Do Buyers really know what Sellers want when being acquired?

March 4th, 2013

Reasons to Sell

There are many good reasons for selling a staffing firm. Some sellers are thinking about retirement or at least liquefying what is often their largest asset so they can take some chips off the table. Others may feel they have grown the business as much as they can on their own and to reach the next level for their business they will need a well-suited, deep-pocketed partner.

 Some owners as they age become more risk averse and are reluctant to continue to invest their retirement funds to grow their business. Additionally, there are some owners that would prefer to tap into an acquirers’ existing infrastructure and distribution network then try to create their own.

 Other drivers are the lack of available, reasonably priced growth capital, the lack of reasonably priced insurance protection, access to certain volume purchasers of staffing services through VMS or other purchasing methods that can dictate lower margins and less direct customer contact on a staffing supplier.

 These are the general reasons that motivate Sellers. What are the specific reasons that may encourage a Seller to choose your firm?

 Why sell to you?

Certainly a high purchase price, with 50%-70% cash on closing and a good upside potential for growth will be huge plus factors for a seller to consider. 

Sellers prefer notes for the balance especially if they are not active or not remaining with the business. Buyers generally prefer earn outs if the owners are staying on, to share the risk going forward. Since many current transactions contain earn outs, why would a buyer want to create an environment that impairs the seller’s ability to improve profits?

 A wise Seller will look most seriously at the Buyer who offers their business the best opportunity to continue to succeed as they have thus far.

It may be surprising that a wise Seller will often choose his acquirer by his/her determination of which acquirer will create the least amount of internal and external changes. Changes mean uncertainty and sometimes disruption that can add to the risk of success for both buyer and seller. Change also increases the need for communication so staff members can be sold on the benefits of the change.

In fact, an acquirer would do well to avoid any change that is not absolutely necessarily by law and slowly introduce other “branding” type changes on a scale that the acquired staff can handle without a loss of staff or business.

It is always interesting to see Buyers rave about the staff and culture of an acquisition target firm only to destroy its very value and essence within a short time period post acquisition by introducing unnecessary changes so the acquired firm will look like all the other branches in the acquirer’s system. This is often precisely the fear the acquired staff had about being acquired in the first place.

When acquired staff is unhappy they tend to polish up their resumes and dig out the card of their favorite industry recruiter and see what is available. Of course, the most talented are often the most mobile. Consequently, the acquirer may lose some key performers through their actions and then blame the process or the acquired, often anyone but themselves.

For a complimentary discussion on any M & A Topic, contact us.

Bob Cohen and Sam Sacco run R.A.Cohen Consulting, a trusted industry M&A advisory service.  The partners have advised on over 140 successful industry transactions. 

 They can be reached at (416) 229-6462, (910) 509-0691, respectively, or bob@racohenconsulting.com and sam@racohenconsulting.com.

 For more information: www.racohenconsulting.com

 

Do Buyers really know what Sellers want when being acquired?

March 3rd, 2013

Reasons to Sell

There are many good reasons for selling a staffing firm. Some sellers are thinking about retirement or at least liquefying what is often their largest asset so they can take some chips off the table. Others may feel they have grown the business as much as they can on their own and to reach the next level for their business they will need a well-suited, deep-pocketed partner.

 Some owners as they age become more risk averse and are reluctant to continue to invest their retirement funds to grow their business. Additionally, there are some owners that would prefer to tap into an acquirers’ existing infrastructure and distribution network then try to create their own.

 Other drivers are the lack of available, reasonably priced growth capital, the lack of reasonably priced insurance protection, access to certain volume purchasers of staffing services through VMS or other purchasing methods that can dictate lower margins and less direct customer contact on a staffing supplier.

 These are the general reasons that motivate Sellers. What are the specific reasons that may encourage a Seller to choose your firm?

 Why sell to you?

Certainly a high purchase price, with 50%-70% cash on closing and a good upside potential for growth will be huge plus factors for a seller to consider. 

Sellers prefer notes for the balance especially if they are not active or not remaining with the business. Buyers generally prefer earn outs if the owners are staying on, to share the risk going forward. Since many current transactions contain earn outs, why would a buyer want to create an environment that impairs the seller’s ability to improve profits?

