Sharing lessons learned from a successful merger
For Albuquerquebased REDW LLC, one of the Southwest’s 10 largest certified public accounting and business consulting firms, this month marks the five-year anniversary of REDW LLC, Abalos & Associates PLLC, and Miller, Allen & Co., P.C. joining together under the REDW brand on November 1, 2012.
Since successful mergers often fall short — either failing completely or failing to accomplish the synergies that looked attractive on paper — REDW is celebrating this milestone as evidence of a well-planned merger “gone right.”
Here are three key lessons learned from our merger:
1. LOOKING BEYOND FINANCIAL STATEMENTS: Never underestimate the importance of the “cultural” merger. The 2012 strategy, a year in the making, enabled REDW to merge with two CPA firms who held the same values in how to conduct business and how to attract and retain clients and top talent. “Most firms focus exclusively on financials and overlook how different cultures can clash,” says Sandy Abalos, REDW Principal-in-Charge of the Phoenix office and tax practice leader, “but merely living under one roof doesn’t guarantee success.” She adds, “For us, the proof is in the pudding: We’re extremely proud to say that five years later, every partner who came with the merger is still with us and very much engaged.”
While all three firms started with a similar, shared background — uncompromising integrity, a passion for excellence, a high regard for technical expertise, and a commitment to value-based client service — the transition required these values to be reimagined, nurtured, and expressed in new ways.
“Even though we discussed the cultural aspects of the merger at length from the very beginning,” comments Mike Allen, REDW Principal and Audit and Assurance practice leader, “over time, the firm invested tremendous energy and resources into how to improve communications, identify with a single brand, and create a ‘one-firm’ mindset — no easy feat.”
2. ALIGNING “WINWIN” EXPECTATIONS: What often appears to be an obvious shared goal, you can never emphasize enough the importance of making every party feel they are in a win-win situation. In practical terms, it’s widely known and even well accepted that the larger firm often dominates the process. “In our case,” Mike Allen says, “we took time to carefully articulate the benefits to be gained by each firm from the joining, a combination
of branding strength, broader and deeper technical capabilities, market expansion and penetration, local credibility, and growth opportunities for team members.” 3. GOING SLOW TO
GO FAST: A successful merger needs careful planning and a committed integration team, but to be profitable, the transition also needs to happen quickly. Critical areas that must be addressed from day one have little to do with partner compensation and shareholder finances (where many firms spend the most time and energy) and everything to do with how quickly and successfully the firm can combine its IT, payroll, human resources, and other key functions that impact the daily lives of clients and team members.
“REDW preferred a ‘rip the Band-Aid off’ approach — we opened our doors as one firm on day one and never looked back,” says Abalos.
As a result, REDW has nearly doubled the size of our commercial tax and audit practice and deepened our reach into tribal markets, major goals of the merger. As we put our growing pains behind us, REDW has continued to diversify our Phoenix services using M&A. Our most recent successes were to acquire two niche practices — James C. Sell, P.C. and Edelman Co. — in 2016. Sell’s company allowed REDW to expand its forensic and litigation practice to include receivership and other specialized services; Edelman’s deepened services to physicians and medical practices.
“Consolidation is nothing new in our industry, but the key is to understand what drives M&A activity. In many cases, it’s a lack of succession planning; in others, a lackluster financial performance,” says Steve Cogan, REDW Managing Principal. “I am proud of our firm for having both in place,” Cogan adds. “Our leadership team is poised and committed to remaining independent. Based on our continued success, we’ll continue to actively pursue growth opportunities through M&A and talent acquisition, and continue to do so while expertly guiding clients through the same process.”