Mergers and acquisitions can be an alluring form of growth, but it is important to approach this decision with eyes wide open as it has a direct impact on your operations and culture, not just your bottom line.
Whether you are considering being backed by private equity or completing acquisitions on your own, this route is not for the faint of heart. Below are some of the lessons learned from landscape companies that have completed multiple transactions over the years.
Have a Clear Strategy
As appealing as M&A can be, it’s important to first sit down and see how acquiring a business aligns with your long-term goals and strategic plan.
“It’s really critical to do deals that make sense for what you are trying to achieve, and not just do deals to do deals,” says J.T. Price, CEO of Landscape Workshop, based in Birmingham, Alabama. “We want to be a great commercial landscape company that provides a very high level of service, and we’re not going to do deals that aren’t consistent with that.”
Ed Schatz Jr., founder & CEO of HeartLand, based in Kansas City, Missouri, agrees that you need to have a clear and thoughtful plan if you want to grow via M&A. Then, you must abide by it.
“Companies without a clear strategy or those who acquire just to grow their top line to achieve short-term goals are often unsuccessful,” Schatz says. “We are capable of adapting and enhancing our strategy as we grow, but we always work within our strategic framework to ensure success.”
Select Acquisitions That Align
Similarly, when you’re looking for sellers, they need to have similar values and company culture if you want a merger to be successful.
Russ Sneed, CEO of Hatcher Landscape Partners, based in Olive Branch, Mississippi, advises being people-focused and never compromising on your values.
“M&A isn’t about deals – it’s about relationships,” Sneed says. “Integration starts before the ink dries, and culture must lead the way. When you get that right, everything else follows.”
Take the time to outline what types of organizations you’d want to partner with and what your non-negotiables will be before you start shopping. Some of the factors to consider include minimum revenue size, location and whether you want the former owner to stay on with your organization in a new role. Also, determine whether your acquired companies will retain their branding or if they will take on your organization’s name.
Once you’ve defined your ideal acquisition, then you can go about intentionally building relationships and reaching out to organizations who you see potential in. For instance, Landscape Workshop focuses on companies with strong reputations in locations that make sense to them. Two-thirds of their acquisitions have stemmed from them proactively contacting businesses that weren’t for sale.
“Networking in industry associations like NALP is invaluable for building relationships with potential acquisition targets,” says Chris Senske, acquisitions ambassador for Senske Services, based in Kennewick, Washington. “Meeting owners and managers helps set the stage for future opportunities.”
Do Your Due Diligence
While considering the M&A route, take into account if you have the capacity and teams in place to pursue and successfully integrate another company. Oftentimes, this is a months-long process that requires lawyers and accountants. Even after a deal is completed, integration can be a grind and disruptive to your normal operations.
If you feel prepared for this increased workload, then you can get into the due diligence portion of vetting a target company to make sure they are a good acquisition. Review the business’s finances, operations, labor, legal challenges, and market position.
Senske says this was one of the hard lessons he learned early on as they once acquired a small company without realizing it hadn’t serviced customers in months and had no employees. Aside from the financials being in order, don’t overlook the overall company culture. If a business struggles with employee turnover, this in turn will impact customer retention and profitability.
At the end of the day, if red flags appear during your review process, be willing to walk away from the deal. In some cases, the company may be able to rectify the issue in a couple of years and be ready to sell later on.
Communicate Early and Often
One of the tricky aspects of M&A is prior to completing the deal, very few individuals with the company being acquired should be aware of the sale. This is mainly to avoid disruption and rumors with the organization.
Because the majority of the acquired company’s team is unaware until the deal is finalized, it can come across as surprising news and create a ripple effect of uncertainty throughout the business. To ensure employee and customer retention, being as transparent as possible post-acquisition is critical.
Sneed notes that communication solves almost everything and he advises being honest early and often.
“Assumptions can derail great partnerships, but open dialogue builds trust,” Sneed says.
Having a solid integration plan in place for everything from the tech stack to the company culture can help ensure a smooth transition. The goal is to ensure everyone feels informed, supported and included. Providing enhanced benefits and better support can also help increase staff’s confidence that the change is for the better.
When the seller stays on post-acquisition, they too can serve as a champion for your brand and build a sense of trust and stability.
“They know their markets best, and their relationships are invaluable,” Sneed says. “Some choose to transition out over time, but we view every partnership as an opportunity for mutual growth.”
