With so many experienced IT solution provider leaders fast approaching retirement age and the competitive landscape of the technical services market evolving, it stands to follow that over the next decade many entrepreneurs in this field will be seeking to cash out on their investments or grow their businesses through mergers and acquisitions. But before signing on the bottom line, business owners should really think carefully about what this will mean for them when they switch hats from business owner to someone else’s worker bee.
“To be honest, this is the very first question I ask when people come to us looking for advice saying ‘Hey, I want to sell’ or ‘I want to merge’ or ‘I want to buy,'” says Charles Weaver, president at the MSPAlliance and managing director of Weaver & Associates, which focuses on facilitating M&A deals in the managed service world. “I ask, ‘Can you handle the upheaval that may or may not be there with the new dynamic?'”
The fact is that owners of newly acquired companies are usually required to step in and work at the merged organization to help with the transition for the first couple of years. And for those not quite ready for retirement, or who can’t quite get a lump sum large enough to have them retire on a tropical isle, that can extend longer. And they’ll be miserable if they don’t ready themselves by thinking ahead about their role in the new business before signing and prepare themselves with skills and outlooks that will allow them to easily shift from being the master of a small kingdom to being a middle manager in a larger universe.
“If a CEO sells their organization to someone and still wants to be a CEO, they probably shouldn’t get a job they were acquired by,” says Doug Ford, director of central services management for All Covered, which acquired his firm The I.T. Pros in 2010. “But if they’re prepared to reinvent, if they’re prepared to figure out what’s next for themselves within the organization, then it is a great ride.”
After many years of shepherding a company into success, many managed service provider owners may find answering to a higher authority a more difficult change than they first anticipated, warns Weaver.
“When you have an owner-operator of a smaller company, they’re calling the shots, they’re used to being in control and they’re used to answering to nobody else. When they go into a merger with another company or a larger company acquires them, they have to learn a whole new skill set of just being accountable to someone else,” he says. “That can be a very difficult transition.”
According to Weaver, it can be a challenge picking up that new people-oriented skill set of graceful accountability because it’s not a skill “like learning to be a database programmer.”
Not only does an owner moving into a new role at a larger acquiring company have to learn the art of the push-pull leadership of middle management, there are also new layers of bureaucracy that may take time to get used to. For example, taking part in frequent meetings may be a new habit that a small business owner might not have had to deal with in the past.
“I never had meetings before, when I owned my own business. If I had a meeting it was because I was upset, and I was bringing people in to really discuss what they’re doing wrong and how we can correct it,” says Bill Crowsey, vice president of branch operations for the Dallas branch of the national firm ClearPointe. “But when you have a 100-employee company you’re working with and the org chart is a little deeper, meetings are just a must to make sure that communication is there and we’re all working on the same page. I did have to get used to it but I don’t mind it.”
Crowsey has been working for ClearPointe since the company purchased his managed service provider business Tech Watch in 2009. He says that successful transition is not so much of a challenge as it is a shift in mental paradigm. He says he chose his acquirer because of his confidence in the leaders who would eventually become his boss. So the potential for friction there wasn’t an issue so much as was learning to deal with the limits on flexibility in wheeling and dealing that he used to have as an owner.
“When I owned my own business, doing anything visionary or anything different was just a matter of me thinking and concocting different deals and different services. I could explore different vendors I could partner with to bring new services to my clients. All of that was in my bailiwick,” Crowsey says. “Now as part of an organization that’s much larger, I can’t just go out and broker relationships direct with vendors. It’s not in the best interest of ClearPointe to have those relationships scattered around different branches.”
Not only should owners considering a buy-out and a move to the new company keep this in mind, they must also remember they won’t have the same flexible schedule that can be the hallmark of running one’s own shop. Ford for one doesn’t coach his son’s baseball teams anymore.
“The lack of freedom is a little bit hard to deal with because one of the reasons I built my company in the first place was more of a lifestyle decision than anything,” he says. “I think you’ll find that 90 percent of the people that call themselves entrepreneurs didn’t start out to be entrepreneurs, they started off to have that freedom.”
Of course, there are also benefits of a set schedule, he notes. For one, he is now able to take weekends and vacations completely off, a rarity in the ownership days.
Given the adjustments that will need to be made, veterans of the post-acquisition transition such as Crowsey and Ford say that owners should not only think closely about the business valuation details but also about the personality fit between them and their new organization.
“Don’t get caught up in just the financial side of the transaction,” Crowsey says. “Look very closely at who you’re going to be working with for possibly anywhere between the next 2 to 5 years –that’s the type of commitment you’re most likely going to need to make. You’ve got to have joy in your work and if you get into a situation where you came out well financially but you dread going to work every day, then at the end of the day it is not something you’ll want.”
He personally had seen many of his former business owner colleagues go through an acquisition and post-buy-out angst enough to be cautious when it came time to sell his business. He visited the acquiring leadership’s homes, brought his wife to meet their wives and spent a good deal of time thinking carefully about whether he could see himself working for them for years to come.
“If you can’t see yourself in the future with the company acquiring you then you better get enough money up front to sign off — but that usually doesn’t happen,” Crowsey says. “So my recommendation is to find out your role in your organization and makes sure both you and the company acquiring you agrees on what would be your strong suit.”