The Three Worst Reasons to Make an Acquisition

Posted on: 06/30/17

Written by: PSMJ Resources, Inc.

Topics: Mergers & Acquisitions

Of course, you can always think up plenty of good reasons why an acquisition makes sense…it fills a strategic gap, opens up new opportunities, etc. But, there are some very bad reasons to make an acquisition that seem to come up (in one sneaky form or another) much more often than they should. In no particular order, here they are:

To keep up with the firm down the street. Call it ‘group think’ or just plain old ‘follow the leader’, but too many firms will chase down an acquisition ultimately because that is what the completion is doing. This growth for growth’s sake will only lead to trouble after the ink is dry.
To achieve overhead cost savings. Larger firms with strong support infrastructure in areas such as finance and human resources and marketing too often have a false notion that expansion will add little to their overhead. The bottom line (and PSMJ has the survey data to support this!) in this industry is that, as your headcount grows, so too will your overhead. It is very difficult to squeeze out overhead cost efficiencies in this (or really any professional services) industry through acquisitions.
To pick up a bargain. You may find an amazing deal out there that you just can’t pass up. But, more often than not, it is too good to be true. Is the firm in trouble? Is the owner desperate to sell? Are there skeletons in the closet? Turning around a troubled A/E firm is easier said than done.

Whether you are just getting started in M&A or if you have many deals under your belt, make sure you are getting into your next deal for the right reasons.

Merger & Acquisition (M&A) activity in the architecture and engineering space is certainly on the upswing and well on its way to reaching pre-recession levels. But, how ready are you for taking on the task of buying or selling an A/E firm? If you are looking for tips to help your firm navigate through the M&A process, check out PSMJ complimentary ebook M&A Survival Tips for A/E Firm Leaders.