CPA Practice Resources


Making It Fit

Managing mergers is both challenging and demanding, but in the end it is worthwhile for firms and their clients

Globalization has led to consolidation in most industries and services and accounting firms have not escaped this trend. Not so long ago it was the Big 12, then until recently the Big Eight, and now, the Big Four. Due to globalization and the increasing complexity of the accounting profession, many firms aggressively pursue merger opportunities. Employees of midtier and smaller firms often question management about its merger plans, wondering how they might impact their careers. Often partners at potential acquirers and acquirees are unsure about what the negotiation and integration phases involve or how the process should be managed to achieve desired outcomes.

For the right reasons
So the fit appears perfect: the growth of a smaller accounting firm follows that of its clients, who wish to gain access to international markets and require additional expertise. The larger firms in turn seek to increase their market share to achieve economies of scale and must establish or acquire a local presence to serve regional markets. However, in more than half the cases, mergers are unsuccessful for a variety of reasons, including insufficient information, poor leadership or a clash of cultures.

André Bannon, managing partner of Samson Bélair/Deloitte & Touche’s Quebec centre region, led the recent merger of Samson Bélair/Deloitte & Touche with Verrier Paquin Hébert, a Quebec-based accounting firm with 27 partners. For a merger to be successful, the firms must share the same values, Bannon says. “A great number of mergers are examined, but few agreements are concluded,” he says. “From the outset of negotiations, it is crucial that both parties be honest and avoid getting caught up in a sales effort. The motivations of both firms must be well aligned and their respective cultures must be able to blend. With Verrier, we share the same principles, notably the value placed on employees and the integrity of our relationships with clients. To successfully increase our market share in the private companies’ segment, we must incorporate Verrier’s best practices, retain its professionals and benefit from their know-how.”

Luc Villeneuve, Deloitte & Touche LLP vice-chairman, experienced the 1987 Samson Bélair merger with Deloitte and that of Deloitte with Touche Ross three years later. “When Samson Bélair merged with Deloitte, many thought we would no longer require an office in Sept-Iles [Que.],” he says. “Our network of regional offices has in effect been expanded throughout Quebec since the merger, as the best practices of both firms have been adopted. No matter the size of your global network, success will depend on your presence and initiatives in local markets. In fact, many Deloitte professionals became the best proponents of Samson Bélair’s entrepreneurial approach. The idea is to focus on the additional services and expertise the merger can offer your clients.”

Strong leadership
As in any major business project, leadership of a merged firm must be provided by a seasoned professional dedicated to its success and willing to put in the required effort. “I view my role as that of a facilitator,” Bannon says. “I must be aware of all problems and ensure each is quickly resolved.” His approach is to communicate openly with everyone involved in the merger and reassure them the effort is worth it. “Employees must understand they will face many changes and that integrating two very different firms will not be a cakewalk,” he says. “Well-informed professionals are quick to recognize the enormous potential of an expanded and better-equipped organization. They also realize a team approach is required to address the resulting mutual challenges.”

Because of confidentiality issues, usually only a few partners are involved in merger negotiations, which can be a lengthy and stressful process requiring patience. To ensure a successful deal, firms should focus on reaching a fair agreement rather than winning. Once a deal has been signed and integration begins, leadership effectively becomes a shared responsibility. Bannon explains that there can be 30 to 40 people from both firms involved in a wide variety of integration projects. “Partners from both firms have access to the information regarding the merger,” he says. “It’s a case of equal opportunities for all.” In their experience, there is no such thing as an ex-Verrier or an ex-Samson Bélair employee. As soon as negotiations were finalized, Bannon says, Verrier’s managing partner became associate leader of the merger and began participating in all firmwide development projects.

When integrating a smaller entrepreneurial firm into a larger, more structured organization, it’s a difficult balancing act for management, says Villeneuve. “I believe the success of the mergers I have experienced stems from management’s focus on providing everyone with the best tools, sharing best practices from both sides and not imposing excessive control over regional offices.”

