What I’ve Learned About Buying and Selling Firms

Oct 22, 2007

Since this issue is dedicated to mergers and acquisitions in the A/E/P and environmental industry, I thought I’d share some of what I’ve learned over the years about this subject. Mergers and acquisitions can work out. Some people like to say that there can’t be absolute success when it comes to buying and selling companies in our business. Not true! Many more of these transactions are successful than fail. We are getting better— all of the time— as a group of firms or industry at mergers and acquisitions. A firm sale may be the best thing for the employees. The buyer may be stronger financially, have better marketing capabilities, have stronger leadership, and much, much more to bring to the employees of the acquired firm. More possibilities mean greater chance for success. Whether you are seeking to buy other companies or be acquired, either way, the more possibilities you have, the better. That means you need to have a lot of stuff going on simultaneously. That makes some people uncomfortable and stressed out. There’s a lot of money out there looking for a home. Though it has slowed a little, there are still many companies with funds or access to funds that they can use to buy other firms. These people are looking aggressively to invest this capital. Integration planning is rarely given the attention it deserves. The deal is the preoccupation with everyone involved and the result is performance suffers post-close from a lack of integration planning. This must start as soon as it looks like the deal will get done. Buying a company and letting the firm keep its name and identity is not without problems. The old owners may think they still own it, the marketplace may be confused, and the employees may not know who their ultimate employers are. There may be good reasons to keep an acquired firm’s name but proceed with caution! Earnouts get in the way of integration. They just do. As long as the seller gets paid for what they produce in the way of profits or contribution or revenue, you’ve got a problem engineering a true marriage based on mutual cooperation. The deal costs are usually more than you expect. Lawyers are expensive, consultants cost a lot, insurance is expensive, interest rates are high on money used for these purposes— and the whole thing always takes more time, more meetings, and more trips than it should. The word WILL get out if a firm is for sale. I don’t know why it works this way but it always seems to. If you are selling, be ready to explain what’s happening and why it could be good for everyone. There’s a lot of ego at stake when it comes to buying another company. There’s a real tendency for buyers to want to close a deal even if signs come up that suggest that could be a mistake. The buyers have already psychologically committed to the deal. Mergers of equals are rare, perhaps even non-existent. Someone is in control. Someone brings more resources to the table. The golden rule applies— he or she who has the gold rules. Paying a premium for a super-profitable company is rarely worth it. They have nowhere to go but downhill. Underperforming, under-valued firms have a lot of upside, however. I’m out of time. If you are in the market to buy or sell, good luck! Get the best team of advisors you can find, use some common sense, and you will do well. Originally published 10/22/2007

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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.