12 Feb How Not To Approach An Acquisition Target
As anyone whose ever been involved in an M&A process knows, spending time on an M&A deal is a costly and time-consuming endeavor for both sides. While M&A is a great way to bring on new talent and penetrate new markets and geographies, it can also be a great way to waste people’s time if the front-end communications are not planned out and executed correctly. With that said, let’s discuss a few ways I’ve seen in my experience as an AEC M&A Consultant that virtually ensure your discussions with acquisition targets go nowhere.
- Having the same discussion over and over: You’d be surprised how often I get on calls between two firms that are considering joining forces and the acquiring team has all but forgotten all the past communications and information sharing that we’ve done with them. This often shows itself in the acquiring team asking questions that have been discussed in previous calls or asking about data that has been explained in an email. I get that we’re (especially AEC principals) all busy and have lots of information to process each day, but spending 15 minutes prior to a call to re-familiarize yourself with where the conversation is goes a long way in showing the sell-side that you care about the initiative beyond just the financial gain it will bring your firm.
- Focusing solely on the financial aspects: As I started to touch on in the last bullet, focusing solely on the financial aspects (financial performance, enterprise value, compensation, etc.) of a seller’s firm will almost certainly turn them off about joining forces with your firm. Think about it: The sellers have spent their life building a firm of which they are proud and that often bears their name. They are able to provide their team with jobs that allow them to put food on the table, their clients with solutions that fit their needs and solve their problems, and opportunities for young, hungry architects and engineers to progress in their careers. To reduce all this work and effort to simply a number is essentially telling the seller, “I see what you’ve built here as a commodity. The only value in your firm is how much money it can make me.” While this line of thinking may be understandable with large 500+ FTE companies or other industries where revenue and profits are not proportional to staff size, it ignores the fact that the AEC industry is completely dependent on the people that work within it. Neglect the cultural aspect of doing a deal at your own peril.
- Being inflexible with consideration structure: Coming into an introductory M&A discussion with a fixed deal structure in your head is a recipe for wasted time. Every firm is different and as such, the goals of each owner seeking to sell often vary. While it is a safe assumption that many sellers are looking to retire soon and take some chips off the table, it is worth asking and letting the seller spell this in his/her own words. You might find that some are just looking to take the “management/owner” tasks off their plate so they can spend more time doing the things that they really enjoy, such as business and client development, mentoring staff, design work, etc. If this is agreeable on your side, the seller may very well be open to staying longer than expected and being paid out over a longer term, which may prove beneficial to your firm as well. While we often jokingly compare M&A discussions to dating, this comparison is more accurate (especially in the lower middle market) than one might think. Like dating and ultimately marriage, a successful union requires a shared sense of values, principles, and most importantly, goals. It is common knowledge that partnerships based purely on the monetary gain afforded to one person often end poorly, so why would it be any different in an industry that is so people-centric?
At The Coxe Group, we specialize in working with clients who are focused on the long-term cultural and operational aspects of M&A as we believe this is the only way to ensure that the synergies and growth goals discussed and forecasted during the process are actually realized. A statistic that many M&A professionals like to ignore is that 70% of all M&A deals fail or fall short of expectations. While there are many reasons for this, you can drastically improve your chances of falling into the 30% of deals that do create value by starting the conversation in the right way.