The following article originally appeared in the January 2009 edition of The Myers Report newsletter published by the firm.
Do You Have the “Urge to Merge”?
By Jane M. Myers, Esq.
Is now the time to buy or sell a professional practice or other general business? Today, despite our economic meltdown, the answer can be a resounding Yes!
The “urge to merge” can be mighty compelling.
For the selling business owner, a sale or merger can:
- result in a way to “cash out” of the business;
- provide the selling business owner with job security – typically the sale also includes an employment agreement with the acquiring company;
- bring the business to the “next level” by merging with a respected and well-recognized firm;
- eliminate the day-to-day administration headaches of running a business;
- enable the firm to offer more services to clients; and
- instantly expand the firm’s geographic reach.
What Should be Your #1 Concern?
A merger or acquisition can be an immediate cure for a multitude of problems that a typical business may be facing. Stalled growth, administration headaches, expanding receivables and chronic cash flow crunch can instantly vanish for the selling business owner. However, what may appear as instant salvation also has a flipside.
In the world of Mergers & Acquisitions, it’s not uncommon to hear the phrase, “there is no such thing as a merger”.
The reason for that is because after the transaction is completed, it’s rare that there’s a true blending of the firms. Usually, only one firm’s culture prevails. Because of that, before the transaction closes, it’s critical that the parties explore whether they will be able to live happily ever after once the honeymoon is over. That will depend in large part on whether the firms’ cultures are compatible.
In the Spring of 2008, the New York Chapter of the American Institute of Architects sponsored a panel discussion with architects from RMJM Hillier, FXFOWLE and others, each of whom candidly discussed their merger experiences. The firms ranged in size from less than twenty employees to more than several thousand. Each firm had its own reasons behind the urge to merge, with money certainly being high on the list.
Interestingly, across the board, the number one issue that caused the most concern was not money – it was compatibility of firm cultures. Over and over again the panelists emphasized that cultural fit was the number one key to the success of the merger (and in one instance, lack of cultural fit caused the failure).
So, should you sell?
If your firm is too small to compete with a national firm to get the quality and volume of work that you’re looking for, a merger may be the answer. If a small firm has developed a niche practice that has become desirable, a larger firm may pay a premium to acquire that practice. The same holds true for larger firms looking to become established in a certain geographic area.
When should you think about selling?
The earlier the better. If no one has focused on a succession plan until the owners are close to retirement, there will be less negotiating strength at the bargaining table. There are a variety of consulting firms devoted to advising professional firms and other businesses on how and when they should position their firms for sale. Attorneys and accountants are also key advisors for a sale/merger team. While most agree that a transition plan designed several years prior to “cashing out” is ideal, it’s certainly possible to structure a solid plan in a much shorter time period.
What should you think about first in order to put your sale/merger process in motion?
In our next installment, we’ll report on the issues every business owner must know to successfully pursue their “Urge to Merge”.
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Please note that this article is intended only as a general discussion of issues pertaining to the sale or merger of a business and that it should not be taken as creating an attorney-client relationship or as legal advice with respect to any particular person, business or situation. Circumstances and the applicable legal principles vary and you should consult with an attorney and/or other professionals regarding the facts of your particular situation.