Maximizing Post-Merger and Acquisition Performance in the U.S. Public Accounting Industry: A Detailed Analysis
The U.S. public accounting industry has witnessed significant consolidation over the years, as many smaller firms merge to achieve operational efficiency, market expansion, and increased competitiveness. However, Provenzano (2022) investigates how U.S. public accounting firms can enhance post-M&A performance through scope economies, stakeholder value, and economic profit and suggests that merely completing a merger is not enough to guarantee enhanced performance. The key to success lies in how well firms integrate their operations and leverage synergies in cost management, service offerings, and client relationships.
This article presents a detailed summary of the thesis, which examines the factors that determine the success of post-merger performance in the public accounting industry. Through the lens of scope economies, stakeholder value added, and economic profit, Provenzano (2022) research offers a comprehensive understanding of how accounting firms can maximize the outcomes of M&As.
1. Introduction: The Increasing Role of Mergers and Acquisitions in Public Accounting
The public accounting industry in the U.S. is fragmented, with thousands of small to medium-sized firms competing for market share. Many of these firms are seeking growth through mergers and acquisitions (M&As) in order to gain a competitive edge, expand their service offerings, and reduce costs. The motivations for M&As are clear: larger firms can leverage economies of scale, gain access to new clients, and improve market positioning.
However, despite the apparent advantages, many mergers fail to achieve their anticipated outcomes. Provenzano (2022) research focuses on understanding what factors contribute to the maximization of post-merger performance in the public accounting industry. Specifically, Provenzano (2022) explores how firms can capitalize on scope economies (cost efficiencies), stakeholder value added (benefits to clients, employees, and shareholders), and economic profit (financial returns that exceed the cost of capital) following a merger.
2. Research Objectives and Methodology
2.1 Research Objectives:
The primary objectives of the study were to:
Maximize Scope Economies: Achieve cost savings by consolidating operations, reducing overheads, and leveraging shared resources.
Maximize Stakeholder Value Added: Enhance value for clients, employees, and shareholders through improved services, retention, and profitability.
Maximize Economic Profit: Ensure that the merger leads to financial success, generating returns above the firm’s cost of capital.
2.2 Methodology:
The research adopted a case study approach, analyzing the financial data of two public accountancy firms: the Participant and the Target. Both firms were analyzed pre- and post-merger to evaluate the impact of the merger on the key performance indicators of scope economies, stakeholder value, and economic profit.
Key methodologies included:
Net Present Value (NPV): Used to assess the financial viability of the merger by discounting future cash flows.
Return on Invested Capital (ROIC): Measured the efficiency of capital utilization after the merger.
Tobin’s Q: This ratio compared the market value of the firm to the replacement cost of its assets, helping to evaluate whether the merger led to an increase in firm value.
Discounted Cash Flow (DCF): This model was used to assess the long-term financial impact of the merger by predicting future cash flows and discounting them to present value.
The results were compared to pro-forma financial statements and analyzed to determine how well the firms realized post-merger synergies.
3. Key Findings of the Research
The findings of the study provide valuable insights into the performance drivers of post-merger success. These findings are discussed in relation to the three main research areas: scope economies, stakeholder value added, and economic profit.
3.1 Scope Economies: Realizing Cost Efficiencies
The research found that scope economies, or the cost efficiencies achieved through operational consolidation, were a key determinant of post-merger success. However, the realization of these economies was not automatic. The study showed that firms that failed to effectively integrate operations and reduce redundancies did not fully capture the potential cost savings from the merger.
Operational Integration: The merger resulted in cost-saving opportunities, particularly in administrative functions. However, firms often continued to operate in separate office locations or maintained redundant administrative functions, leading to higher-than-expected operating costs.
Rent and Salary Cost Reductions: Rent and salary were two significant areas where economies of scale could be realized. For example, by consolidating office locations or adopting virtual work structures, firms could reduce rent costs. Similarly, eliminating duplicate administrative roles and streamlining salary structures helped to reduce overhead.
Technology Integration: Another missed opportunity for scope economies was the failure to integrate technology systems efficiently. Firms that maintained separate IT infrastructures could not fully capitalize on cost-saving benefits from technology consolidation.
The study emphasizes that firms must prioritize operational integration, particularly focusing on office consolidation, centralizing back-office functions, and integrating technology systems to maximize scope economies.
3.2 Stakeholder Value Added: Creating Value for Clients and Employees
The research also revealed that stakeholder value added—the benefits a merger brings to clients, employees, and shareholders—was crucial to the overall success of the merger. While M&As can offer potential value to stakeholders, the study found that stakeholder value was often only realized when firms strategically aligned their operations and services.
