Integrating Acquired Companies

Mar 10, 2003

Buying and absorbing another enterprise into your own is never easy. A/E/P and environmental consulting firms may be especially difficult as they have very few assets. Aside from a good (or bad) name, some computers and office equipment and files, and some clients, they are made up of people. And people— unlike real estate or machinery— can’t be bought and sold! Buyers need to understand this. Loyalty is another matter, at least in the short term, where it can be bought for a price. In the longer term, however, it needs to be won. And if it isn’t, buyers may find that they don’t have what they thought they were buying. Price and terms for the transaction are at the core of a successful merger or acquisition. If the price the buyer pays is too high to recover his investment, the acquisition can’t be considered a successful transaction. Conversely, if the price paid for the enterprise was too low, the sellers end up being resentful, and that will cause problems. Planning for the integration is another critical variable. I recently heard about a transaction where a U.S. company sold out to a foreign buyer. The firm was then promptly dismantled into various pieces that reported through other companies the buyer owned, and the domestic group ended up working for a much smaller and less successful firm than themselves. This caused a great deal of rumblings within the management group of the newly-acquired enterprise. There’s no real excuse for not knowing this was the buyer’s plan unless the buyer misrepresented their intentions. All of this should have been worked out as a part of the transition planning. Neither organization’s interests are represented by not having this kind of a matter clearly determined prior to the deal going down. Making changes in the acquired company needs to be handled carefully. Many buyers learn too late that allowing the sellers to continue operating under the same name and with the same policies is often easy to do but quite painful later on when the sellers forget that they no longer own the firm. This happens often. The older and the more successful the acquired firm, the more likely this problem will crop up. It is best confronted early on. Again, good planning would result in an agreement from all parties on what’s going to change and what isn’t. Many buyers regret that they didn’t get all change out of the way fast, take whatever backlash comes out from that, and get on with the new program. Others think that they bought a lot of goodwill with the company they acquired and wish that they weren’t too quick to change their name or force total compliance on them. Completely understand the motivations of the seller. Claude Ganz, inventor of the Dymo Label Maker used to say, “You can’t motivate someone you made a millionaire.” The late, great Jerry Allen of Carter & Burgess used to say “never buy a firm that doesn’t need you.” Both of these guys knew something that inexperienced buyers could learn from. That is that you must find a way to keep the sellers going after the transaction is done. This is where the earned loyalty comes in. Because whether you rescued a firm’s owners who were facing certain financial ruin or you made someone (or some ones) millionaires, the outcome is the same. Now what are you going to do? It has to be more than a contract that binds them to the firm. Somehow, if these people are going to remain on with the company after it’s sold (and often they NEED to), you have to keep them interested, motivated, and intent on making the firm successful going forward. There has to be a new goal that is worth pursuing and some sense of shared purpose. I really think that the merger and acquisition fever in our industry will accelerate in spite of the slowdown in terms of transactions in other industries. Originally published 03/10/2003

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Zweig Group, a four-time Inc. 500/5000 honoree, is the premiere authority in AEC management consulting, the go-to source for industry research, and the leading provider of customized learning and training. Zweig Group specializes in four core consulting areas: Talent, Performance, Growth, and Transition, including innovative solutions in mergers and acquisitions, strategic planning, financial management, ownership transition, executive search, business development, valuation, and more. Zweig Group exists to help AEC firms succeed in a competitive marketplace. The firm has offices in Dallas and Fayetteville, Arkansas.