Differentiation in the M&A Market for Accounting and CPA Firms

The accounting and CPA acquisition market has officially shifted from a seller’s market to a buyer’s market.  There are still buyers out there, but the industry has seen a great metamorphosis with the aging boomer population and several rough years in the industry.  If you intend on using a merger or acquisition to transition, it is critical that you differentiate your firm from the volume of “For Sale” inventory on the market today. There are many ways to differentiate your firm.  In this blog we will explore 3 ways. 

Merger and Acquisition

The number one way to distinguish your firm from others on the market is human capital.  The accounting industry is facing a severe shortage of talent.  CPAs and other credentialed and degreed staff are in short supply across North America and there is no end in sight.  The competition for qualified staff has never been higher and poaching of employees for higher wages has never been more rampant.  Buyers are in the same boat.  They want to grow but few buyers are sitting on idle capacity and so there is an immediate risk injected into the transition from day one.  Who will replace the retiring principal?  Sellers need to work hard recruiting and retaining staff and have a plan for their replacement.   The firm may want to consider offshoring to free up capacity.  Sellers should consider staying on to work as a production arm of the newly combined company for a year or two.  It helps significantly with production and helps to hold the staff in place. 

Using updated technology is an excellent way to contrast your firm from others.  Many buyers are already using technology to help with growth.  If buyers are made aware that your firm is using this technology, they will consider it a “cultural fit.  The days of paper files and snail mail have passed.   While your book still has value, human capital, and technology matter more for the appetite of current buyers.  If you are on the leading edge with technology, be sure to advertise this component.  The demand for virtual firms or ones that can be converted to virtual firms within a year or two are some of the most common requests.  Virtual firms and virtual employment should be considered and advertised fully as a discerning feature.

Margin is the last way to differentiate that we will mention in this blog.  The demand for human capital has pushed wages up to over 40% of the cost of operations in a national average.  Leasing expense is rising as are all other expenses.  Sellers must keep pace with their billing.  Reviewing profit margin and cash flow margin constantly and billing appropriately is important.  Labor should be billed out at a 3x multiple or more to keep pace with rising costs and to maintain margins.  If the pricing methodology accounts for these rising costs, buyers will flock to your firm’s acquisition opportunity. I know this is obvious but stating the obvious in marketing your firm separates you from others. 

Working with a business broker can help navigate the differentiation in the mergers and acquisitions market.

Berkshire Business Sales and Acquisitions has 15 years of experience watching and adjusting to the changes in the Merger and Acquisition space within the accounting industry.  We are experts at setting the firms we help apart from the masses.  If you would like help in this process, please contact us at 602-614-3583 or visit https://berkshirebsa.com/.

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