Client Retention: The ability to retain clients post-merger was strongly linked to communication and service continuity. Firms that communicated clearly with clients about changes, reassured them about the quality of service, and integrated service offerings saw better client retention.
Employee Retention and Engagement: Employee turnover was a concern for many firms post-merger. Firms that managed to clearly define roles, communicate career opportunities, and offer development programs had a better chance of retaining top talent. Firms that left employee roles undefined or failed to integrate leadership structures faced higher turnover, which disrupted operations.
Cultural Alignment: The integration of organizational cultures was another key factor in maximizing stakeholder value. Firms with similar organizational cultures had smoother integration processes, leading to better employee morale and retention.
The study highlights the importance of integrating both client-facing and employee-related strategies to ensure stakeholder value is maximized.
3.3 Strategic Relatedness: The Role of Fit Between Merging Firms
A critical finding of the research was the importance of strategic relatedness between the firms involved in the merger. The study concluded that when firms are strategically related—meaning they offer complementary services and share similar market focuses—they are more likely to realize synergies and achieve post-merger success.
Complementary Services: Firms offering complementary services (e.g., audit and tax) experienced smoother integration and better financial outcomes. The merged firms were able to cross-sell services, expand their client base, and leverage shared expertise.
Market Expansion: Mergers between firms with overlapping client bases or similar market targets helped firms expand into new regions or industries, increasing market share.
Cultural Fit: A shared organizational culture between merging firms made it easier to align goals, streamline operations, and integrate employees, leading to greater post-merger success.
Firms looking to merge should consider strategic alignment in terms of services, market reach, and organizational culture to maximize potential synergies.
3.4 Economic Profit: Financial Success and Synergy Realization
The analysis of economic profit—the financial benefit derived from the merger after accounting for the cost of capital—showed that achieving economic profit was highly contingent on realizing both cost and revenue synergies.
Cost Synergies: Firms that integrated their operations effectively, reducing overhead and redundant costs, saw positive economic profit.
Revenue Synergies: The ability to increase revenue by cross-selling services or expanding market reach was equally important in generating economic profit. Mergers that focused on both cost reduction and revenue generation were more successful in achieving higher returns.
Return on Capital: The study found that mergers that failed to generate sufficient revenue synergies often did not achieve returns above the cost of capital, indicating that the merger was not financially successful.
To maximize economic profit, firms must ensure that both cost efficiencies and revenue enhancements are fully realized after the merger.
4. Recommendations for Public Accounting Firms
Based on the findings, the following recommendations are made for public accounting firms considering mergers and acquisitions:
Prioritize Operational Integration: To maximize scope economies, firms should consolidate office spaces, centralize administrative functions, and integrate technology systems. This will help achieve significant cost savings.
Focus on Strategic Fit: Firms should ensure that they are merging with organizations that offer complementary services and share similar market focuses. This will increase the likelihood of achieving synergies.
Communicate with Stakeholders: Effective communication with clients and employees is essential for ensuring stakeholder value. Firms must clearly communicate the benefits of the merger and reassure clients about service continuity while supporting employees through the transition.
Maximize Revenue Synergies: Firms should explore opportunities to increase revenue post-merger, such as cross-selling services and expanding into new markets.
Monitor Financial Performance: Post-merger, firms should closely monitor key financial metrics such as NPV, ROIC, and economic profit to ensure that the merger is meeting its financial objectives.
5. Conclusion
This study confirms that while mergers and acquisitions offer significant potential for public accounting firms, the success of these transactions depends on the strategic realization of synergies. Firms must prioritize operational integration, focus on complementary services, and effectively manage stakeholder value to maximize post-merger performance. By following these strategies, firms can ensure that M&As contribute to long-term growth, profitability, and competitiveness.
The thesis provides a comprehensive framework for understanding and managing M&As in the public accounting industry. The findings not only contribute to academic knowledge but also offer practical insights for firms looking to optimize their M&A strategies. Future research could further explore the long-term sustainability of the benefits outlined in this study and examine the impact of technological advancements on post-merger success in the industry.
Reference
Provenzano, B., 2022. The U.S. public accounting industry: Maximizing post-merger and acquisition performance on a firms’ scope economies, stakeholder value added and economic profit. Doctor of Business Administration thesis, University of Liverpool. Available at: https://livrepository.liverpool.ac.uk/3159673/ [Accessed 4 June 2025].
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