How Do They Do It?
Oct 17, 2005
I just got another of the many announcements that come through the ZweigWhite e-mail system today— one of our clients just bought/merged with/sold to another firm. We see so much of this that I barely have time to read them before the next announcement hits!
No doubt about it— there are a lot of mergers and acquisitions going on in our industry. And just about every time, it’s one A/E/P or environmental consulting firm buying another A/E/P or environmental consulting firm. The skeptics will tell you with certainty that “these deals never work out,” but I can assure you that more often than not they do. And if you really keep up with this news, you will notice that the same companies appear regularly on the list of acquirers or mergers. It seems that some of these firms pull off another transaction every two or three or four months. How do they do it?
Here’s what I have observed:
They have a plan to buy. The business plan says the firm will acquire or merge with other companies and describes the philosophy on how to do this in detail. There are many different philosophies, but the successful buyer has a philosophy and sticks to it. And, the plan devotes time and monetary resources to the buying effort so it can actually happen.
They have stock they can use as currency. Most of these program-buyers have stock that they can use so they don’t have to do every deal with 100% cash. Few firms can use all cash to buy other companies, and if this is a requirement, you probably won’t be buying a lot of firms!
They have a CEO who is actively leading the effort. The CEO has to drive this ship. If it is a staff member hired strictly to do acquisitions, my experience is that he or she probably won’t be successful. These people don’t control the resources and probably don’t have the clout to deal with the inevitable skeptics that will crop up Ü who think every internal problem must be solved before any acquisitions can be seriously considered (this is a surefire way to never make a deal!).
They have a COO who is minding the store back home. Because the CEO is constantly looking at acquisition opportunities, someone has to be back home making sure the quality standards are met and the firm is doing what it needs to do to be profitable on a daily basis. This takes a strong COO (Chief Operations Officer) who can handle all of the pesky decisions on staffing, overhead, and more than a COO typically handles.
They are not afraid to make early offers. We call this “taking a shot across the bow” of the other ship (firm). What I have seen smart buyers do is make an offer right away, in writing. It allows potential sellers to see you are darn serious, and it gets sellers thinking seriously about it fast.
They stay with candidates (for years in some cases) ‘til they win them over. One of the “buying firm’s” CEOs who was mentioned in a press release I read today does a really good job of this. He may approach another firm about selling or merging, and if it goes nowhere but he remains interested, he will keep checking back with their CEO on their interest every couple months or so. He just wears down the seller and, in several cases, has won them over after a year, or two, or even longer. Persistence definitely pays off in this case!
They have a clear exit strategy that they can easily communicate to a potential seller. This is so important. We were talking about exit strategy in my entrepreneurship class last week, and no one in the class even knew what that meant! Successful buyers can communicate to a seller what the longer-range plans are and how the seller can do better with their plan than doing it all on their own. This usually takes a realistic description of how the owners will all exit— i.e., sell the firm, go public, merge with another firm, do an ESOP, etc. Sellers usually want liquidity. Buyers usually don’t want to give it to them— right away, at least. But sellers need to know how and when they will get ALL of their money or they probably won’t sell.
They make sure that sellers feel good about selling their firms to them and that the transaction will not be harmful to the seller’s employees. This is so important. The principals of A/E and environmental firms are by and large good people who care deeply about their employees, NOT evil selfish SOBs who only care about their own pocketbooks. Because they are such good people, they don’t want to do anything they think is bad for their people. The successful buyers and drivers of the merger process fully understand this and go to extra efforts to make sure the sellers’ people will do better after the deal than they did BEFORE it occurred. It’s in everyone’s best interests to do so!
My prediction (and you don’t need a crystal ball for this one!) is that the “program buyers” and systematic acquirers will not slow down. There’s no need to. They have a formula that works and they are going to keep working it!
Originally published 10/17/2005
About Zweig Group
Zweig Group, three times on the Inc. 500/5000 list, is the industry leader and premiere authority in AEC firm management and marketing, the go-to source for data and research, and the leading provider of customized learning and training. Zweig Group exists to help AEC firms succeed in a complicated and challenging marketplace through services that include: Mergers & Acquisitions, Strategic Planning, Valuation, Executive Search, Board of Director Services, Ownership Transition, Marketing & Branding, and Business Development Training. The firm has offices in Dallas and Fayetteville, Arkansas.