Mergers with a conscience

A long term view makes an engineering firm slow to acquire

A merger where nobody is fired, nobody quits, and morale actually goes up? Yes, it's possible. The recent experience of GeoEngineers proves the point, and offers reassurance for companies who are looking to acquire - and possibly be acquired by - other groups.

Merger motives

A positive merger experience begins with the acquiring company's motivation.

The critical question is whether the move is designed for expansion of opportunity or purely to increase stockholder profits. Mergers involving publicly traded firms often have the primary goal of reducing overhead. For professional services companies, that means cutting salary costs. Hence the hatchet time following many merger and acquisition transactions.

But professional service firms' very existence depends on a stable cadre of knowledgeable and motivated employees. It's very difficult to find good people in the first place, much less replace them after a layoff or walkout. We therefore must adopt a long-term approach, and take great care not to lose our employees, who represent the earnings potential for our business. One way to ensure retention is to keep people happy with ongoing career challenges, and whenever possible, with a stake in the earnings as well.

GeoEngineers is employee-owned. It is also oriented to growth, because growth provides opportunities, both financial and professional, for staff members. These possibilities are created with diversification into new technical specialties and with geographic expansion. Growth enables our employees to work on larger, more complex projects. It also adds stability by spreading our revenues over markets and regions that operate in different business cycles.

But we've learned how difficult it is to enter a new geographic market or service niche, only to encounter fierce competition from more entrenched players. It can be much simpler and faster to join forces with someone who's already there, with an established reputation and solid client base. In other words, it makes sense to look for a likely merger partner.

Cultural criteria

The search for a possible merger candidate is a tricky one, because not every successful company will prove to be a match. The assessment process goes far beyond just looking at the balance sheet. Of paramount importance are the two corporate cultures, and whether they can function smoothly as one. Does one company have a strict hierarchy, while the other is more egalitarian? How are new ideas discussed? Are decisions made in a laid-back manner, or does everything need to happen in real time? These will all be factors to be carefully considered when scouting for an acquisition partner.

The goal during the corporate courtship process is to figure out what makes the other firm tick. For instance, at GeoEngineers we look for an organization with plenty of employee involvement, where there is a demonstrated commitment to open communications. We also want a team that emphasizes good science and has a passion for the technical services it provides. We'll take techies who get excited about rock samples over MBA types any day.

Another essential consideration is the candidate company's niche, and whether they provide broad-based consulting or a commodity service. It's a lucky firm that can obtain superior technical consultants through an acquisition. On the other hand, a commodity service can also be of interest if it provides entry into a new consulting discipline, and thus furthers the overall goals of the acquiring firm.

Strategic combinations

Assuming that the two corporate cultures align well, the next step is to assess whether potential exists for the merged entity to be greater that a sum of the parts. The merger should lay the groundwork for the birth of a new, exciting and more vital organization.

Will the merger be beneficial for everyone concerned? This includes owners, management and employees of both companies. If either party feels slighted, then the merger is likely doomed to failure. But if everyone, from the president to the file clerk, can see a personal advantage and a chance for a better future as a result of the move, then you have a good foundation for success.

People must be constantly reminded about the benefits of the merger, because there's a natural tendency to fear change. Stop worriers before they get started by building an environment of mutual trust. Emphasize that there are no secret plans to eliminate staff (assuming this is indeed the case).

Perceived value is everything. If someone believes that they're getting the short end of the stick, they will cause as much damage as a person who really is being taken advantage of. So do your employee relations homework, and provide plenty of evidence that the merger will be a positive experience.

Keep an open mind

Flexibility is the key to creating a win-win atmosphere. Find out what each group hopes for, and determine what will best meet their needs. For instance, a transfer of financial worth can be accomplished in many ways, including everything from a cash buy-out to a stock transfer, or a combination of the two. Positions, responsibilities and perks should be redistributed creatively.

The leaders of the acquired company typically will be expected to stay on board, at least for a period of time, assuring continuity for employees and clients alike. If this is the case, they will need meaningful and challenging roles in the new, larger firm. The repositioning of other employees must be treated with great sensitivity as well, so that neither group senses favoritism, even in matters such as who organizes the company picnic or who gets the window office.

An illustration of a smooth acquisition comes from GeoEngineers' recent experience with Gifford Consultants, a leading geotechnical and materials testing firm in Spokane. Allen Gifford, the sole owner of Gifford Consultants, is now a principal of GeoEngineers. He represents us on the board of directors of the Consulting Engineers Council of Washington, and remains active in client liaison and project management positions.

GeoEngineers' former branch office in Spokane numbered only six employees, and it lacked the critical mass to weather short-term business fluctuations. Gifford's group had 12. None quit during the transition. Just the opposite occurred, in fact. The office now has a staff of 20 - demonstrating how a new group can quickly become bigger (and hopefully better) than the sum of the original parts.

Tips for merger planners

If your professional service firm is considering a merger or acquisition, don't assume that you have to proceed like a Wall Street giant. You can do most of the initial investigative work yourself, checking out possible candidate companies using your network connections and even the Internet. Take the initiative, and make contacts yourself. It's not essential to rely on an expensive broker or sales company to represent you, since they may not know your industry and its key players as well as you do. However it may be advisable to retain a qualified consultant to assist you through the more complicated parts of the process.

Also, don't get impatient. Finding the right merger partner takes time, usually much longer than you would ever guess. So does working out the details to everyone's satisfaction. It's worth the wait to get everything right.

A final word of advice is to make sure your financial ship is in good order before you start talking with prospective partners. Having a track record of revenue growth and profitability increases your options and value in the merger and acquisition marketplace.

An attractive solution

Contrary to the negative image of many large-scale mergers, our experience points to the wisdom of a well-planned acquisition. If designed with care, the combined entity can provide significantly more sales, professional activity and net worth than the two groups did before the transaction. Together, the two can assume a more commanding market presence, becoming the place the go for premier services. Younger employees will see increased career opportunities. And all stockholders can look forward to a more comfortable retirement, through growth of equity in a dynamic company that stretches to new horizons.

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