Hopefully, there will come a time in the not-too-distant future when you either actively seek an acquirer for your business, or one approaches you; that is, if selling your firm is your goal. But, like many acquisitions and mergers, most do not work out in the long run. My experience with four such events taught me there were some things to look out for. If a merger or acquisition of your talent development firm is on the horizon, here are some pitfalls to look out for during this process, from my own experiences.
- The engagement period was far too short, and as a result there wasn’t an appropriate and long enough due diligence period or process.
- The buyer thought the seller possessed an offer that closed a gap in their own business, but it really didn’t.
- The buyer did not fully understand how the seller went to market, or its business model, and thought it matched theirs when it didn’t.
- The buyer had extremely strong top executive support, almost to the point they didn’t really involve other senior executives in the decision. They decided on their own and forced it down the others’ throats.
- The buyer’s champions of the deal left the business in just a couple years or moved into another role, making continued support difficult to muster.
- The buyer’s sales force (a strong point in each case) and deliverers or executers were never really bought in to what the seller added to their offer. They saw no “what’s in it for me” or, for that matter, what was in it for their clients.
- There were no real incentives for the buyer’s employees, namely sales and delivery people, to deliver the seller’s offer.
- The buyer moved too quickly to integrate the seller’s business into their own, resulting in confusion and poorer performance by the seller on their own, thus making annual earn-outs more difficult to achieve.
- In all but one case, the seller’s earn-outs were never fully realized. In that one case, it was not based on achievement of goals but rather admittance by the buyers that they didn’t do what they said they would to support the seller.
- Most important, the buyer was in a “take” role, not a “give” one. Thus, they saw the seller as providing the buyer with added resources rather than providing the seller with those of the buyer to build up the seller’s business. See the article by Roger Martin, entitled “M&A: The One Thing You Need to Know,” about this point and why most mergers and acquisitions don’t work.
- The financials were too attractive for the sellers to say no, given where each were at the time of the sale, both personally and professionally. Thus, they were over anxious to sell and didn’t want to pass up the opportunity for fear there wouldn’t be another good one down the road.
- Finally, key players on the seller’s side left the company because they hadn’t signed up for this new arrangement and didn’t want to be a part of the big gorilla business. Others left shortly thereafter because it “wasn’t like it used to be.” They didn’t see much incentive for them to stay. This happens in all these cases, but it is something to be aware of moving forward.
If you are currently in the process of selling, or are thinking about it, use these points as your checklist for evaluating the potential of the “marriage.” Have you seen or experienced yourself any of the these conditions? What did you do or see done that prevented these from taking place? What would you do in the future to sell a business based on this experience?
For more insight, check out The Complete Guide to Building and Growing a Talent Development Firm.