Whenever one entity seeks to acquire another, the primary focus often is seller compensation. While sellers should insist on good prices for their businesses, other considerations often dictate whether the acquisitions are successful to both buyers and sellers.

At this point, some might say, “You've got to be kidding! You sell your business for the best price–end of story!” This barometer of success is absolute, provided that:
o The owner(s) will not work in the acquired entity post sale
o No employees will remain whose future careers are a concern to the owner(s)
o The owner(s) are not concerned about past efforts to build a successful organization, including dismantling the original entity
o The seller is confident the buyer will honor all contractual and verbal commitments.
If all of these conditions exist, the seller should take the highest offer. In most cases, however, at least one of these issues will be a concern to the seller. Because owners and staff become the acquirer's employees, it's crucial to be objective about how the buyer treats his own staff or the staff of other acquired entities. Contacting other owners who have sold to the buyer and networking in the industry will reveal the truth. Some buyers provide sellers with a reference list that may or may not be a representative sampling of recent deals. It is best to contact at least one former owner who is not on the list.
There is frequent talk in M&A of the importance of compatible cultures. Studies show that unhappy buyers and sellers often are the result of culture clashes. Perhaps the most lethal culture issue is a significant difference in the integrity of the two parties. While acquisition contracts help both sides remain honest, they are expensive and time consuming to enforce. When a buyer plays games with an earn-out installment calculation post sale, many sellers are unwilling to endure the expense, time and aggravation that enforces the deal. Perhaps the seller withheld information before the transaction. Legal remedies cannot make up the stress and distraction of dealing with dishonest practices. There is no due diligence more important than determining the moral character of the other side.
The sale of my father's property-casualty insurance company exemplifies this theory. The company was sold to a life insurer that did not understand my father's business and set unrealistic growth expectations in light of market conditions. He ended up fighting internal board room battles instead of doing what he loved: building a profitable company by overcoming external challenges.
My father's company was sold to several other firms over the years. Despite the fact that its finances consistently outperformed the parent company, he had to threaten to resign on several occasions over culture clashes.
No two cultures are identical and some friction results in even the best of circumstances. Smart buyers often make small adjustments to meet the acquired entity halfway, while selling and explaining changes that come with the sale. One of our acquisitions had a popcorn machine in the office–a longstanding tradition–while another office had a more lenient dress code. We allowed each office to keep those traditions, but required both to use our systems, which initially made life more difficult for the staff. We put much effort into establishing realistic expectations for the systems change and provided more support and training than we previously offered our home office staff.
Both buyers and sellers should be concerned about cultural fit once the transaction is consummated. While money is important, passion, commitment and teamwork are key as well. Charles Kingsley wrote: “We act as though comfort and luxury are the chief requirements of life when all that we need to make us happy is something to be enthusiastic about.”

Special Reports /

The Last Word: M&A Beyond the Bucks

Related Stories

Recommended For You