Know Your Limitations

Last week I was speaking with one of our clients in the New England region who was in the market to acquire a “tuck-in” practice – an industry term for a practice that can literally be tucked in to an existing firm without taking additional space.

And as luck would have it, a seller firm fitting his wish list description had come across my desk just the week before.

It was a two-partner firm within reasonable commuting distance, generating just over $1 million in revenue with each owner looking to slow down between three and five years.

On paper it looked to be what we proverbially refer to as the “round peg in the round hole.”

So when I attempted to arrange a meeting, the owner of the buyer firm said that he could only entertain meetings after the 10-15 deadline because he was “knee deep” (his term not mine) in returns.

On a scale of 1-10 with one being the worst, this was a response that at its most generous rated a 3.

Why?

Well, because if I was one of the partners of the seller firm and heard that, the first question that would come to mind is, “if he’s this busy now, how on earth is he going to handle an additional $1 million in revenue?”

Fair point. Actually a great point that is often painful to face.

The problem with many of the firms who have declared themselves buyers and want to grow their firm via M&A, is that often they have little or no idea of their internal capacity. And as I’ve written in this space many times before, as well as recite it ad infinitum at my live presentations, “capacity” is one of the four critical C’s critical to the success of any merger. For those that need a quick refresher, the others are Culture, Chemistry and Continuity.

I had to sit him down and tell him an inconvenient truth – that he lacked the necessary infrastructure to take on the headache of assimilating another firm into his.

He understood but requested that I arrange a meeting anyway. Since he’s the client, I was compelled to fulfill his request. From our standpoint, it’s obviously beneficial for our business to facilitate this merger.

But should they merge, I fear getting a call to the effect of “Can you help me, there’s been a problem.”