What it takes to create a high-performing acquisition

“How successful are acquisitions in this industry?” “How do you measure the success of an acquisition?” We get those questions all the time at our symposiums. In the past, any discussion around acquisition performance or success was largely subjective or anecdotal. Fuzzy at best, with a whole lot of subtle exaggeration. Not a lot of transparency. Quite a bit of FOMO.

This year we changed that. In a first for the industry, our Best Post-Transaction Performance Award established the Acquisition Performance Indicator (API) — an objective, multi-factored benchmark to assess post-transaction performance. Developed through discussions with industry acquirers and investors and by leveraging our experience in advising on over 200 AE and environmental firm transactions, the API provides buyers, potential sellers, and strategists with an objective benchmark to assess post-transaction performance.

The API takes a holistic view of the acquisition. It does not just focus on financial indicators. Rather it assesses performance in the areas of revenue, profit, backlog, and voluntary turnover in the 12 months following the date of a transaction. The revenue and profit elements indicate top- and bottom-line improvements — and speak to returns on investment. The backlog element is an indicator of sales and marketing improvements. The voluntary turnover element reflects improvements in employee engagement and connectivity.

Key findings from the over 50 firms that submitted applications for the Best Post-Transaction Performance Award show that acquirers have been, on average, doubling profits, increasing backlogs by 44%, boosting revenues by 33%, and reducing voluntary turnover rates by 20% one year after they close on transactions. How do these acquirers go about driving improved performance post-transaction? Here’s how three of them create high performance and business improvements:

Cross-selling, collaboration, and a common language: These are the factors that drive superior post-transaction performance. That’s according to Dean Petrovic, senior vice president, M&A and strategic initiatives at Englobe (Montreal, Canada). Englobe is the recipient of the 2023 Best Post-Transaction Performance Award in the $10 million or less size category for their October 2021 acquisition of Protostatix (API 4.58). The firm has made a total of eight acquisitions. I asked Petrovic what he and his team focus on to improve performance post-transaction. He spoke to the importance of kick-starting cross-selling and joint project pursuits as quickly as possible by facilitating introductions across departments, geographies, and disciplines. “When engineers start collaborating with other engineers across the company, some incredibly exciting opportunities and growth stories emerge very organically. In addition, developing the tools to understand the financial performance and KPIs of an acquired company early on is paramount to helping us ‘speak the same language’ and make quick course-corrections together as partners.”

Find the right “like-minded” partner (it’s intentional, not by accident): It turns out that what’s important in a great relationship is also the catalyst for a high-performing acquisition. That’s according to Nathan Rust, senior vice president, manager of corporate development and FP&A, at Salas O’Brien (Irvine, CA) (ENR #54)—the recipient of this year’s Best Post-Transaction Performance Award in the $10 to $50 million size range with a reported API of 5.94 for their June 2021 acquisition of BVH Integrated Services.

According to Rust, “Our post-transaction success is due in large part to the culture and the merger philosophy we have nurtured. We approach every transaction as a partnership, finding organizations with proven track records of success, like-minded and active leaders, passionate talent, alignment of values and goals, and a shared vision for future success. This starts well before and lasts well beyond closing, from screening and due diligence to select the ideal partners; to intentional communication with leaders, team members, and clients; through integration where teams continue to operate with the same local, empowered decision-making.”

Try the Triple T: A focus on three specific “T”s is the recipe for creating superior post-transaction performance according to Tom Secker, senior vice president, corporate development, at Trilon Group (Denver, CO). And he should know. Fast-growing Trilon Group has made 12 acquisitions in the U.S. The firm received an honorable mention for the Best Post-Transaction Performance Award in the $50 million-plus size category for its acquisition of CPH (reported API of 1.49). According to Secker, he and the Trilon team aim to accelerate the growth of its partner firms through targeted investments in what they call the “Three Ts”: Talent, Technology and Targeted M&A. “Specifically, within Talent, Trilon focuses its efforts on increasing hiring through its own talent acquisition program, creating long-term talent development programs for staff, and investments in corporate teams to build a foundation for future growth. Trilon’s partners benefit from the family of firms approach by being able to cross-sell their services into new customers who already have strong, long-term relationships with other Trilon partners.”

M&A connections and best practices: If you’re a first-time buyer or a buyer that needs to improve your acquisition outcomes and you want to learn from the best, or if you’re considering selling your firm and would like to network with quality, successful acquirers, then the Texas and Southern States M&A, Strategy, and Innovation Symposium in Houston this week is the place for you.

– Morrissey Goodale is a CFE Media and Technology content partner.

Original content can be found at Morrissey Goodale.

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