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Merger discussions kick into high gear each summer as partners look to expand their practice reach, combine well-suited practices, discuss new service opportunities, and address succession and retirement issues.  Often, these discussions focus on tax and assurance practice compatibility from a financial and cultural perspective, and while Information Technology is touched upon, the lack of IT knowledge often has the negotiators defaulting IT issues to a later time.  Unfortunately, many firms have found out that there are a variety of IT “gotchas” that can result in major headaches with hidden financial consequences after the deal is closed.  Below we share a number of technology surprises that firms should look out for before the M&A celebrations start.

Workstation Compatibility

Firms can be surprised when workstations meeting “minimum” requirements can’t effectively run the software mandated by the merger and then have to unexpectedly buy new computers within the first year of the merger.  IT should set realistic minimums for machines that will run for at least the first year, and replace those that don’t qualify at the start of the merger.  IT should pre-determine viable processors (Intel i5/i7), Random Access Memory (8+Gb), solid state drives, and multi-monitor configurations and know which machines will last another two, three or four years to aid in budgeting.

Combined Storage Requirements

When combining networks in a traditional network environment, the Storage Area Network (SAN) has to be capable of handling the increased demands, which can be very tricky in equal mergers.  This often places the firm in an environment that is well beyond the intended thresholds of the primary SAN and forces the firm to buy a very expensive new SAN to handle the needs of the combined entity.

Remote Access Requirements

Centralization of applications and data is one of the hallmarks of firms that successfully merge in practices, creating an environment where everyone works from one application set, which IT can more effectively manage.  This requires reliable remote access for all remote users and offices with the expectation that the speed will be comparable to the local network they were accustomed to (which points to hosted and private cloud technology adoption).  While some solutions, such as an older Windows Terminal Server, GoToMyPC, or VPN connection, were fine for a handful of remote users, in a combined entity with significantly more users, they often have noticeable degradation of performance, and remote users struggle from the get go.  Firm partners are often shocked by the upgrade cost of implementing a Microsoft Remote Desktop Server or Citrix infrastructure required, which should be identified beforehand if the merger wants to have any chance of success.

Internet Capacity

Centralization in a traditional network environment also requires that merged practices connect to the firm’s main servers, which can increase Internet requirements for both speed and quality.  A cable-class connection, which was acceptable for external browsing for one office, will often be inadequate for real-time remote users, so the quality and availability of increased bandwidth should be verified before finalizing the location of servers and finalizing the acquisition.

Server Room Expansion

Firms with traditional networks usually combine servers into the central room, which may have had adequate power and air conditioning capacity before the merger, but is inadequate afterward.  Expanding air conditioning after the fact can be surprisingly expensive, leading some firms to “leave the door open,” which then compromises the security of the servers.  If a server room is already too warm, it will only get worse.

Data Conversion Availability

Often, one of the drivers for merging firms is that the involved firms believe they are already compatible because they are already using the same tax program, practice management, document management, etc. applications.  Unfortunately, some vendors make mergers somewhat difficult because of the way the data is organized within the application, so it must be done by the vendor.  The IT surprise comes when the vendor has to do the conversion based on their availability, which can be unexpectedly delayed, particularly for year-end conversions when firms want to combine databases before the New Year.  There also may be costs involved either for consulting or for the administrative hours required to move the data.

Non-Cancellable Contracts

To get better pricing and discounts, many firm sign long-term contracts (three or more years) for their applications (document management, tax, etc.) or services (Internet, phone, IT support contracts, etc.).  Partners should identify which applications are non-cancellable and the amount of the penalties before signing the deal, as the expectation is often that the acquired practice will adopt the same firmwide applications.  This has led some firms to delay the transition to the new applications, which then made later conversions more difficult, as the cultures take longer to meld.

Application Licensing

Many firms purchase Microsoft Windows and Office with a computer and may not upgrade every version – instead “skipping” a version until enhanced features (or a new computer) warrant the upgrade.  Mergers are more successful when everyone is working on the same version of Office.  Also, some applications require/IT personnel may recommend upgrading both Office and Windows to a common platform.  The surprise can occur when an acquired practice is using older versions of Office or Windows that must be upgraded.  The surprises can get even more expensive when the firm has not documented their server and workstation licenses and they go through a Microsoft license audit.  Surprises also occur when firms review QuickBooks and Adobe licensing.  While firms often use their ProAdvisors to acquire adequate QuickBooks licensing, surprises can occur when the parent firm’s standard only supports the three most current versions, which forces upgrades to resistive clients of the acquired practice.  Adobe Acrobat can also cause a significant licensing surprise in firms that have standardized on it for PDF editing and the acquired practice does not have any documented licenses.

Mergers and acquisitions will continue to be a common approach to growing a firm. Including discussions on technology and a common platform before the transition will improve the odds of those efforts being successful.

This article is an updated version (as of May 9, 2017) of an article that was originally published for the American Institute of Certified Public Accountants (AICPA) in 2016. Copying or distribution without the publisher’s permission is prohibited.

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Roman Kepczyk
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Roman Kepczyk offers over 25 years of CPA firm experienceRead more...

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