Experts will tell you that the mergers and acquisitions (M&A) market is ripe for activity. The construction industry is seeing continued, positive traction in revenue growth and, more importantly, profitability. Additionally, the demand for construction services, specifically in the infrastructure arena, provides a stimulus, further improving the attractiveness of many candidates by inflating potential backlog.
As existing businesses continue to age, many firms are looking to seek acquisition or seek to be acquired. However, while valuations vary, there are also plenty of hazards that companies fail to identify long before the transaction is complete.
1. Strategy
M&A often fulfills the strategic needs of a company. As such, a niche market or geography can enable the buyer to claim an additional competitive advantage. However, there has to be more to a company. Using this rationale, if a buyer moved to a new city, any residence would be acceptable; but in reality, the sector, niche or geography should be the starting point to engage in deeper conversation, rather than a terminal point from which to make an offer. An acquisition target should have some other compelling feature(s) that make it desirable.
For instance, it may be that company’s strategy in dealing with customers or internal systems (discovered during the due diligence phase) are appealing. Too often, one company acquires another only to conduct a wholesale overhaul, leaving little semblance of the original target. By forcing an integration or wholesale change to the parent company, teams, customers, vendors and trade partners become disenchanted, resulting in flight and leaving the parent with nothing but an office.
If you are in the M&A market, leverage the acquisition appropriately and view the target as something with more intrinsic value than simply an office and equipment. It should be attractive for multiple reasons. Find a way to learn from this new organization and bring those lessons back to home base.
2. Technology
It sounds simple, but so many business owners forget the costs of integrating multiple, and sometimes incongruous, systems. This is more than just transferring data from Timberline, Viewpoint or Spectrum. Think about all of the costs and challenges associated with the following platforms:
- Estimating—Be it customized, elaborate, macro-enabled spreadsheet or off-the-shelf, integration must occur.
- CRM—Customer and activity tracking, whether via a database or a cloud-based application, need to be the same across the board.
- Accounting—This item often gets the most attention, but integrating disparate systems can sometimes be a big dollar proposition.
- Websites and social media—The good news is the company will be able to announce the assimilation. The bad news is that the outcome might look like two separate companies instead of one streamlined business.
- IT infrastructure—With a mass migration to the clouds, 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. The mechanics and costs associated with simply determining the right tools for your conglomerate business opens Pandora’s box.
- Other considerations—There is no shortage of tools outside of the traditional spreadsheets and word processing program. Scheduling, building information modeling (BIM), document control, project management, punch-list control, etc., are just some considerations that may require additional time and energy.
Often, businesses look at equipment with a heavy emphasis on yellow iron. In today’s construction world, those considering an acquisition would be better suited to look equally at the integration of these new tools. The raw costs are one serious consideration, but when you add the effect of transitioning 10, 50 or 500 people onto a new system, as well as the training and heartache associated, it may change the complexion of the deal.
3. Culture
Ultimately, the most important asset of any transaction is the people. These are the people who know the market, the players, the customers and the intricacies of doing business within that sector or geography. The fascinating aspect is that this is the one variable of the deal that is not guaranteed. The computers, the office and the equipment will stay put, but if the people do not buy in, they will leave. One of the most common reasons for acquisition failure is the owner’s inability to recognize the impact of culture.
This amorphous, intangible component that so many leaders wrestle with has an important impact on strategy and tactics. 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 firms into one that often begins with a relationship predicated on similar compatibilities. The people must believe in the potential of what is taking place, 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 led? Who will lead this initiative from the parent company’s perspective?
- New opportunities—How will the satellite or target receive access to new opportunities? For instance, as promotions and advancements spring up, how will the new target’s team be tapped as potentials?
- Culture integration—What can the parent firm learn from the target? What can be brought back “home” to make everyone better and demonstrate a truly symbiotic relationship?
All signs point to a fertile market, ready for organizations to expand their empires. Growth can often occur organically through leaders migrating to a new market or sector. But remember, challenges do exist. M&A are excellent vehicles to allow firms to grow quickly. However, in the haste to do something, it is always important to find the time to do it right.
