Preparing Your Firm for an Upstream Merger or Sale

With all of the merger activity in the accounting profession today, there is a good chance your firm has been approached to consider an upstream merger or sale. Perhaps you are seeking that as a way to address strategic needs your firm has such as the pressure to provide succession for soon-to-retire partners. Keep in mind these general guidelines as you consider this option for your firm.

Clearly Identify Your Strategic Objectives

Are you seeking an upstream merger/sale to deal with succession for partners in your firm? Are some of your partners seeking the growth opportunities a larger firm can offer? Perhaps you are concerned about the risks a smaller firm poses due to the difficulty of holding onto clients that represent a large concentration of fees or the effort required to replace lost staff. You need to make sure the firms you are talking to and the type of deal structure that is used will fulfill your needs. You also need to make sure in advance of starting the process that all the partners in your firm are aligned in what you are trying to accomplish.

Should You Sell or Merge?

The difference between the two is i) in a sale the owners of your firm do not become owners in the successor firm, whereas, ii) in a merger, they do. However, in a sale your partners can still have a long term employment relationship with the successor and even maintain most if not all their income if the deal is structured properly. You should develop an understanding of the pros and cons of both approaches so you know which fits your needs best. This decision will also often dictate the types of firms you should be talking to.

What is Your Firm Worth?

Valuations are all over the board these days. Where your firm is located, its size, the types of services your firm offers, and your client demographics are all factors. More importantly, your firm’s value is going to vary based on the specific firm you are talking to. Beauty is in the eye of the beholder. Most of us define “value” as a multiple of revenues. However, all of the other terms of a deal (down payment, payment period, retention adjustments, tax treatment, etc.) will have a material impact on the overall value and in fact the multiple. In most mergers, the value you receive for the ownership of your firm is determined by the successor firm’s owner agreement. If you will work there long enough, that may be one of the least important factors for you to consider. On the other hand, if you are selling, the deal terms/value may be one of the most important factors. In that case you should develop an understanding of what is going to be considered attractive about your firm, what may pull down value, and how you can maximize the value of your ownership stake.

How Do You Make These Determinations?

You should enlist the help of fellow practitioners that have been through a merger in the past. Or find a consultant that can give you these insights before you start the process. It is hard to evaluate the pros and cons of a deal you are considering without benchmarks to compare against.


About the Author

Terrence Putney, CPA ( is CEO of Transition Advisors, LLC,, which exclusively consults on succession and growth strategies for accounting practices nationally and ownership transition. He can be reached at or 913-262-8550.