Some of the best practices that the most experienced buyers in our industry employ to get deals across the finish line.
Today’s M&A landscape in the AEC industry is as competitive as it has ever been. With 346 transactions closed within the industry in 2019, 377 in 2020, and 577 in 2021, acquisitions are now being seen as one of the main levers that executives can pull to grow their firm or enhance its competitive position. An increasing number of leadership teams are considering pulling said lever. This means there are more buyers competing for a finite number of acquisition candidates, and it is becoming more important that firms find ways to make themselves stand out from the competition if they intend to be seriously considered as a potential suitor of a target firm. If a buyer feels that a target firm has a promising outlook or would be a strong addition to the company’s culture and operations, odds are they’re not the only one who is interested.
Having worked on more than a dozen buy- and sell-side deals specific to the AEC industry, I’ve noticed the proper execution of the following items is what differentiates successful buyers in the industry from those who struggle to get a deal across the finish line:
- Lean and mean deal team. The smaller your internal deal team is, the better. Personally, I have worked on deals in which the buy-side of the table has far too many “cooks in the kitchen,” and this often greatly inhibits their ability to make quick go/no-go decisions. Again, the buyer needs to assume that it is not the only firm trying to court its acquisition target. If the firm is unable to quickly assess and express interest in moving forward with a target, this indicates a lack of serious interest on your part and increases the chance that they will want to move forward with another buyer that was able to quickly give the green light. Ideally, the buyer should have one or two decision-makers that can field introduction calls and initially assess whether an opportunity is worth exploring further. Buyers can always invite additional team members to the discussion as they conduct due diligence and verify assumptions that were made previously but should not bog down the initial decision-making process more than is absolutely essential.
- Key external deal team members are on standby. If you need to hire external support to supplement the internal deal-team (legal, accounting, M&A advisors), it is important that these parties are on standby and ready to go before reaching out to any acquisition candidates. Firms need to come to the table prepared and, at the very least, give the illusion of experience. Time is of the essence in M&A deals, and if the buyer must slow down a conversation or put it on hold for several weeks while finding legal support or any form of outside counsel, this is only inviting the potential for cold feet and putting a potential lack of experience on display. If intending to seriously pursue acquisitions as a growth strategy, make sure to have your roster set before hitting the field.
- General responsiveness and networking capabilities. Everyone is busy and feels like they hardly have time to respond to M&A opportunities. If a firm is serious about acquiring, they should be responding to every M&A sell-side opportunity received. Even if many opportunities are not a viable option for the firm’s strategy, they should take the time to refine the M&A advisor’s understanding of what they are looking for, so they are able to vet for better suited opportunities moving forward. Eventually, the buyer will have a network of professionals who know what they’re looking for and will happily send strong candidates for consideration. Take the time to network and allow these people to work for you.
- Clear growth strategy and acquisition criteria. I have had the opportunity to work with many of the AEC industry’s most experienced buyers, and they always come to the table knowing exactly what they are looking for in an acquisition partner. They know what fits their strategy in terms of margin, geographic location, client type, and disciplines offered. These firms often leave an introductory call knowing whether there is a strategic fit that is worth exploring further. Less experienced buyers will often find themselves trying to rationalize how they can make an acquisition work, while experienced buyers are able to determine whether a candidate fits within their established strategy.
- Unique value proposition. Experienced and successful buyers know how to entice the leadership teams of acquisition candidates with a value proposition that piques the target’s interest. If the target is entertaining the idea of merging with your firm, there is a strong chance they’re fielding interest from several other buyers. You can bet these other buyers also “prioritize company culture” and “offer competitive multiples and a flexible work-life balance post-close.” Experienced buyers know how to differentiate themselves and come to the table with one or all the following:
- Information on previous closings and tangible results. They will often provide revenue figures of their previous acquisition partners before and after the merger to display tangible results that come from partnering with them. They will also invite founders and executives from their previous acquisitions to the conversation to discuss any considerations that should be addressed when exploring the opportunity. If your firm doesn’t have acquisition experience, you can show revenue figures that display the promising trajectory your firm is currently on.
- An understanding of how both firms can make “1+1=3.” How can the personnel, disciplines, finances, operations, etc., of the buyer complement those of the seller in a way that allows both firms to be more competitive together than they were individually. Can your firm offer certain services in-house that the target is currently subbing out? Do you have established recruiting channels or refined onboarding processes that can help them acquire talent that would have been unavailable to them otherwise?
- The right tone. Often, less experienced buyers will find themselves spitting off questions to their target as if it is an interview. Remember you’re the one who reached out and asked to have this discussion, and this means that it’s on you to sell the opportunity to the target. Absolutely do what probing you need to do in order to determine whether or not this is the right fit for your firm’s goals, but make sure that a fair amount of time is spent pitching your firm and the opportunity at hand. The target should leave the conversation excited for the next, and a potential next chapter for their firm, not wondering whether or not their answers satisfied you.
This list is certainly not all-encompassing, but these are some of the main habits and characteristics I’ve picked up on while working with some of our industry’s more experienced buyers. Click here to learn more about Zweig Group’s M&A advisory services.
Andy Chavez, CM&AA is an advisor within Zweig Group’s M&A advisory services team. Contact him at achavez@zweiggroup.com.