Seller's market? Buyer's market? What's the landscape?

AuthorSinkin, Joel

Few topics have sparked more interest recently in CPA firm practice management than mergers and acquisitions. The "urge to merge" has never been greater. A common question we hear is: "Are the current market conditions creating a seller's market or a buyer's market?" The answer depends on:

* The market in which the firm is located.

* The type and size of firm.

* Other attributes of the firm that seeks to be acquired.

In some markets, firms of the right size and mix are in high demand and there is clearly a seller's market. In many parts of the country and for certain practice sizes and mixes, there is a trend toward or an existing buyer's market. The answer depends significantly on the economic principle of supply and demand. Where the demand from buyers is high, the market tends to be more of a seller's market, and vice versa.

Location: Unfortunately if a firm is in a less populated area that offers few potential acquirers, there is almost always a buyer's market. This has always been the case and the current economic conditions and other factors that have affected larger markets haven't made a difference in smaller markets. If the market is one that might be attractive to a larger firm wishing to establish a presence, or if a firm has attractive niche specialties that don't depend on geography for distribution of services, the market limitations can be overcome. The fact that a firm is in a smaller market doesn't necessarily mean there are no potential acquirers. It probably at least means acquirers will take longer to find and the terms of the merger or acquisition may not be as favorable for the acquired firm.

In larger markets there are usually many more potential acquirers. In addition, the attractiveness of the market in general tends to pull in more firms that want to establish a new presence. There is a current significant push from the firms in the Major Firms Group (the top 100 firms nationally) to expand geographically in an effort to reach more potential clients, be more relevant to their existing clients and strengthen their brands. That is one of the reasons that in some of the largest markets, for the right size firm, it is definitely a seller's market. However, as larger firms establish a new presence they tend to become more selective in their choice of firms, which means that for that acquiring firm at least there is a shift back to a buyer's market. This is likely to happen as the Top 100 firms fill in their target...

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