For the last 25 years he had worked 50-hour weeks, sacrificed holidays, vacations, and special occasions. Now he was wondering how he could convert the business to cash in order to provide for his retirement and yet “take care” of his remaining employees..

Just a couple of miles down the road was another entrepreneur who was enjoying a rapidly growing consulting practice. After less than 10 years the success was so great she was faced with hiring pressures, facilities constraints, and technology issues. She wondered how she could get back to working in the consulting aspect of the business while taking advantage of the “hot market”.

While these businesses were faced with two different opportunities, they could be looking at one solution: a merger.

A merger “relieves” these entrepreneurs of devoting themselves to “peripheral” business activities (the other facets) such as developing a succession plan, putting in a 401(k), and evaluating project management software, etc. A merger can provide an exit strategy and a merger can also provide a growth strategy.

The hurdles, as I see it, to a successful merger are (1) finding the possible merging opportunities and (2) understanding the true value the business represents (what you will get paid).

Business Valuation
Our industry is replete with easy-to-find business valuation experts. But what we, as business owners, are in need of first is just to talk with someone who has already gone down the merger path. Where are those people? It would be helpful if there was a phonebook of leaders who had sold or merger their businesses. We could pull out this mythical directory of sages, find someone in our area, and call them up. We could ask some relevant, common sense questions.

Are you happy now? Did it go as you expected? How did you find a buyer? What was the hardest part? Were your employees surprised…did they stay?

As far as the business valuation, we all want to believe that there is endless goodwill associated with our hard-built empire and that someone should be willing to pay for it. The reality is that our Clients are fickle and relationships crumble when the key players change so the only goodwill is a signed contract. What slows down a merger is when the “selling” entrepreneur has had a business valuation done and thinks he knows what the business is worth. Hard reality is that the valuation expert told you what you wanted to hear and based the value on selling the company in its entirety (an equity sale). The transactions for small and mid-size firms are not done that way. They are valued by pieces and the purchase price is a sum of the parts (an asset sale).

I cannot think of any other way for a business owner to get value for his or her firm except to transition it (internally or externally) through some sort of sale. An internal transaction has great benefits but is not always optimal and some employees think it should just be given to them for their years of service. Ouch! They fail to see the risk the entrepreneur shouldered while building the enterprise and that, although they participated in the creation of the value, the sale price should, at best, be discounted to them.

Merger Opportunities
My instincts tell me that the best opportunities are with the people you admire, like, and respect. All of the math in the world is not going to help disparate cultures merge and create an entity that everyone will be happy to live with afterward. Pin down your core values and passively watch for other people or firms who seem similar to you. Bring it up in a private conversation and talk about both your goals and ambitions. Some of the goal congruence you might look for is how you treat employees or how much debt is on your respective balance sheets.

Focus on the core of the business
Looking back over the last five years and the merger/acquisitions that our firm has made, I am amazed. Men and women start a business in our industry because of their belief that they can do it better or differently from their employers. Somewhere down the road (if they are lucky enough) it dawns on them that the business they started is multi-faceted and each facet requires their attention in order to be an enduring
organization.

A merger is a terrific way to grow a firm and pass off the organizational aspects that come with expansion. Let another firm who has the staff and technical expertise write the benefit plans and put in the technology. Combining with a larger group will provide promotional opportunities for staff who might have otherwise left a smaller business. The synergy of the two firms grows the value of both merging partners shares even more and spreads risk over another geographic area or discipline.

Combine and Grow
Every time I meet a business owner who seems to share our core values, I ask myself “Should we be running our businesses separately?”

The excitement of the possibilities created when two firms come together never dims for me. The next time you are at a juncture in your business, whether to plan for leadership succession or to manage your growth, consider a merger, the single solution for different problems. Look around for others who have been through a business combination and talk with them first to establish realistic expectations. Then have a conversation with another firm you admire to discuss goals and objectives. You may be pleasantly surprised by the possibilities!  SLDT