Making one firm out of two

Mar 08, 2010

The A/E/P and environmental consulting business is about to experience an unprecedented period of consolidation. With so many firms struggling, there will be plenty for sale. And those companies that have profitable operations and strong balance sheets will be buying all of the distressed or semi-distressed firms that they can. The problem won’t be buying. It will be integrating. Making one firm out of two is most typically the goal when a company in our industry buys another firm that is also in our industry. And that can be a challenge! Here are my thoughts: The deal structure itself can help or hurt your efforts to get one firm. While having some sort of earnout may seem like a good idea if you are the buyer, it’s been my experience that earnouts work against the “one firm” concept in a major way. Earnouts will require that the sellers keep “their clients,” “their revenues,” and/or “their profits” if you are going to figure out what their earnout is. This means separation, not synergy! Company name is crucial. While many times a buyer wants to retain the seller’s name— there’s value in it if they are a good firm— that may work against your desire to integrate them into your firm. Many times the seller is allowed to keep its name for a period of time— say one year— and the buyer’s name is either a prefix or suffix attached to it. Or, in some cases, a new name for the overall company is created. Policies and benefits have to be the same across the board. As long as you allow the seller to keep a different holiday schedule or vacation time accrual rate, or different work hours— you will have problems making one firm out of them. Ditto for all benefits. They should be the same across the board. Maybe theirs need to change, maybe yours need to change, maybe some of each need to change to get one firm with consistency in policies and benefits across the board. Co-locating people is critical. “One-firm” firms share office space, if possible. When people work in close proximity they form better relationships. This integration strategy can work even if you are buying an all new geographic territory in the acquired company. In fact, it is essential. Move people across company lines— both ways. If you can make some of their managers your managers— and make some of your managers their managers— you are much more likely to have one firm be the result. Work together on projects. Working together on billable projects for clients is crucial to making one firm out of two. Start doing so even before any deal is signed— the sooner, the better! Delaying ANY of the above steps works against integration! This is something experienced firm builders really “get.” Anything at all that allows the acquired firm to remind them of what they used to be prior to being acquired is going to create a feeling of separation— not a feeling of oneness. Don’t delay! Move quickly to integrate if you really want to make one firm out of two. Do your business planning together, socialize together, work together— have the same accounting, policies, and benefits. Have one name for all. And try to structure the deal in such a way that it supports integration post-closing. All of these things will help make one firm out of two. Originally published 3/8/2010

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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.