 A wise Seller will look most seriously at the Buyer who offers their business the best opportunity to continue to succeed as they have thus far.

It may be surprising that a wise Seller will often choose his acquirer by his/her determination of which acquirer will create the least amount of internal and external changes. Changes mean uncertainty and sometimes disruption that can add to the risk of success for both buyer and seller. Change also increases the need for communication so staff members can be sold on the benefits of the change.

In fact, an acquirer would do well to avoid any change that is not absolutely necessarily by law and slowly introduce other “branding” type changes on a scale that the acquired staff can handle without a loss of staff or business.

It is always interesting to see Buyers rave about the staff and culture of an acquisition target firm only to destroy its very value and essence within a short time period post acquisition by introducing unnecessary changes so the acquired firm will look like all the other branches in the acquirer’s system. This is often precisely the fear the acquired staff had about being acquired in the first place.

When acquired staff is unhappy they tend to polish up their resumes and dig out the card of their favorite industry recruiter and see what is available. Of course, the most talented are often the most mobile. Consequently, the acquirer may lose some key performers through their actions and then blame the process or the acquired, often anyone but themselves.

For a complimentary discussion on any M & A Topic, contact us.

Bob Cohen and Sam Sacco run R.A.Cohen Consulting, a trusted industry M&A advisory service.  The partners have advised on over 140 successful industry transactions. 

 They can be reached at (416) 229-6462, (910) 509-0691, respectively, or bob@racohenconsulting.com and sam@racohenconsulting.com.

 For more information: www.racohenconsulting.com

 

Why Some Mergers Will Fail…but only if you let them!

October 29th, 2012

In an acquisition, people may be overwhelmed by a tsunami of change. If you’re managing the acquisition, you’re probably expecting some talent run off. However, it doesn’t have to happen; your involvement in the integration can make all the difference. But here’s what you’re not expecting.

The Predictable Dynamics of Change

It’s where the buyer misses the point. You’ve studied the target, opportunistically going after them because the target looks inexpensive, or a good value. Maybe this competitor looks good to you because they’re not growing as fast as you are, in this  economy. So buyers say, “They’re in the same space as we are, the same industry, we’ve competed for decades, we use similar suppliers and understand the same customers, why not consolidate now, reduce our costs and take advantage of volume discounts and share suppliers?” It certainly sounds good on paper.

What buyers miss is that the organization must still go through all the predictable change dynamics – the change curve. Any change that you make, anywhere, in any organization – family, church, or business – will always cause a bit of bruising.

The same thing occurs when you switch exercise machines during your workout. Your muscles go through what’s called a change-up: they’re not as effective initially as they begin to adapt from one change to another. Blood flow is not as efficient. It takes time to integrate what you’re doing.

The same thing happens to organizations going through an acquisition. Their business may not be going as well as yours is, that’s why you were interested in the first place.

But buyers think that their acquisition can somehow do the same business, service the same customers, do everything the same during the transition, when they are actually going through this change-up. The predictable dynamic is that organizational chaos begins. Much of this confusion can be avoided by communication and more communication; inherited employees must understand their role, why they are valuable and needed and why they have an ongoing role in their new organization. Make them feel secure if not, you will lose the best ones first and a downward morale spiral will set in like a dark cloud.

Otherwise, here’s what it could look like. The acquisition just can’t seem to get traction; acquired employees can’t understand their new role, even though you tell them time and again, even though they’re selling to the same customers and servicing the same way. Why?

Each person in the acquisition still doesn’t understand what the transition means to them personally and their “me-issues” surface. Often their allegiance is to the previous organization and now they are part of the competition, which they were selling against before.

Picture this change curve in a U shape. At top left is betrayal, lower down is denial, and at the bottom of the curve is an outright identity crisis. As the U shape rises on the right, there begins a search for solutions, and eventually, acceptance. We all go through these change dynamics whenever we go through any major changes in life.

The concept of emotional stages was first developed by Dr. Elisabeth Kubler-Ross (death and dying stages) and in business, the curves are the same. If individuals go through it, why wouldn’t organizations go through it too?

Be prepared and you can avoid failure, act early, communicate constantly and warmly welcome your acquired employees to create a happy ending.