Some of my AEC clients have sold their companies, most often to a large international firm. The owners’ main motivation has not been to take the money and run. Instead, they’ve concluded that the best way to move to the next level is to become part of a large group with extensive resources. Sometimes the owners have felt that, without the sale, the company would not remain competitive much longer. Whatever the reason, the expectations do not always turn into reality.
Trying to buy clients
What are the buyer’s motivations for acquisitions? If it is to “buy” the other company’s clients, the buyer may become disappointed. Firms don’t own clients, and a change in well-established relationships may actually encourage the clients to look around for alternatives.
Best people leave
Another dilemma that a buyer can face is that the best people in the company often leave as soon as their firm is acquired. It is not rare that these runaways start up a new firm that competes with their former employer. Companies try to prevent this through non-compete clauses, but these do not seem as popular in AEC firms as e.g. in the IT industry. Anyway, if the top employees feel that it is time to move on, any legal arrangements are just a temporary hindrance.
Buyer does not have a plan
A serious problem occurs when buyers do not actually have any concrete strategy to deal with the companies they acquire. They just assume that they recruited a bunch of new resources that immediately fit in and forget about their previous ambitions of moving to the next level. I’ve seen this happen, and it leads to disillusionment among the key people that originally supported the transition. If the buyer just wants to increase their headcount, they’d better make it clear before the acquisition, or rethink their strategy.
The fourth scenario that leads to failure is related to the previous one, but it is perhaps not as dire: detachment. The company that was bought does not have any intention to become an integrated part of the new acquiring firm, even if this was the original plan. The acquired company continues its business as if nothing had happened and opposes or slows down any attempts by the new owner to introduce the new member to the family. This can be detrimental to productivity, customer relationships, and employee morale. Often the underlying reason for failure is that the cultures of the two companies do not match, and culture changes take time.
How to prepare
To avoid the above-mentioned drawbacks, the buyer and seller should base their actions on a joint strategy. They should make clear their goals, expectations and motivations, plan carefully how the company will operate after the acquisition, and determine what is needed to make the transition a positive experience for all those involved. The top management teams of both companies must be committed to making the acquisition a positive change that will turn into great business results.