient synergies that can either reduce costs or increase revenues by:
- Reducing competition
- Cutting costs by combining and streamlining facilities, resources and personnel
- Opening new markets and geographic regions
- Increasing cross-selling opportunities over an expanded customer base
- Creating new sales opportunities by marketing complementary services
5. Reduce learning curves and time-to-market
It seems as if new accounting service technologies and platforms are being introduced almost daily. For your firm to stay on top of what’s new and what clients are requesting, it’s important to minimize any ramp-up time for delivery of a new service or solution. While your firm might be fully capable of developing and delivering that service on its own, it could take more time, money and resources than you’re willing or able to provide. An M&A that provides a turn-key capability might be easier and more cost-effective.
Warning Signs: When an M&A Might Spell Trouble
Not every merger and acquisition is a good idea. What might seem at first blush to look like a natural fit could actually be an awkward and unproductive marriage of two incompatible firms.
Let’s look at several warning signs that signal danger ahead for a merger or acquisition:
Culture clash: Studies have shown that cultural differences play a role in as much as 85 percent of failed M&As. To avoid a problem, it’s important to conduct a culture assessment, be clear on the culture you’re trying to create and provide the positive incentives needed to help achieve it, including education, rewards and an attractive employee brand.
Identity loss: When one firm overshadows the other, reducing differentiation and diluting the brand, trouble can loom. A merger should be the result of a carefully researched brand analysis and create more value through the acquisition of a firm with relevant and respected assets and benefits.
Lack of focus: Merging separate operations is a resource-intensive process that usually requires the attention of the firm’s senior people. Unfortunately, they are often juggling a number of projects and issues that can distract them right when they’re needed most during integration. Without their full involvement, the merger can flounder and the business can be damaged.
Confusing brand identity: A merger that appears strategically sound internally may actually cause dangerous marketplace confusion. Let’s say your accounting firm specializes in corporate regulatory compliance issues and you’re going to merge with another firm that dominates the high-value professional boutique market in a bid to gain personal access to C-level professionals. How will the market perceive that? Are you now abandoning commercial accounts to focus on wealthy individuals or are you a private boutique firm attempting to break into the corporate accounting world?
Brand dilution: The kind of marketplace confusion highlighted above will most likely dilute the brand identity and value of both the acquiring and the acquired firms. No one will be quite sure what your integrated firm is and you risk losing market share and strength in the very markets in which you were attempting to gain an advantage.
Achieving high growth starts with a true understanding of the marketplace as it really exists and how your firm is actually perceived (not as you’d like it to be perceived). Do your research and understand fully what each firm—the acquired as well as the acquiring—brings to the equation.
M&A can be an effective part of your growth strategy if you focus on the emerging culture and brand and carefully shape the new firm. This kind of strategic move, combined with an ongoing effort to generate organic growth, can be a winning combination.
Lee W. Frederiksen, PhD, is managing partner at Hinge, a marketing firm that specializes in branding and marketing for professional services. Hinge conducts groundbreaking research into high-growth firms and offers a complete suite of services for firms that want to...