In executive roles at Baker & Daniels LLP over the past 10 years, Tom Froehle had weighed in on some 20 inquiries from other law firms about possible mergers with Baker & Daniels.

However, none of those led to serious discussions until the economy began its downward spiral.

“What we saw during this downturn was that clients wanted to look much harder at value,” says Froehle, who was, at the time, chief executive partner at Baker & Daniels. “Law firms were consolidating, and quite frankly, clients were consolidating in terms of using fewer law firms and looking for firms that had more extensive depth and breadth. We told ourselves that rather than be reactive, we have to try to be proactive.”

That meant going on the offense to find the right partner to create a successful merger. So the Baker & Daniels team started sorting through offers to narrow down the prospective suitors. While doing so, they came upon a firm called Faegre & Benson, located Minneapolis. Froehle said Baker spent a great deal of time trying to identify a partner that it thought would be a good fit, although the leaders could only do so much in terms of looking at websites and seeking out information. They also turned to anecdotal information that they heard from people familiar with the firm. Then they spent a lot of time evaluating and talking with the Faegre & Benson leadership team about the firm’s culture and strategic vision to ensure, before they made a move, that there would be alignment.

Here’s how Froehle, now chief operating partner, and his team scored a win at the newly merged Faegre Baker Daniels LLP, in operation one year now.

Finding a fit

When the topic of a merger comes up, the process can often seem overwhelming, especially when companies of considerable size and expertise are involved. To make the task less intimidating, start by looking at companies in complementary markets to yours, those that occupy the same market position and that serve at the top of their market.

Comparing those statistics gives you a better chance of finding the right fit, and every place in which similarities are identified increases the odds of success. After determining which factors would make or break the deal for your company, it’s time to go through the list to match potential suitors with your company.

“We looked at firms that appeared to have a similar qualitative excellence,” Froehle says. “There is some pretty good data in terms of rankings in those things that can help you identify companies from a qualitative standpoint.”

Then it’s time to look at culture to determine whether there is a good fit.

“On the cultural front, some things will stand out,” Froehle says. “Baker & Daniels was founded in 1863 and Faegre & Benson in 1886. So you had two very long-standing firms. Both firms had histories of civic involvement, with people committed to the community; they did pro bono and were diverse, and we saw really similar cultural values there.”

The next step can command the most time of anything else in the process. It’s time to get beyond the facts and figures and meet with the players face to face.

“A lot of it is just spending time with people; certainly both leadership teams should spend a lot of time together,” Froehle says. “We had what turned into an opportunity when we started discussions in 2010, but there was a client conflict situation that we just couldn’t resolve. That client conflict went away in early 2011, and we recommenced discussions. I think the fact that we had a pretty extended amount of time to spend with each other and to get other partners involved in those discussions helped us figure out whether we thought there was going to be a compatible culture.”

Froehle says it is valuable to flush out concerns early, rather than to wait until after the merger vote occurs. The goal was to combine the firms and the way they did things, so a lot of time was spent early in the process talking about how to develop the best governance structure for a new firm. But instead of taking one thing intact from one firm and another thing from the second firm, they instead approached it to determine what made the most sense so that they could tell the partners what the new firm would look like.

In effect, they built a model of the new company.

“By having that in place, and then being able to share with partners at both firms, ‘OK, here is what this new firm looks like,’ was really helpful in terms of allowing people to deal with the hard part about change, the uncertainty. Although we still have plenty of uncertainty, we tried to provide a real framework of what this is going to look like.”

Working it out

The last task is to determine the mix. This may be the most important task as you discuss common goals to reach a consensus.

“There were those who wanted to do something to not just get bigger but to actually help us serve clients better, and we saw some real synergies and opportunities to combine strong practices that would make even stronger practices,” Froehle says.

“Look for opportunities to complement and supplement strengths in each firm. We had no geographic overlap. Sometimes when you have offices in the same geography, it causes real friction in terms of how you deal with that. We didn’t have any of that, and so we had a lot of additive benefits. I think when people saw that and saw the opportunities to work together, they found that they like each other.”