Communication is key
Managing a merger will place double duties on the leaders, and communicating with stakeholders will be a major part of them. Stakeholders and key influencers such as banks and lawyers must be informed of developments in a timely manner, but from a communication standpoint, the key to a successful merger lies in the firm’s exchanges with employees and clients. “Employees should be informed of a merger as soon as an agreement in principle has been signed. In the case of Verrier, we met with employees to provide information regarding the merger and prepared written information in a question and answer format,” Bannon says. “It was clearly explained that many changes were forthcoming, as integration would affect many aspects of the practice. An integration plan was presented, including milestone objectives for the first 100 days and for the following two years.”

Sharing success stories from the merger is critical when communicating with employees. “Firms regularly share evidence of how clients have benefited, but they often neglect to put forth cases of improved career opportunities for employees,” Villeneuve says. “Our young professionals can now obtain internships in London, Paris or the US, which was previously impossible.”

With respect to communications with clients, Bannon suggests they be informed in writing and that partners meet with them to explain why the merger was necessary and how they will benefit from additional services and expertise. “Ultimately, the proof is in the pudding and they are reassured once they see that their first fee invoice is unchanged,” Bannon says. “In time, they have the opportunity to access global and specialized expertise and recognize its value.”

Managing change
Overcoming resistance to change is a major integration challenge. This must be accomplished over a relatively short time period, as most integrations are completed over 12 to 18 months. Moving into a common office within the first year is very important, Villeneuve says, as proximity helps resolve problems. “It takes a while to collaborate with an ex-competitor, but working together in the same offices accelerates the process. It is also important for management to emphasize, from the outset of negotiations, the aspects that unite the two firms rather than those that may divide them.”

Resistance to change is a common human trait and there are those who are willing to change rapidly, those who will adapt somewhat and those who will not change at all. “A merger is much like moving to a new country, in the sense that there is much to discover and much that must be accepted,” Bannon says. “Management must be patient as employees learn about the organization and its various communication channels.”

One of the most positive aspects of a merger, according to Villeneuve, is that it is a catalyst for change, motivating the firm’s most dynamic professionals who will become its future leaders. “A merger will generate new projects, and highly motivated professionals will step forward to assume their leadership,” he says. “These are the people not content to repeat the same tasks every day and who are searching for interesting challenges. They seek to improve the firm’s processes and increase its profitability, which ultimately serves clients.”

What can go wrong?
The road to a successful business combination contains a number of obstacles. Here are a few lessons Bannon and Villeneuve have learned:

  • Always be truthful and never over-promise. When partners are not given the whole story, when promises are not fulfilled or when unreasonable expectations are set, they lose confidence and the merger will surely derail.
  • Don’t feel pressured into a deal for fear of losing clients. Smaller firms must realize they will lose some liberty when they join a larger organization, therefore they must choose their partner carefully. At Samson Bélair/Deloitte & Touche for example, partners were required to be 100% committed to the firm, which precludes entrepreneurial partners from making business investments, as they must focus on being business advisers to clients.
  • Choose the best tools. If the acquired firm has the best IT systems, human resources practices or other strengths, these should be implemented throughout the organization.

Merger activity among the global professional services firms has been sustained for a number of years now, and there is a limit that cannot be exceeded in light of fair competition rules. However smaller firms will continue to develop and as they grow with their clients, they will eventually examine merger opportunities that will enable them to better serve their clients by providing access to international markets and expanded expertise. They should be willing to entertain a significant number of merger opportunities before they find the right fit. The challenges involved in successfully completing a merger are numerous and demanding, but they are worthwhile when the objective is to better serve clients and enhance the career opportunities of professionals.

Stephen Rosenhek, CA, is the comanaging partner of RSM Richter’s Montreal office. He is also CAmagazine’s technical editor for Practice management