As the construction market rebounds from the recession, mergers and acquisitions are on the increase. Some firms are looking to grow, while others seek a buyout. Aging company owners prepare to retire and sell their businesses as part of an exit strategy, while others look for new ownership to rescue flailing businesses after a prolonged downturn.
"We're definitely seeing an uptick in mergers and acquisitions among contractors," says Landon Funsten, managing director in the Raleigh, N.C., office of consultant FMI Corp. "For years, there has been so much uncertainty. Most firms have been in survival mode, trying to live to fight another day. Now that there are more opportunities, contractors are ready to grow."
Driving the upward trend is the desire to expand, either into new geographic regions or into new market sectors, Funsten says. "A lot of contractors want to grow but don't have the internal resources or portfolio to compete in new markets right now. Through mergers and acquisitions, they gain entry into markets they otherwise could not access themselves."
In particular, buyers are hungry for opportunities in the industrial, higher education and health care sectors, Funsten adds. Other trends include union firms seeking to acquire open-shop capabilities and firms looking to fill labor demands through buyouts.
Whatever the motivation for buyers and sellers, the ultimate success of an M&A depends on preparation and planning, says Darin Good with the Denver office of investment group Headwaters MB. "Selling a business is a complicated, high-risk endeavor, and there are dozens of things that can go wrong to jeopardize the value of your company," Good says. "This is arguably the largest transaction of an owner's life and the culmination of decades or generations of work."
Before joining Headwaters, Good started, operated and sold three of his own companies. "I, like many owners, thought I was a good negotiator. I sold two of the businesses on my own, with minimal assistance from an attorney. When I sold my third business, I realized how ignorant I had been, how much I was taken advantage of, how I did not get good deals," he says.
The biggest mistake a buyer or seller can make is not hiring an adviser or team of advisers, says Brad Vanderbrug, a Denver-based entrepreneur who has started, acquired and sold businesses ranging from a commercial fencing contractor to a logistics company.
"Leave it to the professionals," Vanderbrug says. "As a seller, you may know your business, but you are not the best person to negotiate the deal and play the game of chess that's required to get a good deal done."
He says that it can often take a year or more to manage the details and negotiations. During that time, projects or other key decisions inevitably get less of the owner's attention. "And then you risk devaluing your company and jeopardizing the deal," he says.
Several complex factors—taxes, financial statements, risks, exposures and contracts—need to be considered. While buyers tend to see what they want to see, a professional consultant can look at the company more objectively to find what works and what doesn't. Consultants also know the market and can help sellers discreetly find potential buyers and benefit from competing offers. "The most successful sales of companies begin long before anyone thinks of selling them," Vanderbrug adds.
"For the seller in particular, confidentiality is vital," Good says. "If a competitor should learn that you're for sale, then he can use that to his advantage, poaching valuable staff members and clients. Potential clients may choose to go with another firm simply because they hear you're for sale and don't know who will complete the work. That devalues your company."
Compatibility Is Key
As part of a five-year plan to grow geographically, Salt Lake City-based Big-D Construction—which operates offices in Nevada, Arizona, California, Minnesota, Utah and Wyoming—acquired Las Vegas-based Martin-Harris Construction last year. The acquisition came after nearly a year of discussions and negotiations, says Jack Livingood, chief executive officer at Big-D.