Succession Planning: The Positives and Negatives of Mergers & Acquisitions

By Kathleen Hoffelder, NJCPA Senior Content Editor – March 12, 2024

The accounting industry is ripe with merger and acquisition (M&A) activity — some by firm leaders in reach of revenue growth, some spurred on by a competitor’s niche services and others looking for a good succession plan.

According to the Deloitte 2024 M&A Trends Survey, M&A is not only on the rise, but it also has a renewed intensity over last year. In the survey, 79% of corporate leaders and 86% of private equity leaders expect an increase in deal volume over the next 12 months. For accounting firms, more demand from private equity should put a renewed spotlight on their profits, plans for expansion and what strategies work and don’t work during M&A.

The Power of Alignment

As Joseph Hunt, CPA, PSA, a manager at CLA (CliftonLarsonAllen LLP), noted, mergers can be daunting for all involved, but having a skilled transition team makes all the difference. Hunt, who worked for SobelCo when it was acquired by CLA in 2023, compared the process to “…going through a storm, but in the middle of the ocean.” He added, “Some days I would be looking at a swell and not sure how we would tackle it and the next week we would be on the other side of it. When I refer to a storm, I’m speaking about the dramatic changes involved with joining a new company.”

Having the kind of leadership that kept everyone in sync at all staffing levels made the transition easier. “For me, I would say the lesson learned throughout the experience is the importance of keeping everyone rowing in the same direction. Our team was very much in sync throughout and at no time did I feel like someone was paddling in the opposite direction. I will say that CLA’s transition team is top of the mark. Any possible resources and support we needed were there for us,” said Hunt.

Indeed, aligning the cultures of the acquirer and the acquiree is important early on so all staff can work to their potential in an equitable environment. As Rachel Anevski, MAOB, PHR, SHRM-CP, CEO and president of Matters of Management, LLC, put it, “Executives should evaluate cultural differences between the acquiring and acquired firms and develop strategies to bridge any gaps. Recognizing and respecting each firm’s values and norms can help maintain morale and cohesion among staff.”

Effective Pre-Merger Strategies

Bill Haemmerle, a partner in the transaction advisory service practice at Wiss, noted that communication is another area where M&A deals often fall short. “Acquisitions can be a time of great uncertainty and anxiety. If there is a lack of reliable information about a transaction, employees and clients may start to come up with their own stories,” he said. “This can lead to confusion, fear and mistrust, which can have a negative impact on the success of the transaction. Therefore, it is crucial to be as transparent as possible about what is happening.”

Careful preparation can help determine if a merger will work as planned. One of the key lessons for successful M&A can be summed up in a phrase Haemmerle learned from his father: “Plan your work and work your plan.” Acquirers, he said, need a detailed approach to the acquisition process and should not be blinded by excitement to get a transaction done. “Take time to conduct due diligence into the company’s financials, tax compliance, technology, operations and culture,” he suggests. “This process will not only help you understand if the right price is being paid, but it will also aid with integration planning — are systems compatible? Are processes similar (time entry comes to mind)?”

To Anevski, communication is a key step in all parts of the M&A process but particularly in the planning stages. “Clear, transparent communication is essential throughout the M&A process,” she explained. “Executives should inform staff about the merger or acquisition in real time. An open dialogue helps alleviate uncertainty and fosters trust among employees.”

Post-Merger Evaluations

A common pitfall in M&A is the misunderstanding of post-merger expectations, noted Eileen Monesson, CPC, MBA, CEO of PRCounts LLC. She explained that partners from a smaller firm may anticipate that a merger with a larger entity will result in a blend of best practices. However, if the acquiring firm insists on implementing only its systems, policies and procedures, it can lead to frustration and disillusionment among the acquired firm’s staff and partners. “This underscores the need for explicit discussions about operational changes and integration plans before finalizing the merger,” Monesson explained. “Setting realistic expectations and openly addressing how decisions will be made regarding adopting practices can prevent such misunderstandings and the resultant bad feelings.”

Similarly, Anevski shared that employee retention after a merger or acquisition is key to keeping things running smoothly. Executives, she said, can identify top performers and key personnel and develop personalized retention plans tailored to their needs and aspirations. “Offering competitive compensation packages, career development opportunities and recognition programs can incentivize staff to stay on board,” said Anevski.

Allowing staff some time to adjust to the new environment is also a winning strategy for retaining key staff. With everyone adjusting to change in their own way, Hunt noted that “…an important consideration for any team moving together in a similar direction is the wide range of emotions involved in joining a new firm.” He explained, “Those emotions can range from excitement to uncertainty to fear and can certainly have a big impact on the way people move through the process and the way they work. The team we joined did a great job educating us on those emotions which created a sense of awareness as we moved along.”

Prioritizing employee well-being after a merger or acquisition by offering support services such as counseling, coaching and employee assistance programs also goes a long way. As Anevski put it, there’s a need for continuous feedback and evaluation with M&A. “Executives should monitor employee satisfaction, retention rates and performance metrics to gauge the success of integration initiatives and refine strategies accordingly,” she said.

According to Monesson, articulating the merger’s benefits and how it impacts employees’ roles is crucial for maintaining engagement. “Highlighting success stories and quick wins can also build positive momentum. On the client side, reassurances of service continuity and improved offerings are key. Tailored messaging that addresses specific client concerns can help maintain loyalty during the transition,” she explained.