Froehle says one of the fundamental underpinnings of the merger was the ability it created to serve clients better by providing broader and deeper expertise across a wider range of services. Helping employees understand that and the positive opportunities created has been an important piece of helping them get comfortable with the new organization and create a culture of excitement about being able to better serve clients. Even before the combination was complete, Froehle and his team set in writing what the expectations were of the partners.

“It has been a way for people to buy in to, ‘Here’s what we all expect of each other,’ and that’s been very useful,” he says. “This year, we are in the process of doing a similar thing for our associate lawyers in terms of trying to be much more definitive about what those expectations are, and that is going to be something that was necessarily different from what we had in either of the legacy firms.”

The other issue to address is the clients, as they need to be reassured that their relationships with the firm will not be changing for the worse.

“We went to our top 100 clients over the course of a year to talk about the combination,” he says. “It was interesting to share feedback with other folks in the firm about what we were hearing. Many clients were excited to hear about the new capabilities that were part of the combination. That has been really positive.”

Spread the good news

After the dust has settled and a single company is arising, the task turns to communication and feedback. Sharing positive news goes a long way toward reinforcing the common culture that is being developed.

“We try to open every meeting we have of any kind of group with a sharing of good news,” Froehle says. “These are things that are happening across the firm and with a real focus, at least this first year, on things that involve collaboration of people from the two different legacy firms.

“Those examples have been really helpful to others, who may say, ‘Wow! Somebody I know down the hall has been working with somebody I don’t know and that’s been a really positive thing that will help me be more inclined to step out of my comfort zone.’”

Froehle says that the effort to share good news about effective client collaborations, an additional focus on travel to allow people at the different locations to meet one another and other communication about what was happening across the firm were geared to help people recognize that there was a developing sense of a singular, combined culture. The feedback from those who have had those interactions and the opportunities to connect with each other have all been very positive and have helped to reinforce the internal message.

While recognizing that it would have been easier in some ways to maintain the status quo, Froehle says the long-term benefits of this approach are going to be very positive for the 1,600 employees.

“Obviously, it required the people and the leadership teams from both firms to have that mindset going in, but once they got that mindset, it became really exciting to think about creating something new.”

How to reach: Faegre Baker Daniels LLP, (317) 237-0300 or www.faegrebd.com

The Froehle File

Tom Froehle

Chief operating partner

Faegre Baker Daniels LLP

Born: Grand Forks, N.D., but I really only lived there for a couple of years. I grew up in and had all my schooling in Bloomington, Ind.

Education: Undergraduate degree at Indiana University in Bloomington and my JD from the University of Michigan in Ann Arbor.

 What was your very first job?

My dad operated a small store that sold hockey equipment, so from the time I was about 12 I worked there. My dad ran the business and I sort of helped. I really just learned a lot about customer service, how important each individual customer was and how you could really make an impact on each individual customer’s experience by how you responded. The individual experience of working with customers was really valuable.

Whom do you admire in business?

I really admire John Lechleiter, Ph.D., who is the CEO of Eli Lilly and Co. I admire his vision and his ability to help people in the company to understand what an important role they can play in the world in terms of a pharmaceutical company. I often think people are not all that excited about that but he really has talked about innovation and how they are helping change lives. I think he has done just a really marvelous job of doing that.

 What has been the best business advice you ever received?

Two things. One, communication is important. Somebody once told me that no matter what you think, it probably takes you 10 times to say something before people really hear it, listen to it and understand it. The second is to remember that everything you do sends a message to those people around you. That is something I think we often forget.

What is your definition of business success?

Because it is a little bit different, the organizational hierarchy, I think a big part of my view of success is when my partners feel like they have succeeded or at least when they feel like they’ve been a material part in achieving that success.

Published in Indianapolis

If you are a business owner, key manager or employee of a company going through an organizational transition, such as a merger or leadership change, it is likely you will experience performance disruption caused by confusing messages, speculation or lack of information. And you are not alone.

Often the planning for these important events happens behind closed doors with only the owners and advisers, leaving everyone else to speculate about the future.

Ricci M. Victorio, CSP, CPCC, managing partner for Mosaic Family Business Center, says business owners can avoid these challenges by being more transparent about upcoming changes and engaging everyone in the process.

