The most sophisticated and experienced buyers in the A/E industry aren’t, believe it or not, flying by the seat of their pants and closing transactions just for the fun of it! Rather, each of these buyers has (or should have) a well-designed and detailed acquisition plan that is an offshoot of a broader long-term strategic business plan.
While acquisition plans may vary in complexity and depth, a critical element to these plans is a clear distinction between a “strategic” acquisition and a “resource” acquisition. And, each transaction must fit into one of these categories.
Defined, a strategic acquisition is one made to position the buying firm into a new geography or client/service market. With these firms, there is a calculated plan to capitalize on a new opportunity for growth. The business development resources of the acquired firm are vital in these deals because there may not be significant brand recognition or business development momentum in the particular market to build on. However, with a resource acquisition, the goal is really to bolster the number of people in a particular office or to add resources to meet the workload need for major projects or a single large project. In the resource deals, it is often less about the business development skill set and more about the technical “doer” horsepower.
This may seem like an issue that is only applicable to buyers as they formulate and implement an acquisition plan. Wrong! Too many sellers do not make this one of the first questions they ask when approached by a prospective buyer. Failing to do so (or, more often, flawed assumptions on either side) will yield a transaction built on misunderstandings of true intentions and, ultimately, a transaction that one or both sides will view as a failure.
Seem like an obvious piece of advice? Sometimes even the obvious isn’t so obvious…consider this real-world example:
The principals of a small architecture firm decided that the time was right for an external sale of the firm. More specifically, the leadership team saw a transaction as a defining moment that would allow them to re-focus on their true passion of the technical and professional aspects of running their practice while shedding marketing and business development efforts to the acquiring firm. Eventually, they found a firm that was in acquisition mode and that was very interested in establishing a presence in their local market. The principals of the buying firm intended to provide technical, managerial, and financial resources to support the acquisition and build on the contacts and connections that already existed with a seller’s leadership team.
On the surface, it seemed like a win-win deal and both firms moved swiftly to negotiate and close the transaction. But, the reality was that significant trouble was lurking beneath the surface. Both sides had gotten so caught up in the financial nuts and bolts of the transaction that neither set of principals stepped back to revisit the original objectives of the transaction. In fact, even worse, neither side really dug into the specifics of going-forward roles in the organization and how that correlates to personal motivations and objectives on the part of the selling principals.
More than a year after the transaction, nobody is taking responsibility for marketing and business development. The sellers assumed that was on the shoulders of the buyer and the buyer thought that buying this local presence meant that they were also buying some principals active in identifying and cultivating new opportunities. As a result, tension began to build and the deal eventually had to be un-done!
Scenarios like this one are very, very avoidable with up-front communications and both sides going into a transaction with the right team of internal and external advisors that will ask the hard questions and face the potentially thorny issues head-on. Certainly as a buyer, but even as a seller, don’t make this rookie mistake when you start dancing with a prospective partner!
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 and Acquisitions Senior Executive Roundtable designed exclusively for A/E firm leaders!
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