The company also walked away from a deal after the management team started to delve into it and got past the numbers to how the target company ran its business and the structure of its team.
“We said, ‘This isn’t for us.’ Because we can make this deal and it will look good the day we make it, but I’m not sure it will work through the next three years. I just saw the conflict of it. It’s just one of those things,” Hanna says. “It doesn’t mean that they were bad people. It was just, I didn’t think it was for the best. You’ve got to walk away from those transactions, and you hope you can pick it out before you close.”
And if you don’t pick up on it before you close, then, he says, you’ll have great war stories eight or nine years later — once it works out.
“If you can stay with something long enough, you can work it out, but you really don’t want to because it can be very time consuming and intensive through the whole organization if things are not working smoothly together,” he says.
Hanna likes to tell the business owners who are selling that he wants them to be happier five years from now than on the day they closed.
“And I want to be happier five years from today,” he says.
That’s why the final months before the sale are so important. It’s not just about the acquisition price. It’s also about how it’s going to work, who is going to be responsible for what, and what will be brought to the table on Howard Hanna’s end to help the acquired company’s clients.
Win them over before the disruption
While there are exceptions, Howard Hanna generally follows a few rules with its acquisitions.
Hanna says they usually don’t change the name for a couple years. There’s no reason, and it gives Howard Hanna time, as a company and as a family institution, to win the hearts and minds of the acquired company.
“We’re not a manufacturing company, where you’re buying the machines and the equipment and the warehouse. We’re primarily buying people — managers, sales associates, support people that work other places — and we want to win the hearts and minds of those folks. So, we’d rather do that than make too many changes too quick,” he says.
That also means generally keeping the compensation plans, the managers of the branch offices and the office locations the same. Howard Hanna encourages the previous owner to stay engaged for the first few years, which can be difficult because sometimes he or she wants to retire or move away.
The big exception to these rules came in 2009, when the recession sped up the integration plans for Realty One in Cleveland. Hanna says with so much overlap between Realty One and Howard Hanna Smythe Cramer, including offices in the same block, they didn’t want to have two brands in the same market.
“It was not in our original plan. Our original plan was to merge offices that were overlapping within a three-year period. And we did it, all but two, I think, in 14 or 15 months,” he says.