“The key is communication, communication, communication. It’s important to identify what you can control and learn how to be flexible with all the rest. When you’re getting ready for a transition or succession, you might feel like you’re surfing a tidal wave. There’s an art to keeping your balance in an ever-changing world,” she says.

Smart Business spoke with Victorio about how to prepare yourself and your company for major business transitions.

What are the most common stumbling blocks that occur when a company is heading for change?

 

The most common stumbling blocks typically center on communication. Today’s older generation grew up learning to keep financial affairs close to the vest. So sometimes even a spouse doesn’t get involved in the planning until asked to sign papers.

Other times, people don’t feel comfortable sharing their ideas and concerns during shareholder meetings because they’re afraid of disrupting the artificial harmony that’s been established. They may have private conversations outside of the boardroom, but during meetings there’s often a fear of disrupting the delicate balance.

Further, business owners involved in a transition can be so overwhelmed by either the fear of confrontation or the lack of planning, the project begins to loom large and they’re stopped in their tracks. They feel as if there’s no way they can get through it; it becomes so daunting they often just hope it goes away.

How can these stumbling blocks be avoided?

 

Instead of keeping all conversations behind closed doors, when appropriate include key players such as family members, managers and those who will be most involved in the strategic design of the transition plan before you start actually planning. In these conversations, ask the group, ‘If we could do anything without worry of failure or confrontation, what would be best for our family and company?’ At this stage, there should be no pressure of commitment; it’s just brainstorming and idea building.

Engaging a succession coach can help facilitate dialogues that are creative, innovative and energizing, and potentially serve as the foundation of solutions to what might seem like an impossible endeavor.

Once you have a vision, you can develop an implementation plan. Break it down into a timetable and get key players involved to determine who spearheads specific initiatives and what the outcomes should be. Document the vision and itemize each step to be executed on a schedule for all involved.

Owners and other decision makers in a business likely won’t find it easy to facilitate these discussions, so consider using an experienced adviser to guide and focus the conversations and break the task into manageable segments. It can be difficult and even intimidating for groups to internally identify and discuss their own problems, but it’s helpful to have someone from the outside keep discussions open, comfortable and inclusive.

It’s also important to reach out to the overall organization, including employees, clients, customers, franchisers and vendors to communicate the vision of the plan — not the intricacies, but the expectation of the fulfillment of the plan and how it affects each party. This will help clarify what each can expect and what their roles will be.

What are the red flags that tell you a transition is going badly or not as planned?

 

Confusion or dysfunction within the management team is one of a few signs of difficulty that typically arise during a transition. Often it’s revealed that management is unsure where the company is going or what the plan is. Additionally, departments that are not cooperating well with each other — also called ‘silos’ — can typify dysfunction.

If management isn’t confident that the transition will include them, their productivity will slow and they’ll likely start looking around for something more stable and secure as a backup plan. A high level of turnover in management might prompt others to start abandoning ship.

When is a good time to seek outside counsel?

 

The best time is when you know or others are imploring you to consider that it’s time to begin succession planning. For any business owner between the ages of 45 and 75, if you have a business that is worth perpetuating, you need a long-term strategic succession plan and a short-term contingency plan to protect it. It’s worth bringing in an adviser who can help you with both kinds of plans. You’ve got to think beyond your own needs because your business has so many people tied to it who count on its success.

All of the planning responsibility doesn’t have to be on you. You can pull people into the transition process and get them enrolled so you’re no longer alone in the endeavor. If or when you do step aside, you can do so knowing you have people there to maintain and even grow the business. The hearts of those involved in the company might be broken when a founder passes or moves on, but that creation, built lovingly, does not have to crumble.

Ricci M. Victorio, CSP, CPCC, is managing partner for Mosaic Family Business Center. Reach her at (415) 788-1952 or ricci@mosaicfbc.com.

Insights Wealth Management & Family Business Consulting is brought to you by Mosaic Financial Partners

Published in Northern California

Selling your company or merging with another company is a time-consuming process that requires meticulous attention to detail. While there are practical and necessary steps to prepare for a merger or acquisition, such as obtaining counsel, choosing an investment banker and preparing your financials for review by potential buyers, there is an emotional component as well.

