After the Love Is Gone: Scenes From Failed Integrations

After the Love Is Gone: Scenes From Failed Integrations

Negativity bias. It’s the name for the psychological phenomenon where people tend to share bad experiences more than good ones. Apparently, (and full disclosure here, I’m no brain surgeon) our brains are wired to register and remember negative stimuli more readily than positive ones, leading to a stronger emotional response and a greater urge to discuss negative experiences with others. 

This, I believe, is one of the primary reasons why industry M&A gets a bad rap. It seems like there’s always an employee, manager, or owner of a firm that sold who has had a bad experience with integration. They feel wronged, slighted, or just fed up with life after the merger. And they make it their mission to bad-mouth (a) the acquirer, (b) the decision-makers of the selling firm, and (c) M&A in general. They spend an inordinate amount of time talking about the good old days and how “this (something they view as silly, bad, or personally offensive) wouldn’t have happened before we sold.” And they make sure that everyone they know gets an earful about their negative experiences. (Pardon my rant.)

But it’s not just nay-sayers, folks who are predisposed to complain, or managers who are resistant, reluctant, or unprepared to change who share their bad integration experiences. Well-meaning, eager, enthusiastic, curious, and motivated owners, managers, and employees also do. Why? Because, unfortunately, there are many, many failed integrations of design and environmental consulting firms. And they create misery for everyone involved—buyers, sellers, investors, clients, managers, principals, employees—everyone. What starts off with courtship between two firms and leads to what seems to be the perfect marriage when the transaction documents are signed, the wires processed, and the PR announcements posted can far too often end up a passive-aggressive mess. 

In recent conversations, I’ve been surprised with how many industry executives who sold their firms felt let down, disappointed, or disillusioned about the integration process (or as one of them described it, the “disintegration process”). These are all folks who made multiple millions of dollars through the sales of their firms and were—at the time of the sale—very happy and enthusiastic about the choices they had made about the purchasers of their firms, the terms of the transaction, and the outlook for themselves, their businesses, and their people.

What struck me in each conversation was how vivid their recollections were of the moments or scenes when they realized the love was gone and the integration was headed toward a horrid “them versus us” dynamic rather than the “one unified firm” mantra that everyone had hoped for as the ink dried on the purchase and sale agreement. Here are some of those scenes:

1. Broken promises: A non-starter in any relationship. And a boneheaded move in the integration of an acquisition. Some involved the acquirer not following through on written commitments from transaction documents or employment agreements. Others related to verbal promises—from bonus pools to working arrangements—seemingly welched on. In each instance, trust was eviscerated almost overnight, never to return. (Note: Dear prospective seller, to protect yourself against some of this happening to you, please refer to last week’s article, “Sellers, Avoid These 7 Deadly Sins.”) In each case, better communication by the buyer up front and throughout the process, better listening and more questioning by the seller, and more professional business, tax, and legal representation could have headed off most of these issues.

2. Let’s talk about EBITDA: Rightly or wrongly, it’s the yardstick of M&A success. Is it increasing or decreasing? At what level will it trigger a recapitalization event or exit? Above what threshold will bonuses be paid? When you strip away all the happy talk about strategy and culture, at the heart of the matter is EBITDA—its generation, its protection, its growth, its quality. Buyers who believe having their newly acquired line professionals (who are legitimately 100% focused on client service and quality deliverables) interact directly with junior accountants (focused on measurement and improvement of EBITDA) without the benefit of translators (senior representatives of the acquirer and seller) are likely deluding themselves that those conversations will lead to a “collaborative” dynamic. They don’t. Don’t get me wrong—the math NEEDS to work. But there’s a right way and a not-so-right way to have those conversations. Buyers who fail to see the need for high-EQ managers in this equation will see their post-transaction EBITDA decline rather than improve.

3. The Grinch: Bad move by an acquirer in the first year of an integration. They delayed the messaging about the acquired firm’s traditional, always fun, always highly anticipated holiday party until November (!) and then allocated a per-head budget that essentially funded a maximum of one Party City balloon per person and an open bar—if by open, you mean a maximum of three soft drinks at an Elks Lodge. OK, I’m exaggerating for effect. But the buyer cheaped out on something that—if they had been just a little bit more savvy and invested more—would have resulted in continued plain sailing per the original integration plan. Instead, they looked like Scrooge, unintentionally sent a lousy message, and from that moment on looked like the bad guys. Bah humbug!

4. Cage the tiger: Here’s a classic. Acquire a firm because it’s “the #1 AE firm in Philadelphia (city identity changed to protect the innocent), which is the ‘hole in our donut’ that we have to fill. It’s our top priority!” Then, post-transaction, you tell the CEO of the acquired firm—who plays golf with the presidents of hospitals; sits on the boards of museums, ballets, symphonies, and universities; goes fishing in Alaska with the CEOs of blue chip Philadelphia-headquartered corporations, and is a regular at every black-tie dinner where the City of Brotherly Love’s elite mingle—that your policy doesn’t allow for golf club memberships or fishing trips. (But, of course, he’s free to dip into his own pockets for those activities.) And oh, by the way, as for all of the black-tie events and board memberships, we pay $10,000 a year max (and that includes Ubers). Then you wonder why a year later you’re losing out on the next big sports stadium expansion in eastern Pennsylvania. 

These are just some examples of when sellers remember the best-laid integration plans starting to go wrong. And once that happens, it’s hard to get them back on track. And for the most part they are due to poor communication on the part of the buyer. In our strategy and M&A integration work, we try to emphasize the importance of repeated, clear messaging to convey priorities and the need for continuous, “on-the-ground,” real-life (not just email or text or Teams) communications to head off problems and ensure execution. Far too many acquirers underestimate the need for (and power of) skilled communicators in a successful integration. 

Our brand-new “M&A Integration Best Practices” workshop at the 11^th annual Southeast M&A and Business Symposium in Miami later this month will feature two of the industry’s most skilled and successful integrators—Terracon (Olathe, KS) (ENR #18) and IMEG (Rock Island, IL) (ENR #52) (both recipients of Excellence in Acquisitive Growth Awards). Executives from both of these industry leaders will share best practices and tips for what to do and what to avoid to achieve a successful integration. Registration for the Miami symposium is closed. However, we will be featuring this workshop again this June at our Western States M&A and Business Symposium in Las Vegas. To be kept up to date on when registration goes live for that symposium and the lineup of industry speakers, just click here. 

You can contact Mick Morrisey at [email protected] or 508.380.1868.