Getting IT right in M&A
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Getting IT right in M&A

1 year ago · 4 min read

Firm growth and expansion are once again on the forefront as evidenced by the increase in mergers and acquisitions (M&A) happening throughout the accounting profession. While all deals start with the initial excitement of a new venture, the reality following can be distinctively different. One of the key differentiators in a successful M&A process is how effectively the firms transform to a single entity following the signing of the deal. This places a special emphasis on the standardization of processes and adoption of a single set of technologies for the firm’s overall benefit. Unfortunately, in many cases IT personnel do not have a seat at the table when the deals are being made as the primary emphasis and secrecy often limit the discussions around firm clients, staffing, practice management, and practice and owner compatibility to a handful of partners that are usually tax or assurance focused. To stack the odds of a successful M&A deal in your favor we have outlined key considerations gleaned from our Merger Process Optimization (MPO) Reviews for firms to consider before closing the deal.

Standardized processes and applications: Working as “one firm” is one of the hallmarks of successful M&A deals which means agreeing to a single list of applications (in particular, tax processing and audit production suites) to be utilized by the combined entity. Having one set of applications not only helps with providing training and support but also reduces licensing costs and management. Partners should agree to the standardized list before closing the deal and include plans to acquire adequate licensing, transition data, and provide training resources to the staff learning new applications. If close to year-end, the firm should inquire vendors about their availability to schedule conversion of client data from other vendor applications and any associated costs, as year-end is their busy season and availability is limited.

  • MPO tip: Require all conversions and training to be completed within six months of close and never allow for transitions to go longer than a year without clear financial consequences to those in the acquired entity for not converting.

Verified licensing: Accounting firms have long debated end-user vs. concurrent licensing which has left many firms not having adequate licenses for applications following a M&A transaction and surprise costs for programs such as tax research, Microsoft 365 (formerly Office), QuickBooks, Adobe, etc. licensing. Firms must identify existing licenses and the cost to move everyone to the firm standard versions including inquiring about any additional office location costs. Firms should also identify any long-term contractual licensing agreements regarding applications and hardware that will not be utilized after the M&A deal, determine if these can be ended early, and budget for any termination fees or penalties.

  • MPO tip: While many firms acquired desktop or individual licenses for applications in the past, this often led to IT problems with version control and maintenance updates. Standardizing on cloud/server-based applications almost eliminates firm maintenance and ensures that everyone is working on the same version as well as allowing the firm to scale the number of licenses up and down as needed according to the seasons.

Combined IT infrastructure: For firms managing their own networks internally, they must verify that they have adequate server processing power, disk and backup storage, as well as remote access and security technical experience to combine the various networks into a central platform allowing everyone to work consistently regardless of location. This means building a centralized infrastructure that can be easily scaled for future additions and growth. Adequate and redundant Internet access for each location should be assessed beforehand and any upgrades or new service providers should be scheduled for installation as soon as possible as this can often hinder effective remote office integration. In addition, the firm must restructure IT staffing to fit the new combined firm model and validate appropriate level technical personnel in those positions as well as required future training.

  • MPO tip: Identify which applications will be moving to cloud/hosted applications before the M&A deal which will reduce in-house network design requirements and associated IT support. Cloud/hosted applications also add native remote access capabilities and backup/disaster recovery requirements that the firm does not have to build out and manage internally post-M&A.

Uphold minimum workstation standards: The cost of workstations is miniscule compared to lost productivity due to inadequate or under-performing technology. Firms should identify the minimum requirements of their most comprehensive users and apply that as the firm standard. It is recommended that firms transition to laptops for mobility and built-in communications which have Intel i7 processors, 16GB Ram and solid-state drives (unless 100% server-based computing where the processing is being done on the server and the workstations function as terminals). Each user should also have enough screen “real estate” to be able to have all required applications open and viewable concurrently including time and billing, workflow, and collaboration (MS Teams, Zoom, Slack, etc.) in addition to the necessary tax and A&A applications required for their work.

  • MPO tip: Set workstation standards for what you anticipate needing two to three years from now and identify and approve upgrade and replacement costs (including monitors) during the negotiations.

Emphasize remote capabilities: One of the lasting impacts of COVID will be the acceptance of firm personnel working remotely at least one day per week, so it is critical that the experience is consistent whether in the main office, remote office, client site or at home. This requires a standard remote access platform available from anywhere that has Internet connectivity with an emphasis towards cloud or professionally hosted applications if firm IT personnel do not have the training and experience to implement the remote capabilities.

  • MPO tip: Transition to cloud, hosted and remote solutions that present all programs consistently through a single sign-on/portal.

Merging with or acquiring another practice always creates excitement when announced. These deals can be very successful when appropriately thought-out and planned, which should include incorporating the IT discussions in the mix.

Roman H. Kepczyk, CPA.CITP, PAFM

Roman H. Kepczyk, CPA.CITP, CGMA is Director of Firm Technology Strategy for Right Networks and partners exclusively with accounting firms on production automation, application optimization and practice transformation. He has been consistently listed as one of INSIDE Public Accounting’s Most Recommended Consultants, Accounting Today’s Top 100 Most Influential People, and CPA Practice Advisor’s Top Thought Leaders.

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