“A big concern a business owner has in this situation is to prepare for  the reality of letting go of something he or she has had for many years,” says Robert T. Pacholewski, vice president at MelCap Partners LLC. “You can talk about a sale and all the positives associated with it, but the reality is, it can be difficult to let go.”

He says that while it is an exciting event, there can be remorse and doubt.

“Many business owners have spent more time with their business than with their own family. Letting go of that is a hard thing.”

Smart Business spoke with Pacholewski about how to complete the M&A process, both practically and emotionally.

What can trigger the M&A decision?

One of the triggers for a seller is age and impending retirement. Another trigger is that an owner might want to leave his or her current business to start a new enterprise or look for outside investors to get additional capital infused into the business.

On the acquisition side, a business owner  may be looking to buy another company to enter into new markets, to capture new technologies or products, to acquire a company’s management skill set or to gain production capabilities.

Who should business owners consult before moving forward with a merger or acquisition?

Owners should consult their most trusted advisers at the time a deal is put forward. Consulting with a trusted attorney, accountant or investment banker can help owners determine if they are ready to sell or merge. Many times, an investment banker can be brought into a situation by an owner’s trusted adviser. The investment banker can more fully vet the process and talk with the business owner about what is involved in the very emotional decision of merging or selling a business.

Also, business owners on the verge of an M&A decision might benefit greatly from talking with a close personal friend who has gone through a similar process to better understand what they are getting into from a business owner’s perspective. Most private middle-market business owners will only do this once, so they need to make sure they understand what they’re getting into. It can be exciting, but it can also be very difficult letting go.

What should be discussed and put in order before moving forward with a merger or acquisition?

In the event that your business is going through an expansion, launching a new product or entering into new markets, make sure that it has had enough time to come to fruition before deciding to sell. It could create a potential problem wherein the buyer might believe that the plan could be too difficult to complete  if the sale is announced during such an event.

Furthermore, it is important to get your facilities in order. This can be simple housekeeping, such as making sure facilities are clean and putting on a coat of paint.

Also make sure your company is in compliance with all laws and regulations that govern how you do business. You don’t want any negative surprises.

Once the decision to move forward is made, what are the steps that follow until the M&A process is complete?

First, determine the goals and objectives you want to achieve through the sale process and hire an investment banker whom you expect will meet them. It is not uncommon for business owners to think their company is worth more than it actually is in the market.  An investment banker will evaluate the business and present a range of value for the business. Business owners have to evaluate their goals and objectives realistically and have people around them who can help them meet their goals. A sale process can take six to 12 months to complete and it would be a major setback if expectations were unrealistic and not met.

Then put together basic information on your business, such as sales, production, customers and suppliers to create your confidential sales memorandum. This may require looking ahead two or three years and back four to five years to put all the projections and historical data together for prospective buyers.

After all the information is gathered, the investment banker will put together a group of potential buyers and market the business.  Eventually, you will enter into a letter of intent with one buyer to allow that entity to complete due diligence. It typically takes 90 days to complete the transaction.

How can business owners brace employees for the change?

Usually, the sale is kept confidential from employees until the business is sold, with the exception of key managers. When communicating that the business has been sold, it is critical to talk with your employees about the process because they want to know what it means to them. For instance, do they still have a job? Both the management team and your employees are vital to your business going forward. Make sure you communicate with them at the appropriate time.

How you present the news can vary from company to company, but generally, it’s best to talk with them in a way that is consistent with your style and philosophy.

Making the companywide announcement can be very emotional. If you’ve owned and operated a business for 30 years, your employees can become like family, and it can be a very emotional conversation.

Whatever your delivery, the general message should be that a lot of careful thought and consideration went in to the sale and you’ve found the right buyer to allow the company to move forward and prosper in the future.

 

Robert T. Pacholewski is vice president at MelCap Partners LLC. Reach him at (330) 239-1990 or bob@melcap.co.

Insights Mergers & Acquisitions is brought to you by MelCap

Published in Cleveland