Many mergers need to define and address differing partner goals. However, that is not the challenge. The challenge is when a firm elects not to consider a merger and must tackle the differing goals and desires of its partners when the firm infrastructure will not support or cannot support such goals. When that happens, unfortunately, many firms choose to ignore the obvious and continue on as if the issue is not relevant. This situation significantly contributes to the firm (and the remaining partners) experiencing decreasing valuations of the practice.
This issue is being significantly compounded by the effect of the Baby Boomers reaching the age of retirement. Many firms are experiencing difficulty replacing the more tenured partners with younger partners because there are a limited number of available younger principals, or managers capable of becoming partners.
If a firm currently does have younger partners, another concern is the potential that the younger partners are going to shoulder future financial challenges as they bear responsibility for the retirement packages or buy-outs of the retiring partners.
Another challenge facing many multi-partner firms is when two or more partners have the same retirement goal. The impact of two or more partners reducing their roles can have a negative ripple effect if the firm is unable to replace the role of the retiring partner(s), not just replace the partner(s).
Because of the above events, a merger many often have a series of agreements: a master agreement addressing the merger of the firms and separate agreements addressing the specifics of each partner's individual goals. This multi-agreement requirement may also affect value, individually or collectively, depending on many factors including but not limited to:
These questions are often more cumbersome than fulfilling the goals of the individual partners, even when they differ.
There are many positive reasons for firms to merge, especially when the due diligence of opportunity is performed efficiently. It is true that the differing goals of the partners may very well be a positive and not a concern. The review of the individual goals should be benchmarked against the opportunities, internal and external, because only then will the potential for a good decision be realized.
One of the most powerful questions you can ask is, "What if...?" Every firm should respond to a series of these questions, including:
Once a list of responses to these questions is calculated, compare the responses to the goals of the partners. It is often interesting how this analysis will identify the viability of maintaining those goals, slightly altering the goals or, at a minimum, clarify the need for a merger and with whom.
Remember, most multi-partner firms have partners in varying categories, some seeking to reduce their time commitment to the firm shortly, others in several years and remaining partners who are many years from their sunset. You can structure a merger with one successor firm who can help all three categories of partners achieve their goals.
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