buyers outnumber sellers among cpa firms and private businesses alike. so why aren’t prices rising more quickly?
by rick telberg
at large in the aicpa insider
in traveling the country all summer, visiting accountants in practice, in business, and among associations, we tested the waters for trends in mergers and acquisitions. we found a trend, all right ? a growing urge to merge. but we also saw a dearth of accounting firms and private companies with plans to sell. our personal observations are borne out by one of our new market studies: potential buyers outnumber potential sellers by far. and that applies as much to cpa firms as to small and medium-sized businesses.
a heady 28 percent of cpas expect their firm or company to buy someone else’s this year, and another 15 percent expect an acquisition in the next three years. another five percent figure they might be in the buyers’ market at a later date. total: 48 percent with intentions to buy. now compare that to sellers…
just three percent are on the market this year, and only four percent might sell within the next three years. another seven percent might think about it further in the future.
total: 14 percent intending to sell.
now think back to economics 101: you have 48 percent wanting to buy 14 percent. what can we guess about the prices of the 14 percent?
we guess the prices will range from “not bad” to “very tidy.”
the survey turned up other signs of increased mergers and acquisitions among cpa firms. without asking anyone’s intention, we inquired whether we could expect a greater rate of firms buying firms. forty-six percent said they expected mergers to increase “somewhat,” and five percent envisoned “significant” increases. only seven percent expected somewhat of a decrease. forty-two percent expected no change.
the same seemed to hold true of expectations for all kinds of small and medium-sized businesses. fifty-eight percent said m&a was increasing slightly, and another seven percent reported seeing significant increases. thirty-one percent saw no change.
in other words, in firms, business, and industry, we can expect to see more mergers, but no great rush in that direction? not until economics 101 kicks in. once the initial sellers make the best of the big demand, more will enter the market. asking prices will inevitably fall, fanning the acquisitional lust of buyers in the mood to merge.
interested to know more, we asked for general comments on m&a. the responses revealed a fascinating trend among cpa firms: sellers are selling for the same reason buyers are buying.
a managing partner with long-term intentions of selling expressed a common complaint: “the body of knowledge in the cpa field has grown so much that a person cannot be a general practitioner today or perform competent services in all areas.”
a potential buyer suggested a similar reason. he said that changes in the requirements of audit procedures mean that “a lot of small firms are not going to be able to perform [audits].”
in other words, clients are demanding more, and small firms are less able to meet minimal requirements.
the solution: a merging of firms to create a critical mass of capability.
at the same time, according to a managing partner at a small firm soon to go on the market, “a number of smaller firms have partners wanting to retire and no one to continue the business.”
as these three vectors come closer to intersection, we can expect to see more firms looking to buy, and more firms looking to sell.
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[cpa trendlines]
is it really a “succession” issue? or simply a failure to plan for success?
by rick telberg
at large for the aicpa insider
many say there’s a succession crisis among cpa firms. maybe so. or maybe you could look at the problem a little differently.