The accounting industry is experiencing an unprecedented wave of consolidation, with 70 transactions announced or completed year-to-date in 2024, yet many acquirers fail to identify substantial hidden value within target firms. While aging partners seek succession plans and private equity interest surges, the difference between a successful acquisition and a costly mistake lies in thorough due diligence that uncovers intangible assets traditional financial statements overlook.
Marko Glisic, CPA and Partner at GreenGrowth CPAs, brings unique perspective to this challenge after eight years at Deloitte managing billion-dollar transactions. His M&A due diligence approach goes beyond standard financial reviews to identify operational efficiencies, undervalued client relationships, and technological advantages that transform acquisition economics.
The Current M&A Environment Demands Deeper Analysis
Accounting faces a significant generational transition. With approximately 40,000 CPA firms nationwide and many owners approaching retirement, the transfer of ownership constitutes one of the largest wealth transfers in professional services history.
“There’s definitely starting to be a lot more consolidation,” Glisic observes. “A lot of them are older retiring firms, where you have owners that’ve been there and now they’re in their 60s, 70s, and they’re looking for a succession plan.”
Private equity activity has spiked year-over-year in 2024. Financial acquirers have accounted for 32.9% of sector deals compared to 18.9% in YTD 2023. Increased competition for quality firms makes thorough due diligence essential for identifying value others might miss.
Traditional Due Diligence Falls Short
Standard M&A due diligence typically follows a predictable pattern:
- Review federal, state, and local income tax filings for the three most recent closed tax years
- Examine financial statements and audit reports
- Analyze client lists and revenue concentration
- Assess accounts receivable aging and collection rates
- Verify compliance with regulatory requirements
- Evaluate existing contracts and agreements
While these provide essential baseline information, they often fail to capture true value drivers in accounting firm acquisitions. M&A due diligence duration averages 6 weeks for a team of 10, but insights from experienced professionals suggest rushing through or relying solely on financial metrics leads to missed opportunities.
“A couple of things need to make sense. One is the chemistry,” Glisic explains. “The way we run our processes, the way we work with our clients, if that’s similar to the way the target is doing it as well, that transition integration is going to be a lot easier.”
Uncovering Hidden Operational Value
Glisic’s approach extends well beyond financial analysis. During on-site visits, his team examines processes, systems, and workflows that standard reviews overlook.
“We recently looked at a practice, and their billing software was way better than ours,” Glisic recalls. “And we’re like, wait, we should just switch our stuff to that as well because it was just so good.”
Investigation often uncovers inefficiencies that create immediate value-creation opportunities. “Once you actually go there, you start asking questions, you find a lot of low-hanging fruit,” Glisic notes.
Common discoveries during operational due diligence include:
- Underpriced client relationships: Long-term clients paying below-market rates for services
- Cross-selling gaps: Clients using only one service line when multiple offerings could benefit them
- Redundant processes: Duplicate workflows that can be consolidated for efficiency gains
- Unutilized expertise: Staff with specialized skills not being leveraged for appropriate clients
- Technology disconnects: Manual processes that could be automated with existing tools
Identifying and Valuing Intangible Assets
The most overlooked aspect of accounting firm valuations involves intangible assets. These non-physical business resources provide significant value yet rarely appear on traditional financial statements.
Accounting firms possess several types of intangible assets:
- Client Relationships: Long-standing connections generating predictable revenue streams
- Specialized Expertise: Industry-specific knowledge or technical capabilities
- Proprietary Processes: Unique methodologies enhancing efficiency
- Brand Reputation: Local market presence and professional standing
- Employee Expertise: Trained professionals with deep client knowledge
The Tax Court concluded that unrealized gain in client-based intangible assets should be allocated among all partners, demonstrating the significant financial value courts recognize in these relationships.
The Human Element in Due Diligence
Glisic emphasizes evaluating human capital within target firms. Many accounting firm owners operate as technicians rather than business managers, creating both challenges and opportunities.
“A lot of business owners, they are technicians, and they never expand beyond that,” Glisic observes. Talented professionals may be underutilized, or simple management improvements could yield substantial returns.
His due diligence process includes detailed discussions with employees to understand firm culture, identify key personnel, and assess retention risks. Human capital assessment often reveals hidden value through untapped expertise or client relationships not fully leveraged.
Technology Assessment as Value Driver
Technology infrastructure forms a critical due diligence component. Buyers should inquire about the seller’s technology and intellectual property scope during the M&A process.
Glisic’s teams evaluate current systems and technological transformation potential. Many smaller firms operate with outdated technology, presenting significant efficiency gains through modernization. The assessment covers practice management software, client portals, and cybersecurity protocols.
Financial Engineering Through Analysis
Sophisticated financial analysis remains crucial alongside operational factors. Glisic examines opportunities to restructure operations for tax efficiency, particularly given professional service firms’ unique challenges, as outlined in recent commentary on regulatory environments.
“Pricing, how much we charge for our services, what the target charges for their services, same thing,” Glisic notes. Misaligned pricing often creates immediate value through post-acquisition repricing.
Post-Acquisition Integration Planning
Effective due diligence considers post-merger integration from the outset. Specialized firms advocate keeping selling partners involved post-transaction, transforming potential competitors into growth drivers.
“What you see with a lot of CPA practices, the owners are so busy doing the work, they’re not doing business development,” he explains. “When we acquire them or merge them, it opens up their time to do that business development.”
Former owners leverage relationships to drive new business while operational efficiencies improve margins, transforming acquisitions from consolidation plays into growth platforms. Strategic insights on industry transformation demonstrate how effective integration creates lasting value beyond simple consolidation.
Due Diligence approach
Successful acquirers look beyond traditional financial metrics to identify hidden value. Sponsors have focused on buy-and-build strategies, pursuing platform acquisitions followed by transformative add-ons to rapidly scale portfolio companies.
Glisic’s comprehensive due diligence examines culture, operations, technology, human capital, and growth opportunities alongside financial metrics. This approach uncovers value that others miss in increasingly competitive M&A environments, particularly as regulatory changes reshape various industries and create new valuation considerations.
Firms mastering this comprehensive due diligence approach emerge as market consolidators, creating stakeholder value while providing succession solutions. As market analysis shows, private equity investment accelerates and competition intensifies, making the ability to identify hidden value through superior due diligence the key differentiator between successful acquirers and those who overpay for diminishing returns.
