M&A As a Growth Strategy

MCC Construction Zone

M&A As a Growth Strategy

David Gibbs, CPA, CCIFP, CRE, MBA

Many companies use M&A as a strategy for growth. The international consulting firm McKinsey & Company found that six of tensuccessful companies include M&A in their growth strategies. Those companies increased their revenue at or above their industry segment’s growth rate and enjoyed twice the success of lagging competitors.

Although there are a lot of reasons why a company may choose to merge, one of the best reasons is to increasevalue for the for the firm’s clients, employees, and stakeholders. That is exactly our intention with mergingBorislow, Factor & Kaufmann (BFK) into our firm.

Value Creation Our clients rely on us to bring them innovative ideas and proactive solutions based on industry best practices and our in-depth knowledge. Clients expect us to help them identifynew opportunities for growth and provide realistic and viable solutions to their challenges. We need the best talent on our team to deliver and exceed client expectations.

“We have been seeking the right strategic partner to add more knowledgeable talent to our firm. BFK has the right mix of resources, professional expertise, and passion for client service,” said Marty McCarthy, CPA, CCIFP, and the managingpartner of McCarthy & Company. “We best deliver value to our clients by having outstanding talent and broadening our service platform. The addition of the BFK team expands our tax and accounting depth.”

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Both firms are well known for providing proactive personal service to their clients ranging in size from small family-owned or closely held businesses and midsize companies, to multimillion dollar corporations in diverse industries.

“McCarthy & Company shares the same values and unwavering commitment toexceptional personal service as we do,” said Jeffrey M. Factor, CPA and managing partner of Borislow, Factor & Kaufmann. “Business owners and executives rely on both of our firms for effective operational and growth strategies. Our reputation for value isbuilt on results. The same is true for McCarthy & Company.”

Defining the Operating Model McKinsey expert professionals define an operating model as having three elements –structure, process, and people. In their article entitled Realizing the Value of Your Merger with the Right Operating Model, Caitlyn Hewes, Rebecca Kaetzler, Kameron Kordestani, and Olivier Rigaud stress that management must address all three elements to design a value-focused operating model. Defining the governance, processes, and keytalent considerations are critical. Decision rights and committee structures need to be defined, processes and procedures must be designed, performance management metrics mustbe decided on, as well as norms and value-management practices, roles and responsibilities, and a wide array of other items.

Both firms in a merger bring their own best practices to the combined company. Merger partners must evaluate and agree on which practices will be adapted in the new operating model and which will not.

Considerations McKinsey expert professionals identified several constraints and risks to an operating model redesign in the above referenced article. • Building a new executive-leadership team that aligns on a vision, agrees on the path to get there, and commits to modeling the new company’s ways of working. • Getting the top-team selection and alignment right. • Combining two existing operating models to one. • Using an interim operating model for some time after a deal closes before transitioning to an end-state model. • Retaining talent while maintaining profitability. Workforces are typically anxious during a redesign, and a desire for information and clarity may decrease productivity during the process. • Dealing with regulatory and legal considerations may restrict what organizations can do, design, communicate, and implement.

Winning at the Merger Game In a McKinsey blog post entitled How to Win at M&A, authors Oliver Engert and Emily O’Loughlin discuss what works and doesn’t work when combining organizations.They explain that the biggest mistake that executives make is looking only at the surface of the acquired company’s mission statement and assuming that it is in alignment with theirs.

As stated in the blog, “companies combine to gain competitive advantage. When mergers and acquisitions fail, our research finds it’s mostly because organizations too often overlook or ignore organizational culture and human capital issues and pay scant attention to integrating these softer issues into the “hard” integrationprocess.”

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“According to the McKinsey Merger Integration Conference survey (2010-2017), over 50% of companies that do not effectively manage culture when going through a merger or acquisition report that they do not achieve their synergy targets.”

Theblog points out that high-performing companies strive to capture synergies of 30% to more than 100%. These companies recognize that it could take 3-5 years to deliver capital and revenue synergies. Furthermore, high performers begin working on the integration before the effective date of the merger.They take a scientific and quantitative approach to diagnosing and addressing cultural conflicts and work to create alignment. They also tailor the process to the company coming into the firm instead of takingthe exact same approach that they took with other mergers.

We have been working on our new operating model for months and hope that you will find the transition smooth. Our combined firm will operate as McCarthy & Company beginning on January 1, 2022, out of the firm’s new office located at 492 Norristown Rd, Ste.160, Blue Bell, PA 19422. Together we will have nearly fiftyprofessionals to serve our clients throughout Southeastern Pennsylvania and the Mid-Atlantic states. Our position as a “go-to powerhouse” in assurance, accounting, tax, and business advisory services will be enhanced because of the merger.

Feel free to contact any of our team members with questions at 610.828.1900.

About the Author David Gibbs, CPA, CCIFP, CRE, MBA is a tax partner and McCarthy & Company’s partner-in-charge of the firm’s Real Estate Services Group. David was recently awarded the Counselor of Real Estate® (CRE®) designation. Among the most respected real estate specialists in the industry, a CRE® provides intelligent, unbiased real estate advice that achieves the best results for a client. David can be contacted at 610.828.1900 or David.Gibbs@McCarthy.CPA.

Disclaimer: This article is for informational purposes only and does not constitute professional advice. We strongly advise you to seek professional assistance with respect to your specific issue(s).

David Gibbs, CPA, CCIFP, CRE, MBA

Call us to design your 2022 tax blueprint. 610.828.1900