Seven Lessons Learned From 200 Transactions
Last week was a pretty big one for the team here at Morrissey Goodale. For three reasons. First, our client—and Atlanta’s largest architecture firm—Cooper Carry (ENR #221) announced their acquisition of architecture firm 505Design, thereby adding offices in Boulder, Colorado, and Charlotte, North Carolina. We were privileged to have advised Cooper Carry on this important expansion of their business.
Second, our client GHK Capital Partners (Greenwich, CT), a leading middle-market private equity firm, announced the creation of a new infrastructure engineering consulting platform through the almost simultaneous acquisitions of national engineering firm WSB & Associates (Minneapolis, MN) (ENR #178) and EST (Oklahoma City, OK), a transportation infrastructure engineering consulting firm with operations across Oklahoma, Texas, Colorado, and California. We were honored to have initiated and advised on both transactions for our client.
Third, with these transactions, our team reached a new milestone in our service to our clients and the industry, as we now have advised on or initiated over 200 AE and environmental firm deals. You can see the full list of those acquisitions, mergers, sales, and recapitalizations here.
In helping our clients with these 200 transactions we’ve done lots of negotiating, analyzing, and due diligence. We’ve also listened, reflected, and learned along the way. So, as we reach this milestone and look forward to the next 100 deals, we thought we would share some of what we’ve learned along the way.
1. Your emotional rescue: Emotions + poor communication = a real mess. Sellers, in particular, would be well served to accept that assessments made by potential acquirers or investors are only that…assessments, whether grounded or ungrounded. Buyers, in particular, could all but eliminate unnecessary drama by committing to communicate in real time and to buy into the notion that the tougher the conversation, the sooner it should be had. Otherwise, an immense amount of time and effort gets sunk into simply trying to get the parties back to the table.
2. Everyone has a tell: There are three reasons why employee-owned firms sell or recapitalize. The first is if they are unable to recapitalize internally—in other words, they cannot transition ownership to the next generation of employee-owners. The second is if they are unable to transition leadership. The next generation lacks either the desire or the competency to take the reins. Reasons number one and two frequently go hand-in-hand. Third is when their ambition outstrips their ability to access the requisite capital. In other words, their appetite for growth exceeds their ability to feed it. So, they seek outside capital—these days in the form of private equity. The result? Since 2016, the percentage of employee-owned firms among the ENR 100 has declined from 75% to 63%—and it will continue to fall.
3. Misplaced fears: Sellers tend to get really concerned that their competitors, clients, or staff will discover that they are selling or recapitalizing. Experience shows that this rarely happens. And even if it does, the intelligence is never solid enough to be actionable. Sure, sellers would do well to keep things close to the chest. But I can’t tell you the countless conversations I’ve had with sellers “scenario playing” a breach of confidentiality. The overemphasis on this “non-threat” is a waste of management’s time.
4. There are only two constants in life: Get qualified and experienced tax advice before a Letter of Intent (LOI) is signed. There is no avoiding taxes in life, but sometimes they can be deferred. The impact of taxes depends on the corporate structure of the buyer and the seller, plus the state(s) and localities the sellers pay taxes in, so get a CPA on board who has seen and done it before to understand what that final bill will look like.
5. Have your people call my people: It’s OK to suggest to the other side that a dispassionate third-party advisor is in order. Regardless of whether you’re a buyer or a seller, oftentimes the cold, clinical advice of an outside financial, tax, or legal advisor can offer an un-jaundiced assessment of even the thorniest issue. In an industry full of do-it-yourselfers, calling for outside help may not be the first choice for most, but more often than not we’ve seen deal issues get solved when one side or another calls for a lifeline mid-transaction.
6. Couples counseling for deal-makers: Infrequent communication can create a vacuum of information, leading to uncertainty, speculation, and disappointment. Providing regular updates, even when there is no significant progress, keeps the other side informed, prevents misunderstandings, and reassures them that they are not being kept in the dark.
7. Find yourself a great partner: As a seller, you want to find a buyer or investor who can take your business to the next level. Some buyers are good at this; many are not. The ones who are tend to be great at integrations. And in today’s world of consolidation, “integration” ranges from 100% on the same platform and with the same name on day one to the popular “house of brands” model that largely keeps acquired firms separate and “independent.” When you’re selling, do your due diligence on the buyer to determine if they will be a great partner for you. They are out there; you just need to find them.
On the topic of finding a great partner, we’ll be announcing the recipients of the Best Post-Transaction Performance Award at the Texas and Southern States M&A, Strategy, and Innovation Symposium in Houston next month—recognizing those acquirers that most improve the fortunes of the firms that they invest in. There’s still time to submit an application for the award. So, if you’ve made an acquisition that you’re proud of, and you believe it merits consideration for this award, then we invite you to begin the application process here. Once you’ve gathered all of the information required, the application should take no more than 30 minutes to complete. The window for applications is open until October 6. If you have any questions about the award, please contact [email protected].
We will be sharing more lessons that we’ve learned from over 200 transactions at our Texas and Southern States Symposium next month in Houston. We hope to see you there.
To connect with Mick Morrissey, email him at [email protected] or call/text 508.380.1868.