In a previous article, Rob Peake of Management for Design weighed up whether merging your practice is a worthwhile venture. With a resounding yes, he unpacks next steps to make it happen.
September 5th, 2018
In a previous article, we presented the business case for merging your business with like-minded businesses. Our advice is to start from the premise that you should merge your practice – not that you shouldn’t. By merging with like-minded businesses, you will accelerate your path to success and break the innate tendency to improve incrementally.
The advantages of merging in today’s increasingly competitive and oversupplied marketplace include:
While mergers can be a valid option, making them work is often another matter altogether. Problems are mainly due to cultural misalignment, personal differences and improper due diligence. Successful mergers are based upon a sound integrated business strategy that creates synergy, and a combined firm that produces greater client and business value than either firm could produce alone.
Start by determining your merger objectives:
If you are weak in firm leadership, management and administration – look for a firm that is strong in these areas. Having said that, strong leadership, management, and administration may be hard to find in a firm fewer than 20 to 30 people. You also need to get your head around the fact that mergers typically occur without compensation or goodwill to either party.
No doubt you will find that outside resources can prove invaluable to bolster the internal team – an experienced consultant can find the right targets and facilitate and drive the entire process. Additionally, experienced legal and tax counsel will also be vital, and an experienced partner will be able to manage these resources and bring them into the fold where and when needed.
A major consideration for an Australian practice, however, is who do you work with that has been through the process and can provide expert advice?
Typically, a merger happens between companies of comparable size and finances, taking two like-minded businesses and making them stronger together. It should be a friendly transaction since both entities are agreeing to the deal, and both parties should benefit from the arrangement. We’re not talking about the path to acquisition, which typically involves one business (the larger one) taking control over another.
Once you are sure that merger exploration makes sense – you should ensure that your business is in order. In other words – can anything be done to enhance the value and/or marketability of your firm? For example:
Next, develop a merger marketing plan and begin working the plan. Try to generate enough leads that you can explore a merger with several businesses rather than engaging in “random merger talks” which often result in isolated merger offers, leaving you with no framework for comparison.
The real question that businesses struggle with is not the what (merge) but the who (people). The ‘who with’ should be a firm with a similar culture, excellent leaders (or potential leaders), great relationships and clients who understand the long-term benefits to all parties, resulting in what is often described as being 2+2=5: compatible culture, systems, technology, project, client and design aspiration.
Identifying acquisition targets, buyers or another firm to merge with is not a typical practice’s core competence. There are though, many Australian businesses that have successfully achieved this in recent years including:
In the CODA | Cox scenario – CODA directors Emma Williamson and Kieran Wong assumed directorships with Cox, with all CODA people transferring from the practice’s former studio in Fremantle to the Cox office in Perth’s CBD. Williamson says, “By merging with Cox Architecture, we have a real opportunity to get stuck into larger and more complex work and to continue our interest in developing practice culture.”
“There aren’t a whole lot of catastrophic failures when it comes to mergers in the architecture and engineering space. Of course, these major failures can and do occur. But, they are very rare” – The Ultimate Mergers and Acquisition Manual, PSMJ Resources Inc. However, there are certain steps to take to minimise the risks of the merger not working out as intended:
Finally, don’t commence the planning process until you have thought through these issues and put in place the mechanisms to ensure you deliver on your aspirations. Now is not the time to procrastinate. Make it happen!
Most people misunderstand the meaning of these two words as they are often used together i.e. M&A activity. But the meanings of them are totally different – an acquisition refers to one company taking over another whereby the larger business takes control over the other business they’ve acquired. Acquisitions, as opposed to mergers, don’t require mutual agreement, but they do require a huge amount of cash! But, to be clear, they both have their pro’s and cons.
Rob Peake is the founder of Management for Design, a company that works exclusively with the architecture, engineering and design industry. Robert has over 30 years of experience and brings expertise in strategic direction, financial and business management, systems, operations and performance. You can read all of Rob’s articles here.
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