A successful acquisition is like a successful marriage

A successful acquisition is like a successful marriage

The decision to get married is based upon a belief that life together will be better than life apart. That fundamental belief is also the key to a successful acquisition.

Someone recently told me that all businesses are for sale it is only a question of the price. I do not subscribe to that philosophy because in my experience an acquisition is as much an emotional transaction as a financial one, especially in the service sector where the transacted value resides in the staff. Of course, the price must be right but that should be a natural result of a process during which both parties first believe that it’s better to be together than apart, at that point the deal is just a sum agreed between the parties as a fair price.

The analogy of a relationship holds true from the start of the process.

A buyer is most often motivated by the prospect of growth and initially sets out a strategic plan based on achieving a market position by some future date. Let’s call this the destination and the need to acquire is to speed the path to this place. The growth plan, or strategic plan, assumes several pieces of input data, notably that :

  • there is a demand for services at a scale that can reasonably predicted,
  • the margins available in that market determine an investment value that the buyer would be prepared to make.

This is the business case.

The seller may be motivated by many things but often it is part of an ownership exit strategy or because of some succession planning issue or maybe lack of capital for investment or a combination of these things.

But how do the parties find each other as there is no internet dating site for companies to locate each other?

We act for one party to locate the other and this initially requires an understanding of the strategic plan, which we can help create, or alternatively understanding the selling parties motivation. In either case we apply a working knowledge of the market to bring parties together in a forum in which synergies can be explored. Let’s call this the first date.

So what makes a good first date? There are some basic ingredients that are important.

1.      Cultural alignment – do both parties have a similar philosophy? Do they like each other?

2.      Market intel – what do common clients, former employees and perceptions tell each party about the other?

3.      Trust – has the platform been established upon which hopes and concerns can be openly shared?

Preparing for a successful first date requires some help in many cases but done correctly once dating has begun it continues until both parties are convinced that a coming together is the right thing to do. Usually a Non-Disclosure Agreement pre-dates the meeting and is followed by a Letter of Intent once the heads of terms of the transaction have been negotiated so that the due diligence process can begin. These 3 process steps are simply a gradual means of allowing safe data transfer between the parties.

Due Diligence is the most important part. Basically this is a verification of the shared factual data but most importantly it allows those impacted by any new arrangements to have chance to become comfortable with it - the meet the future in laws phase. This phase is all about listening and persuasion. It’s vital in the due diligence phase that the buyer develops an understanding of the motivations of the people that will be most affected by the coming together as these are the assets in a service industry transaction.

This phase is not always easy for many reasons as people will want to know: -

  •     What do I get out of this deal?
  • What happens to shared services staff like IT, HR, finance or front desk?
  • Will one firm impose its processes on the other?
  • Will the name change?
  • It’s not the firm I joined so why should I stay? I love my firm but i don't even know the new one.

In due diligence the deal becomes very personal and the identification, reassurance and opportunity planning for key staff in this phase is critical to the long-term success of the deal.

Many leaders are concerned about how customers will perceive an acquisition and this can become a focus during the due diligence phase but in my experience if the people stay then the customers stay. The name matters far less than the people and so the focus should be entirely on key staff retention.

In some deals it is in the interests of buyer and seller to negotiate a distribution of the sale proceeds not strictly in accordance with the ownership arrangements to support staff retention. Stakeholders that expected to become stockholders can feel they have lost an opportunity and so it’s important to spend time to understand the individual motivations of people who are not legally retained for any time under the terms of the purchase agreement.

The buyer concludes the due diligence phase with a risk assessment and moves forward providing the scenarios outlined are considered manageable. To expect everyone to be happy with change is unrealistic, it rarely happens and so some ‘what-if’ scenarios should be tested to understand how situations will be handled should they arise.

At this point the wedding can be planned, the in-laws now know each other and so the contract can be completed.

Acquisition takes time, it cannot be rushed and it is as much an emotional as a financial transaction. Success has a lifetime of rewards but everyone knows that mistakes are expensive so take the time to be sure because the rewards are worth it and done well success can last more than a lifetime.

Stephen Burrows CBE PE CEng FASCE FICE MIStructE LEED-AP [email protected] Cell 415-302-3120


 

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