Merger and acquisition tips for smaller firms

In the architecture, engineering and construction (A/E/C) community, we hear about mergers and acquisitions with large firms quite often. They have the experience and resources to work through the M&A process efficiently and with few surprises. Recently, W.E. Monks & Co. Engineers in Columbus, Ohio, merged with Tec Inc. Engineering & Design based in Eastlake, Ohio. The Monks name is well-respected in and around Columbus, so to maintain that recognition we created a transitional company: Monks Engineers LLC.
For Tec and Monks, both small firms that had never been through a merger, this transition was more involved than anticipated, and there were surprises in the process. The technical part of the merger — the Letter of Intent to closing — took approximately nine months. The initial conversation and trust-building started long before that.
The following are lessons we learned that may be helpful to other small and medium-sized firms that are considering a merger or acquisition for the first time.

1. Build relationships between firm leaders. This may seem obvious, but it was crucial in the negotiations of our merger. A merger is not just a business deal. It affects the lives of all of the employees, especially the employees of the company merging into the parent. It can be scary for those employees who are asked to become part of a new entity, and their only choices are to transition or find a new job. For Tec and Monks, the staff were the key component of the merger, so the leaders had to develop a trusted agreement that everyone would be cared for.
2. Get the attorneys, accountants and banks on board early. If you can’t trust your business consultants with a non-disclosure agreement, you probably have the wrong consultants. A couple of things we would do differently, as the parent company, are get the bank involved sooner and insist the other firm have an attorney from the start.We waited until very late in the process to talk to our bank, and they weren’t supportive of our deal. We found a new bank that is amenable to the deal and wants to work with us, however, it takes time to finalize that switch. Surprisingly, in their 55-year history, Monks never had the need for a corporate attorney. Once or twice they hired an attorney to complete paperwork for internal planning purposes. At about the midpoint of negotiations in our merger, Monks hired an attorney. Onboarding a new attorney takes time, and bringing in a new attorney that late in the merger process really logjams the negotiations. Making sure both parties have their own attorneys from the start — specifically, attorneys who are already familiar with the companies — can help the negotiations go more smoothly.
3. Have attorneys that are knowledgeable in M&A transactions within your industry. Different industries have specific nuances when it comes to mergers and acquisitions. For A/E/C firms, states have rules for licensure and corporate structure, and also require specific forms. Attorneys familiar with your industry can ease this process. Tec’s attorney is familiar with the A/E/C industry, but doesn’t specialize in it, so there was a learning curve. Some forms were not completed as early as they should have been, which slowed down the process.
4. Plan for the unknowns and challenges of state-required filings. Do your homework to make sure everything is in place to meet the schedule for your closing. Make sure you understand what forms your state requires and how to manage filings for multiple states.
5. Evaluate how to transition existing client contracts and position for new agreements. Contracts with existing clients can be tricky. Some clients are unwilling to transition or make it difficult to transfer the contract. It may not be advisable to talk with existing clients prior to closing, but you should have a reasonable idea of the potential hurdles involved with client contracts. In our case, new contracts with Monks’ existing clients will start under Monks Engineers LLC, while W.E. Monks is staying in existence to complete projects currently under contract and maintain the liability for those projects.

Every deal will be different and new challenges are certain to pop up. But, if we ever go through another merger, these five lessons will give us a strong starting point to make the process easier and more efficient.

Adam Kilbourne, FSMPS, CPSM is a senior associate and director of marketing for Tec Inc. Engineering & Design. With more than 17 years of A/E/C experience, he is a member of Tec’s leadership team, including facilitating the integration of the merger.