Insights | Mar 25, 2019

Looking for Acquisitions? 7 Common Mistakes for Buyers to Avoid

By Tom Kosnik

 

Even though mergers and acquisitions are at an all-time high in the staffing industry, many transactions go sideways due to some common mistakes. Astute buyers have full-time staff members who act as experienced internal M&A consultants. Staffing firms that lack such internal resources can easily fall into some common errors that result in a lot of frustration – and sellers pursuing other buyers. Here are some things to ponder as you look for acquisitions…

Trust is King

 

No one will sell to a buyer they do not trust. The role of the buyer, all the way through the process, is to build trust with the seller. In the back of every seller’s mind lingers the unanswered question, “Will this buyer try to cheat me?” As a buyer, you must answer that question for the seller. However, his type of trust-building is easier said than done – mainly because the buyer will need to establish trust in a very short time period. Trying to understand what the seller is trying to accomplish (and positioning your firm as the entity that can help them achieve this goal) will position you at the head of the pack.

 

Talking About Money Too Soon

 

I see this mistake all the time. Some buyers will ask about financial expectations on the first call or way too early in the process. This occurs when a buyer sends the message to the seller that they are all about the transaction and negotiation, getting into the money questions far too early in the process. I have been on initial calls when a buyer jumps right into, “Well, what are you looking for the business?” After the call, it is always the same response. “I would never sell my company to that guy!” In every deal, if trust and synergy is there, the seller becomes motivated to align with the buyer and will be flexible on deal structure. Remember, all good things come in time.

 

No Ideal Acquisition Profile

 

If you are looking to succeed with acquisitions, then focus is critical. How? First, geography. And, the tighter the better. We want to be in these markets for these reasons.  Second, revenue range. Small tuck-in acquisitions versus mid-sized acquisitions versus wanting to double the size of the company with an acquisition. Third, type or niche of staffing. Enterprise staffing firms that have multiple divisions could potentially look at a lot of deals. Why the profile? Having a profile communicates to a seller that you have a strategy and intent and are not opportunistically kicking tires.

 

Not Managing Your Lawyer

 

When lawyers get involved, a deal slows way down. As the buyer, you need to manage your lawyer. Documents must be generated and reviewed in a timely basis. When lawyers take too long to respond, buyers are communicating that they are not excited about the deal. A very common mistake buyers make is utilizing a lawyer that has no experience in conducting staffing transactions.  A lawyer with staffing industry experience is worth their weight in gold!  Such a lawyer will know what kind of “Letter of Intent” to generate or what kind of “Asset Purchase Agreement” to pursue based on the size of the acquiring entity. One time, I was involved in a small acquisition in which we received a 45-page Asset Purchase Agreement, when a 15-page agreement would have gotten the job done!

 

Gaps

 

Sometimes buyers take two or three weeks to respond to information sent or worse yet, they go silent. This is never a good thing. It is almost like a neon flashing sign saying “we don’t have our act together” or “we are inexperienced buyers” or “we are conflicted internally” or “we think your business is not worth much”, and the list goes on. When buyers have gaps or fail to respond in a timely basis, they are creating an environment for doubt to creep into the mindset of the seller.

 

Due Diligence Too Early

 

There is a standard process to acquiring a company. A lot of the more challenging negotiation happens in the stage of the “Letter of Intent.” I have seen some buyers who don’t operate within the standard process. A common error is that they start seeking due diligence information about the acquiring company prior to generating a “Letter of Intent.” This communicates to a seller that the buyer really does not know what they are doing. Therefore, such a message does not help with building trust. To value a staffing company, having P&L’s and balance sheets on the front-end is really all a buyer needs to see. Asking for information outside this process throws up red flags for the seller.

 

Inflexibility in Structure

 

There are so many ways to skin a cat. I have seen some buyers go to market with one set structure in which to acquire companies. Being flexible in structuring an acquisition communicates openness and adaptability instead of “my way or the highway”. No two deals are the same. Every seller has unique things they are attempting to accomplish in the sale of their business based on their age and personal financial situation (eg. the amount of cash at closing versus the percentage of earn-out being offered). Again, once trust is built, these sensitivities can be negotiated very successfully. I have seen deals fall apart for as little as fifty or a hundred thousand dollars simply because the buyer became inflexible in their structure.

 

Conclusion

 

As you can see, there are many moving parts in acquiring a staffing business, and even experienced buyers trip up from time-to-time. If you are thinking about acquisitions, feel free to reach out to me to discuss best practices or next steps.

 

At Visus Group, we take great pride in helping our clients; please contact us today.

Share This Post

Recent News

Insights | | Dec 11, 2019
Factors To Consider When Tweaking Your Company’s Compensation Plan (Part 1)

Tweaking the corporate compensation plan annually at the end of the year is a good practice for any company.

Insights | | Dec 11, 2019
Factors to Consider When Tweaking Your Company’s Compensation Plan (Part 2)

As you think about making a change to your company’s compensation plan, consider these factors to help your employees adjust to these changes.

Insights | | Oct 21, 2019
Economic Trends October 2019: The Economy is Slowing!

The economy is slowing, what are the best staffing companies doing to prepare and respond? Watch our video for our perspective.

Insights | | Aug 28, 2019
Margins are Up, how come Net Income is Down?

Margins in the staffing industry have ticked up for the fourth consecutive year. Guess what else has ticket up?

Insights | | Apr 30, 2019
Why You’re Pulling Your Hair Out to Get Your People to Cross-Sell

It seems so simple. If we can just get our people to cross-sell between divisions, everyone wins!

Insights | | Apr 03, 2019
5 Strategies to Live by for Effective Price Negotiations

Here are some helpful strategies I use to coach my clients and reduce anxiety associated with price negotiations.

Insights | | Apr 01, 2019
Key Elements to Keep In Mind When Positioning to Sell

Pundits tell us to always be managing a business as if you are positioning to sell it. This advice is prudent for several reasons.

Insights | | Mar 25, 2019
Looking to Sell Your Business? 7 Common Mistakes Sellers Make

Let’s address some of the mistakes sellers often make when trying to sell their business.

Insights | | Mar 18, 2019
Want A More Effective Leadership Team? Take These 3 Action Steps

The staffing industry is by nature a very reactionary business. When a client needs to fill a position, they typically need someone immediately.

Insights | | Feb 11, 2019
Business Planning For Small Staffing Firms (Part 3 of 3)

In Part 2 of this series, I mention sales planning as the third key factor for business planning.

Insights | | Feb 11, 2019
Business Planning for Small Staffing Firms (Part 2 of 3)

Business planning for small staffing firms consists of three key factors.

Insights | | Feb 11, 2019
Business Planning for Small Staffing Firms (Part 1 of 3)

The business sages tell us that if we want success then we must develop a plan for success.