What happens when a search and acquisition goes sour?

Sometimes a search goes wrong. It’ll start with a sense of unease, and only really become apparent after the acquisition, but it can be a stressful, morale-crushing experience when it happens. That’s the experience that Nick Bamford had at one point during his own search journey. That case study forms the basis of this important session of the inaugural EtA Forum.

Nick – who is now happily running SRO Technology, found himself in a situation with an (eventually) hostile seller and management issues across the board when he took over a business. Analysis and due diligence indicated that the acquisition was worth pursuing. However, when the seller embarked on an extended holiday immediately, Nick was forced to become far too active in the first hundred days, and it became rapidly apparent that there were cultural issues within the business.

Ultimately, Nick felt the situation was unsalvageable and decided to exit. Fortunately, the agreement protected him from liability. After a period of reflection, he was able to resume his search journey, eventually finding SRO Technology and now growing that company through acquisition.

It’s rare to get such an open and frank dialogue as you’ll hear in this session. Nick and SMEVentures’ Jake Nicholson had a free-flowing conversation that holds back nothing. Consequently, it’s essential, both in learning how to identify the red flags that a deal will be challenging, to highlighting the kind of change management mistakes that can occur early into an acquisition.

Connect with Jake Nicholson: https://www.linkedin.com/in/jakenicholson/

Connect with Nick Bamford: https://www.linkedin.com/in/njbamford/

What we discussed:

2:01 Jake and Nick kick off their conversation by discussing the big lessons learned from Nick’s search.

3:05 Nick summarises his pre-search background, and what inspired him to start his search.

5:13 Nick describes the company that he eventually found to make an offer on.

7:09 Nick summarises the criteria that made the business an attractive target to make an offer on.

9:46 Structuring the offer – Nick describes how he undertook this from a position of inexperience. 

11:18 The seller started to have second thoughts deep into the process. Nick explains where those stemmed from.

12:32 Ultimately the seller pulled out, five months into the process. Nick describes what his next steps were.

14:20 The seller actually then came back, and Nick summarises what happened next as discussions were started again.

15:27 Nick describes the first day in the company after having closed the deal.

16:24 Nick explains the diligence process that led to the closing of the transaction.

17:42 Nick describes his first few weeks after taking over the company.

20:11 Nick describes his first experiences with the management team, with the seller being away.

22:16 Nick also brought some new people in early, and describes the experience of making his first hires.

24:35 Another area where Nick saw the need to improve the business was in the finances, so he describes his first efforts to grapple with that. This, too, ended up producing headaches for him.

28:29 The next challenge that Nick needed to grapple with was a cash crunch. He explains how that occurred and how he responded to it here.

32:35 At this point the seller flagged interest in coming back in to run the operations site of the business, or even take the business back over completely. Nick talks through how he managed this.

34:57 Having decided he needed to exit the business, Nick explains his next steps.

38:36 Nick explains what he did after to recover from the ordeal and get back on track, and how his new company, SRO Technology, is in a very strong position.

44:19 Pete provides a summary and analysis of the session.

Quotes:

• Nick: “One of the big reflections I had from the experience of my first search was, the way that someone behaves during a negotiation is pretty much how they're going to be in business.”
• Nick: “My mindset during the search was very much that I'm going to run through and I'm going to look at a bunch of deals. If one hits the criteria, I'm going to do that one.”
• Nick: “The thing about being a seller is that you either spend more time with the business or the kids, but there’s an emotional side to ready to let go and retire.”
• Nick: “I was happy with the due diligence that I did. I was probably a little bit optimistic in terms of what the construction sector was going to be doing. There was a lot of infrastructure at the time, in 2018. And there's a lot of infrastructure being announced. So that pipeline of infrastructure was shooting up and it was going to be a driver behind some of the growth. But overall, I look back at the due diligence and I figure I did a reasonable job.”
• Nick: “Everyone says keep the deal flow going when you're negotiating, but everyone drops the flow when they’ve found a solid candidate. K that going when you're already imagining yourself in the CEO role and earning a salary is a really hard thing to do.”
• Nick: “The seller went on holiday, pretty much straight away. I didn't ask him to not go on holiday, because I put a lot of confidence in his ability to manage the transition. He knew the company, right? He knows the people; he knows the best way to do that. Now I think that actually, that's not the case, and unless a person has handed over a company before and has gone through that transition, they're not necessarily coming from the best place.”
• Nick: “For me, part of leadership is demonstrating that I'm prepared to do the work and prepared to get dirty. My reflection on that was that it didn’t work. All that happened was people in the company just started seeing me as a billable resource.”
• Nick: “I hired two manager slash salespeople who started about two weeks after me. One of them turned out to be very good, and I would work with him again, maybe I will. The other guy was useless. He was meant to sell stuff. And he hadn't sold a cent. And I fired him 12 weeks into his employment. But during that time, while giving him a chance, these two existing managers were looking at the leeway that these guys were getting, and getting really angry, and I needed to do something about that. So very quickly, I'm faced with the big decisions that you don't want to be making in your first 100 days.”
• Nick: “The seller will complain bitterly about some of the changes, but you’ve got your business, you got to pick your course. So, in my case the seller said he’d get this person fired, and he'd committed to the boys. He was like, ‘don't worry, I'll take care of this. I'll tell Nick to fire,’ and I said no. I was sticking to my values, which is something I've never regretted doing. But when I said no, the seller was pretty angry, as were the two managers.”
• Nick: “We ended up at this kind of impasse where there wasn't enough money for me to comfortably run the business, although I could have had a structure in place and Westpac lined up to provide invoice financing.”
• Nick: “I sat down with a mentor, and the question he asked me was, if you were a third-party investor, if you were outside and you weren't involved, would you pick yourself to run the business? I realised that I was going to lose the two key managers, and didn't have enough cash to keep this thing going, and the relationship with the seller had completely broken down. So when I looked in the mirror and answered that question, I had to say I would if I were invested in a passive investor, I would have picked him to take the business.”