The Next Wave

by | Oct 26, 2017 | News

What’s going to happen in the world of CPA firm mergers & acquisitions?

It is going to ramp up. Many Baby Boomers have already held on longer than they should and there is a growing number of aging accounting practices with no succession plan of any kind. It is estimated that less than 25% of all accounting firms have a succession plan. This is a major area of exposure.

Why is M&A so active in the accounting profession?

The surge in M&A is not just exclusive to the accountants. Every profession is facing the gradual exit of the baby boomers, but the accountants managed to complicate it more and created what could be a tidal wave of activity. Many factors contributed to this wave, but the two main factors are:

  1. In the late 1990’s the tech bubble was booming. Students looked at designing a website and becoming an Internet millionaire by the time they were 23 or entering the exciting world of accounting, which at that time still consisted of green ledger sheet papers. As a result, the pool of accounting students shrank a bit. Twenty years passed. Those who did go into accounting were overloaded with work because the work force was compressed. Partners just kept giving them work to do. So, many never learned how to sell or network.
  2. The 5 Year Degree. It’s almost as if a committee met to determine how they can make the labor pool in the accounting profession even worse. The profession decided to make students take an extra year of college to become an accountant. That shrunk the labor pool further.

Today, partners have a problem.

They look at their 40’s something incoming leadership group and know their buyout is dependent on people who many have never brought in any work. So, it’s time for plan B, which is to sell the firm or merge it into a bigger firm to secure their buyout.

So far, we have experienced a gentle wave.

The waves are going to get worse and then the tidal wave will hit. A rush of firms is going to hit the market. The smart, proactive firms are going to pick up the better practices. Then, there will be a large number of average to low-performing practices, which will encounter reduced sales prices or they will be unable to sell because the supply of sellers will exceed the supply of buyers. Basic economics will come into play.

Now, enter the Millennials.

Millennials have changed the office work environment. They were raised on technology and want a different life experience. The problem is a large percentage of the “non-Boomer” generation does not want to own. They want to work, but not take responsibility for the ownership aspect. This is a blanket statement so there are exceptions, but if Millennials do not want to own, this further cuts the potential pool of buyers.

To talk further, please contact Bob Lewis.

Bob is the President of The Visionary Group & CPA Growth and can be reached at 800.995.9186 or Visionary provides growth services and customized merger and acquisition searches for the CPA profession.

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