2024 was another extremely active year for CPA firm M&A. What we’ve learned from our many years of strategic advising and facilitating transactions is that there are aspects of deal-making that stay consistent, as well as specific lessons each year that reflect the times we are living in.
Here are 4 takeaways from 2024 that will be important to apply in 2025:
Continuity of personnel is becoming a standard. Larger acquirers may have an easier time of staffing, but they are not magicians. Consequently, acquirers have started to require that a significant percentage of personnel for the firms seeking to merge in will agree to join the new firm. This prerequisite will intensify.
Outsourcing and offshoring spells advantage. Acquirers with a strong track record of outsourcing and offshoring ramped up their activity and are more aggressive and more compelling. Targets who have started the outsourcing process will gain more acquirer attention and likely more exciting terms. Capacity will continue to drive transactions and will impact viability and interest.
New players are bringing disruption and distraction. While private equity (PE) and other non-traditional investors will continue to actively pursue CPA firm acquisitions, their influence is diverting too many firms who mistakenly think that they will be a good target. What we see over and over is that these distracted firms (with PE stars in their eyes) are losing out on deal opportunities that actually make sense.
Profitability dictates viability. In 2024, profitability was the lead filter, and, with the way deals are being structured, we believe this will continue in 2025. Highly profitable firms are the first choice for PE investment and are the comfort zone for the majority of acquirers. Successors will continue to flinch at reengineering a firm to generate profitability, so expect them to embrace firms with high fees and profits, with the expectation of adding services and generating efficiencies and more profit through innovation.
As 2025 evolves, there will certainly be new matters that will affect M&A, but these lessons learned from 2024 will be useful and applicable at least throughout this new year.
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