Just like buying a home or a used car or recruiting a senior-level employee, we all want to avoid the ‘money pits’ or ‘bad apples.’ Even more so in the acquisition of an architecture or engineering firm, we want to find that fit that really works to create value. But, too many A/E firm leaders get frustrated when finding the “right” acquisition seems to be an endless and fruitless effort.
First off, let’s go over some basic guidelines. That is, there are three broad categories of prospective sellers:
Category No. 1 - Active Sellers: Maybe the owner is ready to retire, there is a health issue, or there is some other compelling reason for this firm to be actively “on the market”.
Category No. 2 – Passive Sellers: Firms that aren’t actively seeking a sale, but that would be open to a discussion if it makes sense. To be sure, there is a wide spectrum here…for some, an external sale isn’t at all on their radar screen.
Category No. 3 – Active Non-Sellers: Firms that aren’t interested in any sale. Period. Some firms have provisions baked into their Buy/Sell Agreements dictating that they will not entertain any offers. Others are less prescriptive…the ownership team just has no interest in becoming employees.
Often times, the best transactions (for both buyer and seller) come out of deals with Passive Sellers. Many of these firms are established, stable, and bring a good framework for growth. But, how do you open the door with these folks? How do you start a conversation? Here are five steps for making it work:
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Make a list. Tap into your leadership team, business advisors, vendors, and others to build a pipeline of the top targets. These are the ones that are very attractive for a variety of reasons.
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Design a campaign. Treat it like a marketing exercise. Get top leaders on your mailing list to build familiarity with your brand, your wins, and your strength.
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Use an intermediary. Starting a CEO-level discussion about partnerships, mergers, or acquisitions can be touchy. It is very wise to use a third-party intermediary here to feel out interest and engagement levels.
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Make the pitch. Assuming you are able to get an introductory meeting, allow and encourage the seller to ask a lot of questions. Give them a solid sense of the value they would get out of joining your organization and your vision for the future.
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Exercise patience. Some of the best sellers are very busy running their businesses. It might take them some time to get financial and other information to you. You also need to be sensitive to major confidentiality constraints on the seller’s side.
Need some more ideas for building an acquisition pipeline and get to a winning transaction? Check out our popular two-day A/E/C Mergers & Acquisitions Senior Executive Roundtable designed exclusively for A/E firm leaders!
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