Imagine this nightmarish scenario. You fall in love and get married. Then the moment you spend your initial days as a married couple, your spouse drastically alters the personality from when you were dating. Your partner moves to another bedroom, avoids you most of the day and separates from you as much as possible. Yet when you bring this up for discussion as diplomatically as you can, they answer they're doing everything they can to be a good husband or wife.
Substitute this scenario with a PR agency acquisition. During my career as managing partner of The Stevens Group, a firm that facilitates PR agency acquisitions, I've seen buyers keep as well as break promises. Generally, the promises are not only those captured in legal documents signed at closing the deal. They are made in the multiple discussions between seller and buyer as to what the seller's role will be within the parent organization and how both parties will surely benefit from the marriage.
I recently received a call from the principal of one of my seller clients. I had facilitated the introduction between the seller and the buyer and had nursed the relationship to the day of closing. Both parties liked each other a lot and vowed to consummate the marriage, 'til death do us part. But almost a year into a three-year earnout, the CEO of the selling company was truly distraught.
He said: "I've been here for a year, and it's as though they never acquired us. There's no integration between our organizations. There are no joint meetings to discuss business development, our role with their clients or any plan that indicates that we're a meaningful part of their organization. I feel isolated and alone. I'm meeting the parameters of my earnout but that's about it. Why did they acquire us to function like a stand-alone unit?"
A very good question, indeed. The buyer had promised integration, synergies and mutual benefits. There were none. The seller had raised this question with the buyer numerous times during their first year, only to be told, "Can't you see how busy we are? You've got to carry your own weight!"
In another instance, the principal of a selling agency reported to me that after the closing, the buyer had changed the principal's responsibilities. The principal was mandated to stop leading client and service responsibilities and to focus full-time on business development. The principal had made it clear that the buyer's responsibilities were delineated in the purchase agreement and the employment letter. And the principal was authorized to run his unit as a CEO would.
The buyer responded that he was making the change because there wasn't enough of a new business pipeline and that the seller needed to fill that gap. He added that as a buyer he could choose to make any structural changes. Rather than bringing in lawyers, the seller conceded to the buyer's wishes, hoping that the remaining two years of the earnout would quickly pass.
Unfortunately, by making this change in leadership, the seller's unit began to lose business because the second-tier management team wasn't as experienced as the seller's principal. This had a domino effect. As business was lost, the seller's principal wasn't able to achieve his earnout during the second year. The upshot was that the two parties decided to part ways and the seller left in total disgust after the second year.
So, the natural follow-up question is 'Why don't some buyers keep their promises?' Is it maliciousness? Or inexperience?
My response is that it's often inexperience. I've worked with buyers to convince them that making a key acquisition could be the key to greater growth and additional client services. But if it's their initial acquisition, sometimes the buyer's management team doesn't have the requisite experience to maximize the value of their investment in another agency.
I've seen PR agencies that have been acquired operate pretty much on their own, but very successfully. The principals often exceed the earnout formulas and grow dramatically. But there are also those whose track records fail.
It's incumbent upon sellers and buyers to meet as often as possible during the courtship stage to understand each other's motivations, aspirations and vision before signing on the dotted line. I've also seen acquisitions done so quickly that the principals of each organization barely know each other - generally a red flag of inexperience.
The buyer must beware – not of the unwillingness of the seller to grow but of its own philosophies about the role of the acquisition. Sellers tell me that the purchase price isn't the highest motivation for selling. Instead, it's the opportunity to blend in with an organization that is supportive, compatible, visionary and collegial.
A deal should provide both seller and buyer with a future that couldn't occur without each other. It's idealistic, yet true. Just ask buyers who have achieved great success with acquisitions. You get out of the deal what you put into it.
Art Stevens is managing partner of The Stevens Group, a firm that facilitates mergers and acquisitions in the public relations and digital/interactive space. Prior to that he was the founder and CEO of LobsenzStevens, a top 25 independent PR agency headquartered in New York before its acquisition by Publicis Groupe.