It’s Not Just About the Numbers: Staff Redundancy and Retention in a Merger or Acquisition

By Steven E. Sacks, CPA, CGMA, ABC

Whenever two firms engage in a merger or acquisition, there are the inevitable issues of staffing, redundancy and retention. Areas like administration, operations, technology will have overlap. This may even happen with partners from both firms. There are differences of opinion as to whether dual roles can be cost-effective or create synergies.

While you will have additional resources at your disposal, the merger or acquisition will create redundancies in multiple staff levels — depending on the size of the firms involved. This should be a concern even if the excess capacity is in a niche area. The pressure will now be on finding add-on services and new geographic markets. The firm leaders may be looking to streamline operations and focus the infusion of new resources on what was strategically decided before the agreement to combine.

The biggest challenge will be to decide who the best people are to retain. This can become apparent in the due diligence stage, where the acquiring firm will interview those on the partner track. There will no doubt be attrition if the resulting cultural shift is beyond the comfort level of some. And if this is the case, not much attention will be paid to creating a well-defined staffing process or matrix structure.

The three pillars of people decisions that are to be managed in the integration process are:

  1. Staffing where the right people are leveraged effectively and given more responsibility and say in the overall firm operations.
  2. Eliminating areas of redundancy that are not critical to the overall firm operations.
  3. Retaining the key people and those who have demonstrated potential to cultivate over the long term.

Staffing: The Biggest Obstacle

Both parties to the firm combination should agree on equal say in identifying which individuals should stay; partners are included in this assessment. If both firms have partners who lead a niche area, you must define the levels of authority. For those individuals whose positions are superseded, they should have an opportunity to transition to another part of the firm, or if necessary, be provided outplacement assistance. Again, this goes back to an earlier posting: How you treat people in sensitives matter will determine if you can salvage the relationship for future opportunities.

Due diligence discussions between the two firms should, of course, cover the strategies and objectives and firm structure. When it comes to staffing, the positions, definition of expertise and desired headcount are addressed — the latter of which is a concern if there are multiple offices involved. These discussions should be handled in a way that does not give rise to rumors, which can be demoralizing to the professionals of both firms.

I recommend forming a staffing integration process committee that includes the assistance of both firms’ human resources managers. It should create a detailed summary of performance for each staff member. It should identify where each individual can fit and excel in the new entity. The staffing integration committee does not decide who will stay or who will leave; this will be up to the partners and, if necessary, certain senior managers. The purpose is not to create a bureaucratic approach, but a process that is fair and reasonable and gives every person an opportunity to be considered for retention.

What to Do About Redundancy?

As mentioned earlier, there are positions that are clearly duplicative, such as the director of technology and firm administration. If there will be multiple offices that are geographically dispersed, it may make sense to have certain positions staffed by more than one person.

“It is my experience that a short-sighted focus on redundancy reduction is often the ‘strategy’ taken by merging firms,” says Lon Goforth, founder and managing principal of Midwest-based, Prosperitas Advisors, a consultancy that provides M&A and practice growth advisory services to CPA firms.

“This is because there is or was a significant amount of time, resources and money spent in getting a merger in place.” Goforth adds, “I understand all this, but at a minimum, it is a search for immediate gratification at the risk of long-term consequences.”

As always, it’s the tone from the top. Senior partners must agree on how they are to communicate that every person is a valued asset and that compassion, insight and respect will be exercised in the process. Some of the tools to employ include outplacement counseling, resume assistance and sufficient severance. If handled properly, the ill feelings, discrimination lawsuits, potential sabotage or bad press can be mitigated.

Those employees will be watching very carefully how the firm handled the departure of their friends and colleagues. This will be an indicator of whether they decide to remain because of potential growth opportunities or whether they decide to bide their time until they find another firm.

“It’s a natural fall-out from the decision to reduce staff, especially if the staff comes from the acquired firm,” notes Goforth. “Leaders must understand that these individuals are hearing a message: ‘You are under a microscope!’”

Goforth believes that this type of attitude is an obstacle to ensuring a smooth transaction. The result? Only months later will cracks appear in the foundation.

What can be done? The combined firm needs to send the message: Those who were not selected to stay in their present positions can still function in an area that leverages their skills and interests. This will require thoughtfulness, creativity and real leadership. “This is a good opportunity to turn redundancy into a benefit,” says Goforth. “Maybe it can be a springboard to creating a work-life balance for the current staff. If you keep everyone and everyone is happy, it’s a bonus.”

Retention of Key People: Can You Do This Effectively?

As I mentioned, it’s not a slam dunk that those employees asked to remain after a merger or acquisition will actually do so. Consider those who work remotely and can take their skills elsewhere. As a firm leader, do not assume that all staff members will stay, especially if their skills and knowledge are attractive to other firms. This is where mentoring and support are so critical. Gestures of support should not be superficial in nature — people can see right through the façade. Seek and encourage staff feedback and really listen.

And what about people you bring in from the outside? You want to attract them by promoting the value proposition of the combined entity; that the new environment is conducive to their professional and personal growth. This is to ensure they are motivated to stay, contribute and grow. Says Goforth, “It’s worthwhile to consider retaining staff even if there is a degree of redundancy. The excess staff may enable the growth-minded firm to look at more acquisitions, especially if staff is willing to earn niche credentials as part of a long-term plan.”

Firm leaders focus on the potential synergies from a merger or acquisition. But it goes beyond the numbers—partner/staff ratio, billable rates, administrative costs, and the like—during the due diligence stage. If ignored, you may gain the financial assets you require, but lose the human assets, thereby destroying growth and increase in firm value anticipated by the combination.


About Steve

Steven Sacks is the CEO of Solutions to Results, LLC, a consultancy that specializes in helping individuals, firms and organizations meet the challenges of communicating with clarity and purpose. Visit his website at