Strategic decisions

rmassey

In a hot M&A market, the opportunity to sell is there, but staying put could also be a good path to take.

The activity with mergers and acquisitions is quite high. There seem to be more companies getting together that range from the Jacobs and CH2M deal to the much smaller regional transactions. Much of this activity is driven by the strong economy, desire for companies to move into strategic markets, expand their service offerings, extend their geographic reach, or the need to simply deepen the talent bench. The strong financial and cash position of many companies is providing them with the capacity to make these acquisitions more readily.

The trend of the very large and global mega serial consolidators might be driven by the desire to create the “master builder” company – serving very large clients and programs, particularly in the government sector, providing cradle-to-grave capabilities. This trend is driven by the rise in popularity of large-scale program management, engineer procured construction, design-build, and public-private partnerships. Each of these requires large staff resources, construction capability, and/or the ability to bring financing to the client. Or some argue these very large to mega companies just need to acquire to keep the revenues growing because internal growth has slowed significantly. Whatever the reason, the big are getting bigger.

There is a belief there will only be mega companies at some point in the future. I’ve personally heard this theory for the last 25 years of my career – yet there continues to be plenty of small to midsized companies. And there’s plenty of smaller to mid-sized projects out there for these companies to work on.

What may be most important is your strategic direction and the ability to take advantage of the changes in the markets. Many of the very large companies purposefully or sometimes inadvertently change their focus and thus leave a group of clients behind as they move into these new endeavors. So the key is to continue to find your “place” and fill that “void” that is created by others that have chosen to move along.

Companies that have a strong vision for the future, with sound strategies, that perform well financially and are well capitalized, that are supported by sufficient talent, internal tools, and resources, may choose to stay the course and take advantage of the situation. It all comes down to the competitive landscape and your ability to compete. On the other hand, there are many valid reasons a leadership team should consider a sale or merger. The most important of these reasons revolve around strategy, value creation, opportunity, and the fit between organizations. Evaluating your future path in terms of the ability to successfully advance your firm on your own versus answering these questions can serve as the guidepost for considering a sale.

In terms of strategy, you should first ask whether the current strategic direction for your firm can be achieved alone. Will you fall short or will combining with someone else compliment and advance this strategy and perhaps expand both companies’ market positions? Or does it matter? Does maintaining “culture and independence” trump everything?

A merger or sale needs to create immediate value for the shareholders that are substantial enough to override the complete autonomy and loss of control. The value received should always be much greater for your shareholders than what you can create by pursuing your own strategic direction over the coming five to 10 years. And, you need to ask yourself whether the combination of the companies will rapidly accelerate that value creation.

At the same time, it is important to evaluate the organizational fit of the companies and specifically the opportunities for your staff to grow professionally in a sale or merger. This is well beyond the top handful of employees. You should look at the impacts at many levels below the top. Answering whether combining will actually help accelerate career growth or cut off many opportunities is an important consideration in my experience.

Finally, you should ensure the beliefs, values, operating and business approaches of both companies are consistent – some call this the cultural match. It is important that both companies agree on that overall vision of the future, how they conduct their business and the overall work environment. This is particularly true for how clients, staff and all related business partners interact daily.

I’ve found there’s not a right or wrong answer on whether to stay the course or enter into a transaction with a partner. It comes down to strategy and leadership’s beliefs about the future. I do believe a company can remain competitive and sustainable if the leadership chooses that as a course and commits to operate a healthy company in all aspects. The decision is almost entirely in your
control.

Gerry Salontai is the founder of Salontai Consulting Group, LLC. Contact him at gerry@salontai.com.

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