A people-focused approach to M&A

Phil Nardone

The delicate art of putting people first during an agency acquisition process.

According to a recent KPMG study, 83 percent of all company mergers fail. That’s higher than the U.S. divorce rate by more than 30 percent! The fact is, getting into bed with another agency is a big decision. Beyond the financials are cultural and philosophical considerations agency leaders must make. In order to ensure a lasting and mutually beneficial union, agency heads must strike a delicate balance between science and intuition.

When I first stepped onto the path toward our eventual acquisition of Vantage PR in December of 2015, I was surprised to find how akin the experience was to a romantic engagement. Timing, courtship and compromise played heavily in our ability to find PAN’s counterpart in another firm. Several of my preconceptions about the process were quickly disproved, and I settled in for a much longer and more intimate journey than I’d originally anticipated. 

Timing is everything

According to a survey by The Stevens Group, 92 percent of independent firm owners are planning to sell, 44 percent within the next five years. That means the opportunity is ripe for acquiring firms — but that doesn’t necessarily mean the timing is right. Knowing when to enter the mergers and acquisition game is half the battle.

As an agency leader, it’s essential to have your finger on the pulse of both internal and external cues that an acquisition is needed. In my own search, I looked beyond market opportunity — at signals coming from our client base and employees — before pulling the trigger. I turned to our client portfolio leaders and business development heads to understand where our biggest geographic and vertical growth opportunities existed. Then, I consulted human resources to see where those opportunities aligned with employee interests and available talent. I realized quickly that speed is far less important than diligence when it comes to unearthing a perfect match.

Learning to date

I was also surprised to learn that playing the field is essential in mergers and acquisitions. While I favor monogamy in my personal relationships, I realized quickly that I’d need to explore a plethora of potentials in order to find the right partner for PAN. I had to quickly assess financial and cultural fit in order to narrow the field.

I enlisted the help of my CFO to drive efficiency in this process and kept meticulous notes on each potential partner. While my CFO explored the financial health of our top candidates, looking at indicators like EBITDA scores, year-over-year growth, topline revenue and profit margins, I got personal with company leadership to assess whether our cultures and values aligned.

Falling in love

The courtship period of an acquisition is similar to a romantic relationship in that you must be willing to reveal your true self and encourage potential partners to do the same. Beyond fundamental discussions around business aspirations and values, it’s essential to ask the more difficult questions about company culture and employee happiness.

Cultural differences are among the most frequently cited reasons that acquisitions fail. If you’re making an acquisition to acquire talent and headcount in key geographies, for example, you simply can’t afford to join forces with a firm who is struggling with retention. In my own search, I didn’t shy away from building genuine relationships with the leaders I met, encouraging spouses to join business dinners to get a more dynamic view and reaching out to industry colleagues for insight and opinions. We also turned to employee review sites for an authentic look at employee happiness and a pulse-check on organizational health and alignment with our culture and values.

Breaking up

As you might expect, not every prospect will be a perfect match. While unpleasant, breakups are an inevitable part of the acquisition experience. Over the course of PAN’s acquisition journey, I learned a few tough lessons about how to spot red flags — i.e. declining assets — and how to protect my own leadership and employees through this process. In order to avoid impacting employee morale, keep your mergers and acquisition team small and your conversations private.

My team consisted only of our human resources, finance and business development leaders until a letter of intent was signed. These folks were essential to our initial evaluations. Our head of human resources reviewed employee data and practices to ensure the talent pool was aligned with our needs, while our head of business development assessed whether our core competencies and geographic needs aligned. As mentioned, our CFO was integral in evaluating the financial health and viability of prospects. It wasn’t until we had vetted and chosen one firm that our vice presidents and mid-level executives were brought in.

While it may seem unnatural to keep employees at a distance in the age of total transparency, it’s essential during the initial phases of this process. We were open with our staff about our plans to acquire, the strategic goals behind it and our anticipated timeline, but we didn’t delve into the finer details until the deal was done. This helped us to keep anticipation high and disappointment low amongst our staff.

Going the distance

As you might expect, your work is not done once your partner is chosen. In order to build an enduring relationship, a successful integration is essential. This will require careful attention and division of responsibility across your leadership team and collaboration amongst all employees. With our acquisition of Vantage PR, PAN grew to over 100 employees and expanded our footprint across the country. With this growth came new challenges impacting our entire organization. Decisions are being made on everything from our company culture, to our IT infrastructure, to our approach to client relations and business development.

The hardest work has just begun, but each new trial has served to reinforce the natural alignment between our two firms. Putting people at the center of this process — in both the discovery and the integration phases — has made fostering mutual respect and finding common ground easy.

This post originally appeared in O'Dwyer PR Magazine's May 2016 Rankings issue, on page 18.

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