“What on earth is a merger?” One long-in-the-tooth senior partner asked me! “You should know that there’s no such thing as a merger, usually a merger means a take over. Is that what you mean? Usually the dominant party runs the show and provides the culture, so it’s a takeover, right?”

Well, in the old partnership format, that isn’t so. Even today there are partnerships where each partner in a firm has his own portfolio of clients, where he services these personally, meets them regularly, discusses their problems, suggests alternative financial strategies, handles taxation and funding matters throughout. he bills them, authorises write offs and is in charge of allocating staff….., it is in fact very much as if this partner acted as a sole practitioner. Other partners do not interfere with his clients, by this logic you can see that, whether that partner is in XYZ firm or ABC firm may be of secondary importance to the client? So if the partner servicing that particular client merges into another firm. The effect on the client might be minimal? The partner mergers as a principle!

On the other hand of course some mergers end up as complete take-overs so that literally everything changes, the name the premises, the charging systems, the staff.

Normal practice is somewhere between these two extremes. Recently partnerships have travelled a course from the “sole ownership” of one partner through “matrix management” where each specialist was supreme for his function (e.g. tax partner for tax matters etc) through to a team “management system” where different aspects of the client are discussed with a team of different functions to optimise the offering of services.

However since specialist partners like Tax partners tend not to exist before there are about 4 “general Accounting “partners – it follows that almost ALL smaller partnership follow the old collegiate pattern where the partner is equivalent to a sole practitioner.

Within the collegiate partnership structure therefore it’s quite clear that a Merger can mean exactly what it implies - a melding together of different practices.

Jobtel interprets a MERGER as meaning that at least one of the partners of a smaller firm is an equity partner of the enlarged firm. The most common form of partnership MERGERS are:-

1) Sole Practitioners. There is a frequent hope amongst sole practitioners that they could merge with a similar practice to reduce overhead costs (particularly receptionist, invoicing and credit control) - therefore also space and rental costs – and also to share matters which detract from fee earning hours like Regulatory Recording for Audit and Investment business as well as Practice Assurance (or its equivalent) – these increased burdens make it very hard for a sole practitioner to operate without constantly looking over his shoulder in case he’s doing something wrong and there’s often no-one internally even to discuss the matter with.

2) Partnership or 2 or 3 partners usually merge for different reasons. For example a 3 partner firm. Say there are two older partners aged say 64 and 57 and the third partner is 48. If the two senior partners wish to go at the same time, the third partner has two problems

• he might not have enough money to buy out both the others at the same time and
• he might not have the capability of servicing clients at partner level (He could of course buy out both and then resell a portion to an aspiring internal manager or without doing that raise a manager to a Salaried Partner level and keep the equity for himself). The practice would be put up for sale/merger so that the equity of the two departing partners is bought by another firm with the junior partner continuing in the enlarged firm as an equity partner.

3) Firms with more than 4 partners (probably larger than £1.2M to £1.8M) would tend to merge for other reasons (though of course there could be age reasons too) – perhaps their services need making more secure (perhaps merging with a practice with stronger Corporate Finance or Taxation) or to add new services or niches (perhaps an agricultural or medical administration consultancy) or to cover a geographic “hole” or mismatch like having a large amount of fees in a certain area but no office. Sometimes it the fear of loosing clients at the top end because a Bank has told their largest client “Perhaps you ought to have a “proper” accountant?” and they fear an erosion of their client base

4) Firms which have lost direction and are going nowhere. There are a surprising number of firms who seek a merger as a way out of their current problems – these are epitomised by Low Profit, Low Efficiency, Low Staff Motivation, Only poorer quality staff remain (the rest flee) Traditional format, Lack of marketing, Lack of presence, High Working Capital lock in, Low fees & charge out rates, Over-partnered, Under-managed. Often the managing partner doesn’t know what to do, so does nothing and the practice drifts. The partners know what is wrong they often just lack the self discipline to put it right. A merger is sought so that they appeal to a “white knight” to sort them out.

Jobtel is willing to assist practices in seeking merger partner. Generally mergers are much more complicated than a “straight sale” which usually has an involvement by the seller for days or a few months or perhaps a couple of years. In the case of the Merger then other matters have to be addressed such as 1) With Sole partner mergers its very important to get the valuation and structure right and then agree in detail how its going to operate moving forward 2) With two or three partner mergers often one or two partners are bought out and their equity must be separately negotiated and their conditions agreed the principle place of work has to be agreed and staff and equipment physically moved 3) Larger mergers will take even longer both to negotiate as the two firms may require a unanimous vote and details like IT can often be a stumbling block!

Jobtel have two bases of working for smaller firms a questionnaire is given to both parties then meetings are held chaired by Jobtel. Information is handed out of a similar nature and the parties are then encouraged to meet independently to discuss valuation and use of premises. Jobtel charges a fee of 2.5% of the fees merged.

For Larger firms Jobtel have to carry out some detailed research in order to find a suitable matching partner and a deposit of £250 is requested for an initial report and marketing plan which usually involves identifying target firms and mailshotting and calling these. A Budget is prepared and Jobtel charges in accordance with that plus the 2.5% success related fee.

IF THIS IS OF INTEREST TO YOU, YOU SHOULD CALL JOBTEL FOR A CONFIDENTAIL DISCCUSSION