• Jim Boomer, Shareholder, CEO

M&A Best Practices: Advice from the Experts

During the 2018 Boomer Technology Circles Summit, I had the opportunity to moderate a panel discussion on best practices in mergers and acquisitions from an IT professional’s perspective. Our panel of experts included Greg Shoemaker, Chief Information Officer at BKD CPAs & Advisors; Amanda Wilkie, Consultant at Boomer Consulting, Inc. and former CIO of Withum; and Randy Smith, Director of Information Technology at Clark Schaefer Hackett. Here’s a look at some of the insights our experts shared.

How early does IT need to get involved in the due diligence process? And as an IT professional, how do you push to get involved?

Randy Smith: Ideally, IT would be involved as soon as possible. To get there, build as many relationships with shareholders as you can. Regular invite them to lunch so that you’re made aware of these discussions early.

Amanda Wilkie: Firm management will often say, “Well, we can’t talk about that yet” Meanwhile, even the interns know about it. IT should be involved as soon as possible. Nothing IT does will stop the merger if the partners have made up their minds about it, but we can provide some important insights into the process. For example, we might see that the firm being acquired is completely under-licensed in Adobe. That’s an issue that can cost tens of thousands of dollars and should be factored into the deal. Another example is internet access. Most internet service providers require 90 days’ notice and the job could take longer than that. So internet access always needs at least 90 days lead time if you want the new office on your network. Firm management might think, ‘Well, that office already has internet access, so they’ll be fine.’ But they’re not. It’s important to help the decision makers understand why you need that much time. Give them a plan with date ranges to help them understand.

Greg Shoemaker: IT due diligence should begin as soon as there is a letter of intent. Very early in the due diligence process, we ask for all contracts and agreements related to technology to look for risks and gain insights about technologies and services they use. Our due diligence process follows a pre-written checklist. The integration efforts follow a detailed project plan that includes all aspects of the integration. Some of the IT tasks take considerable lead time; we can help educate the CEO, COO, Chief Legal Officer, etc. on the process. We keep these key stakeholders informed of what we call the “long poles of the tent.” They don’t need to know all the details, just the critical tasks so they can keep them in mind.

We’ve counseled firms that the technology cost of acquiring a firm runs, on average, $10,000 per person. Is that consistent with your experience?

GS: We’ve seen hard costs of around $9,000 per person, but when you factor in all the hard costs plus the time spent, it can run up to $12,000. But we’ve really found that the ROI doesn’t really kick in until after you’re a full year in. Productivity goes down in the first year. If you could quantify that, the cost would be much higher.

Jim Boomer – That cost per person might not change their minds, but shareholders should go into it with eyes wide open.

AW: I ran the numbers every which way, and we consistently came up with $9,000 per person. Remember, if you’re a firm looking to be acquired, you probably haven’t been investing in tech. There’s likely very little that we’ll be able to reuse. Plus, you have to look for the stuff you DON’T expect. Things like early termination fees and the technical debt the firm being acquired has racked up.

Is there a time of year that’s best for making the integration fast and effective?

GS: Busy season is always a challenge of course, but from an IT perspective it doesn’t really matter. Summer to December works. We typically won’t do anything from February to May 15th, although we have acquired consulting operations during that time of year.

RS: We always try to do it on July 1st, the beginning of our fiscal year. That gives IT 90 days to get geared up, although we do overlap with busy season somewhat. It really doesn’t matter too much to IT. During busy season our help desk is busy, but our infrastructure team typically has availability.

There’s a lot of talk about “rip and replace” strategy versus peeling off the bandage slowly. What’s the more effective method in your experience?

AW: When we acquired a 50-person firm in New Jersey, they were more accessible, so we did a rip and replace on New Year’s Day. That wasn’t possible for the 100-person firm we acquired in Florida. In New Jersey, that first tax season was terrible because they had to deal with all new software. In Florida, they did what they’d always done for the first tax season. People didn’t understand why they couldn’t leverage their new team members in Florida, but they were all on different systems. The Florida office still had to deal with the software and process changes – just the following year. The pain of M&A integration extended over two tax seasons. It’s nice to do the rip and replace when you can and it makes sense, but it can be done in other ways.

RS: Rip and replace is the approach we’ve used. Last summer, we acquired a firm with around 30 employees. To this day, some employees still have two laptops. It’s expensive to move all that data and some of it will go away anyway. We had them finish up the current year audits in the old system and then start new audits on our engagement solution.

AW: You have to look at what you’re acquiring. If you need expertise or hours and they’ll be integrated into the new processes, then you want to rip and replace as much as you can. If you’re just going into a new market, it’s not as important to rip and replace right away.

How long do you let legacy data ride? And what if the acquired firm’s technology spend wasn’t what you were told?

AW: Never take their spending numbers at face value. You need to get in there, look at contracts and licenses to see what they’ve been spending over the last couple of years. As for when to cut off legacy data, of course employees will say they need it. We saw some success with making it read-only. That forces them to move crucial data to the new environment and start working in the new environment. That’s not always an IT call. We can just try to educate the decision makers.

JB: But you need to make sure the acquired firm follows your retention policy from year one.

AW: Agreed. General counsel will tell you that, too. Otherwise, you’ll open up a whole can of worms.

GS: If IT gets brought in during due diligence, start educating them on your retention policies. You might be able to convince them to start implementing it even before the deal is signed. For example, we keep emails for only six months. I tell people, “When you come over to us, all of your email older than six months will go away. If it’s important, you need to move it to your client files.” In some cases, we give them more time to migrate over to our policy, but only if we didn’t have time to educate them. As for technology spend, I have never asked for or received a technology budget from a firm we’ve acquired. We redo the IT budget from the top down. We don’t rely on anything they tell us regarding IT cost.

RS: From a client data perspective, we bring current year and prior year into our systems. Nothing prior comes into our system, typically. As for budgets, we haven’t asked for it. What they spent or were planning on spending this year doesn’t matter. It will all be under our budget going forward.

What are your top three priorities to have implemented on Day 1?

AW: Being able to communicate as one firm, so email and phones if you can get it. Time and billing. We want to be able to bill clients, pay employees and communicate as one firm. Everything else will work out.

Technology’s importance in an accounting firm continues to grow each year. Merging with or acquiring a firm with different computing resources, network access and IT policies can impact both firms’ culture, profitability and ability to attract and retain talent. I hope the insights above help spark important conversations about potential mergers and acquisitions in you firm much earlier than they have in the past.