Construction companies are no strangers to mergers and acquisitions (M&A). In fact, M&A transactions in the construction and real estate industry totaled $10.4 billion in the United States during June 2021 alone, according to international analytics firm GlobalData.
If you think your business might engage in an M&A deal in the near future, assess the risks carefully before jumping in.
When buying a competitor, perhaps the biggest mistake construction owners make is acquiring targets that lack synergies with their own companies. For example, a commercial roofing contractor and a residential roofing contractor would seem to have much in common. Yet the two require different skills, equipment and employee training. The two types of businesses also tend to vary dramatically in terms of financial structure.
The best way to avoid “swerving into the other lane” — and, possibly, disaster — is to specifically define your core competencies. In other words, what do you do best? Then identify an opportunity for growth that’s not going to stretch you too thin or take you too far afield from your areas of strength.
Every company has its own culture. Some organizations are “top-down” (the boss gives the orders), strict and methodical. Others have a more free-wheeling, collaborative feel. Often, a business is a blend of both — reflecting the will of leadership and the ideas of its workforce.
There’s no single “right way” to establish a company’s culture. But two businesses with vastly different organizational structures, accountability measures, schedules and employee expectations can crash into each other when trying to form a new, combined entity.
For example, commercial plumbing contractor A acquires commercial plumbing contractor B. Company A has, for years, required all its project managers to submit daily logs detailing exactly what was completed at each job site. Company B has never had such a requirement. As one might imagine, it may take some persuading on the part of management to get project managers from the former Company B to comply with the more rigorous reporting rules.
So, what can be done? One strategy is to reinforce that all employees are being judged by the same measures. Merging companies must have one set of expectations for everyone from managers to laborers, and these rules must be clearly defined and communicated to everyone. A post-transaction consultant can help with this process.
Rebranding is another strategy for bringing together a combined workforce after a merger. Establishing a new company name, logo, branding guidelines and mission statement can go a long way toward unifying a newly formed team.
Owners who focus only on getting “a great deal” often underestimate the full financial implications of an M&A transaction beyond the initial purchase price.
One way to understand what a merger’s full costs may be is to hire a private investigation firm to vet the company you’re interested in buying. Although businesses have a legal obligation to disclose financial information and outstanding liabilities, intangibles such as bad management and a disgruntled workforce may not be captured in the sales proposal.
In addition, you’ll need to work with your financial advisors to come up with reasonable projections regarding, among various factors, debt load, cash flow and tax liability. Getting bigger may not immediately translate to profitability.
During and after an M&A transaction, it’s easy to focus on assimilating the two companies. But don’t forget about the important people who are along for the ride: your customers.
For contracts already signed and jobs in progress, clear communication is vital. Notify them of company name changes and new personnel as soon as possible. For future work, maximize the marketing opportunity. You’re not just a bigger construction company, you’re a better one. Tell people about the change in a timely manner and explain how it may or may not affect them.
An M&A deal may seem like a simple way to grow your construction company. However, these arrangements are typically anything but simple. Work closely with your professional advisors to evaluate the opportunity.
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