Mergers without tears

‘The first question is not “should we merge?”, but “what problem are we solving?”,’ says Alex Chiang FCCA, director at CFGI in Singapore. ‘A merger is a sensible answer to succession, specialist capability, technology investment or geographic reach. It’s a poor answer to weak pricing, an unfocused client mix or an unclear proposition.’

Strategic advantage

Alton Neo, managing director of Singapore-based Astria Consulting, agrees that owners should establish whether their objectives could be achieved through organic growth, recruitment or partnerships before pursuing a transaction.

A merger becomes particularly compelling when structural challenges cannot easily be resolved internally, such as the absence of a successor or a shortage of specialist expertise. ‘One plus one must exceed two, or there’s no strategic fit,’ he says.

This means considering more than additional revenue or headcount. Cross-border referral networks, language capabilities, regulatory requirements and access to new industries can all make a potential partner attractive.

‘A partner that gives the firm a genuine regional service corridor is worth more than one that simply doubles its headcount in the same city,’ Neo adds.

Among the essential considerations, says Siong Yoong FCCA, founder and CEO of Vallaris Deal Advisory in Singapore, are complementary services, financial stability and client-base compatibility. A target with specialist capabilities or a diverse, loyal client base can also strengthen the combined firm’s proposition.

However, Chiang cautions that firms must distinguish between simply increasing scale and creating genuinely new capabilities. He recommends identifying three engagements the combined practice could realistically pursue that neither firm could win independently.

Culture counts

Even where the strategic rationale is compelling, differences in organisational culture can undermine a merger.

For Neo, compatibility means putting ‘culture and values first’. It is about ‘how partners treat staff, how they handle disagreements and whether they invest in people, followed by client base compatibility’.

Leadership style is equally important. Partners accustomed to making decisions independently may struggle in a combined practice requiring shared authority and collective accountability.

Chiang believes cultural compatibility is best assessed through observation rather than formal presentations. ‘Culture is easier to observe than to describe,’ he says. ‘Spend time in each other’s offices, sit in on an ordinary management meeting, and watch how a difficult client issue is handled.’

He recommends comparing how firms respond to practical situations, including overdue client payments, disagreements over accounting treatments, and decisions to write off work in progress.

Neo suggests going further by undertaking a joint engagement or establishing a referral relationship before committing to a deal. ‘You cannot assess culture in a boardroom,’ he says.

Such arrangements can reveal differences in working practices, quality expectations and communication styles before they become expensive integration problems.

Look beneath the numbers

Client concentration is a particular concern for smaller practices, where substantial revenue may depend on a handful of relationships maintained personally by founding partners. ‘Firms should always go beyond the accounts,’ Neo says.

He recommends examining client tenure, fee trends, staff turnover, remuneration expectations, technology compatibility and governance arrangements.

Chiang also highlights the importance of reviewing regulatory inspection outcomes, professional indemnity arrangements, data protection obligations and the costs of integrating technology. Ownership and licensing requirements vary across Asia Pacific, so a commercially attractive transaction may not necessarily be permissible under local professional regulations.

A further warning sign is a potential partner’s reluctance to share information or discuss difficult issues. ‘Difficult issues get deferred when everyone wants the deal to progress, and a respectful disagreement during diligence is far easier to resolve than the same disagreement after completion,’ Chiang says.

Protecting relationships

Staff and client relationships are often among a firm’s most valuable assets, making continuity essential during a merger. Employees need clarity about reporting structures, career progression and remuneration, while clients want reassurance that service quality and trusted relationships will be maintained.

Neo recommends retaining key personnel from both firms and communicating a straightforward message to clients: their existing contact remains available, and the merger will improve the service they receive.

Chiang warns against introducing too many changes simultaneously, particularly to pricing, billing and relationship management.

The challenge is also one of governance. Profit-sharing arrangements, leadership responsibilities and exit mechanisms should be agreed before completion rather than left for the combined firm to resolve.

Beyond completion

For owners embarking on their first transaction, the biggest mistake of all may be concentrating too heavily on completing the deal rather than preparing for what follows.

‘Take longer choosing the partner than negotiating the price, because a fair deal with the wrong partner is still a bad deal,’ Neo says. He recommends allowing considerably more management time for integration than originally anticipated.

Chiang similarly advises owners to establish an independent valuation, scrutinise the counterparty and clarify each principal’s post-completion responsibilities.

Ultimately, the strongest merger partner is not necessarily the largest, most profitable or most technologically advanced. It is the one whose capabilities, ambitions and working culture complement those of the existing practice.

For practice owners across Asia Pacific, a successful merger should therefore be measured not simply by the size of the combined business, but by whether it creates a stronger, more sustainable firm capable of serving clients long after the transaction has been completed.