Common Mistakes & Pitfalls of Mergers & Acquisitions

Experts will tell you that the mergers and acquisitions market is ripe for activity. Several current conditions lend themselves to creating an attractive marketplace. First, the industry is seeing continued, positive traction in revenue growth. Secondly, the demand for construction services, specifically in the infrastructure arena, provides a stimulus, which further improves the attractiveness of many candidates by inflating potential backlog. Finally, the industry continues to age, leaving many firms seeking an expedient succession plan. There are plenty of other reasons driving firms to seek acquisition. However, while valuations will vary and due diligence abounds, there are plenty of hazards that firms fail to identify long before the transaction is complete.

The Strategy

Mergers and acquisitions often fulfill the strategic needs of a firm. It may be a niche market or geography that enables the buyer to claim a competitive advantage. However, there has to be more to a firm than either of those characteristics. Using this rationale, if a buyer moved to a new city, any residence would be acceptable. In reality, the sector, niche or geography should be the starting point to engage in deeper conversation, rather than a terminal point to make an offer. An acquisition target should have other compelling features that make it desirable. For instance, it may be that firm’s strategy in dealing with customers or maybe an internal system discovered during the due diligence phase.

Often, a firm acquires another one only to conduct a wholesale overhaul, leaving very little semblance of the original target. By forcing an integration or wholesale change to the parent firm, teams, customers, vendors and trade partners become disenchanted. Because of this, there is often flight, leaving the parent company with nothing short of an office. Leverage the acquisition appropriately, and view the target as something with more intrinsic value than simply an office. It should be attractive for multiple reasons. Find a way to learn from this new organization, and bring those lessons back to the mothership.

The Technology

It sounds simple, but so many firms forget the costs of integrating multiple, sometimes incongruous systems. This is more than just transferring data from an accounting system. Consider all costs and challenges associated with every option, including:

• Estimating platform—Whether it is a customized, elaborate macro-enabled spreadsheet or an off-the-shelf estimating program, there is a level of integration that must occur.
• CRM platform—Are customers and activity tracked via a database or by a cloud-based application?
• Accounting—This is normally the item that gets the most attention, but integrating disparate systems can sometimes be a big-dollar proposition.
• Websites and social media—The good news is that the firm will be able to announce the assimilation of the new firm. The hard part is deciding whether this looks like one firm or two firms that share an accounting system and a light bill?
• Infrastructure—With a mass migration to the cloud, there seems less emphasis on hardware and storage. Regardless, this takes time and requires a great deal of thought.
• Phones and hardware—Apple versus PC; Samsung versus iPhone; voice over internet protocol (VoIP); and rotary phones. Hopefully, no one is concerned about the latter, but the mechanics and costs associated with simply determining the “right tools” opens Pandora’s box.
• Other considerations—There is no shortage of tools outside of the traditional spreadsheets and word processing programs. Scheduling, building information modeling (BIM), document control, project management, close-out and punch list control are just a few considerations that may or may not require additional transition time and energy.

Often, firms look at the equipment with a heavy emphasis on yellow iron. In today’s construction world, acquisitions would be better suited to look equally at the integration of these new tools. The raw costs are one serious consideration, but when one adds in the effect of transitioning 10, 50, 100 or 500 people onto a new system, as well as all the training and heartache associated with it, it may drastically change the complexion of the deal.

The Culture

In the end, it all comes down to the people. Despite all of the bluster about strategy, information technology, equipment, offices and more, it truly is about the people. The bells and whistles of the deal lie within the most important asset of the transaction. These are the people that know the market, know the players, know the customers, know the hot topics and know the intricacies of doing business within a specific sector or location. The fascinating aspect is that this is the one variable of the deal that is not guaranteed. In the end, the computers, the office and the equipment will stay put. If your people do not buy in, they will leave. One of the most common reasons for acquisition failure is the lack of ability to recognize the impact of culture. This intangible component is one that so many leaders wrestle with and has such an important impact on strategy and tactics, yet defining it accurately is almost impossible. In the end, there has to be a cultural fit between the two companies. Think of an acquisition as a marriage–it is an intricate blending of two individual firms into one that often begins with a relationship predicated on similar compatibilities. The people in your company must buy in, so careful consideration should be given to:

• Communication—How frequently will the parent and target be in communication? How will this transaction be portrayed, both internally and in the marketplace?
• Leadership—How will the satellite or target firm be managed? Who will lead this initiative from the parent company’s perspective?
• New opportunities—How will the satellite or target be brought into new opportunities within the firm? For instance, as promotions and advancements spring up, how will the new target’s team be tapped as potentials?
• Culture integration—As said previously, what can the parent firm learn from the target? What can be brought back to the parent company to demonstrate a truly symbiotic relationship?

All signs point to a fertile market ripe for expanding empires. Growth can often occur organically through key leaders migrating to a new market or sector. There is no shortage of challenges associated with this strategy, but it is clearly another perspective to consider. Mergers and acquisitions are an excellent vehicle to allow firms to grow quicker, with fresh talent and an improved business strategy. However, even in the haste to do something, it is always important to do it right.