Merged and demerged
David Cuthbert has seen mergers and demergers a few times in the past two decades, as the surveying world’s corporate merry-go-round keep spinning, and he is not a fan of the process.
Cuthbert started in 1988, at Sinclair Goldsmith. Following a merger with Conrad Ritblat, he was promoted to director in charge of the South East office and industrial agency team. He then joined Hodnett Martin Smith in 1998 and set up a decentralised office/industrial department, but the firm was sold to DTZ in 2005. In 2009 he and several others from the Hodnett team left to form Hanover Green.
“When the contractual terms ended with DTZ, we left,” says Cuthbert. “To make mergers work you need people to feel 100% part of the team – and then reward them well – otherwise they walk.”
Cuthbert insists the problem with mergers and acquisitions is not finance, it is the personal relationships.
He says: “You have to make sure everyone feels needed. Partly that’s about money, partly the softer things like where they sit, who their colleagues are.
“When we left Hodnett for DTZ, we found it a massive change. We all used to work together in one room, and at DTZ we got split up. And while the other guys I ended up with were nice, it wasn’t what I’d been used to.”
Cuthbert is disappointed by the way big firms handle their newly merged components. He says: “The mistake they make is to buy the goodwill of the smaller firm, then throw the brand away. They should keep the team working together – like a smaller business unit working inside a bigger business – which I know is a massive challenge.”
Do the newly merged firms spend too much time keeping the senior new arrivals happy, forgetting the hard-working lower ranks? Cuthbert suspects they might. “After a merger you have to address how you can keep, and not lose, the middle ranks who do all the work,” he says.
After two mergers, and one significant demerger, Cuthbert is more convinced than ever that smaller firms work best.
Even so, he does not regret his experience. “Seeing big firm life from the inside was extremely useful experience,“ he says.
More hires, less mergers
Colliers International is no slouch in the merger and acquisition business. In June, parent group FirstService Corporation acquired office and investment agency H2SO. This followed the acquisition of niche retail agent Briant Champion Long.
Yet UK chief executive Tony Horrell is apparently more interested in hiring people than buying businesses. “It is sometimes cleaner and quicker to recruit the people, than to buy the firm,” he says.
For instance, the merger with H2SO brought 16 new faces to Colliers’ London team – just a tiny fraction of the 168 recruits who joined in the past 12 months. Colliers’ total London complement is now 389.
“Property is about people,” says Horrell. “We want to recruit people who can provide great services and make the clients smile. If we treat people properly and well – give them a clear vision, challenging work, fair reward, and keep them happy, motivated and stretched – you get happy clients, too. This applies to recruiting individuals just as much as buying a business.”
Of course, not everyone is going to be overjoyed after a merger. Statuses are threatened and relationships are damaged. But Horrell says you have to work through that kind of problem. “It is all done for the greater good, and if we’re asking if there is a perfect merger, no there isn’t. About 90% of the work of a merger comes after the transaction.”
How do you stop the familiar problem of man-overboard in the months and years after a merger? Does Horrell recommend the golden handcuffs of a contract, or the love-bombing of new titles, new desks and new challenges?
“It’s a combination of all kinds of things,” he says. “During the courtship before the merger, you talk to the senior people, the equity partners, and you ensure they get long-term financial reward over a long period, very considerable periods, depending on performance. That helps ensure they are doing this for the same reasons you are, and don’t just want to sell up and get out,” he explains.
The idea that he might be better off without the senior people – and instead concentrate more effort on keeping the middle ranks – is given short shrift. “You should definitely want to keep the senior people,” he says. “If you didn’t want them, then you shouldn’t buy the business.”
People come first
While Colliers’ Tony Horrell believes 90% of the work of a merger happens after the nuptials have been concluded, David Mundy, partner at newly merged West End firm Mellersh & Harding, says that is a recipe for a very rocky relationship.
It is now a year since the merger of niche central London agents Mellersh & Harding and Brewster Leech. The 111-year-old Mellersh & Harding had 12 staff, and was joined by three people from West End specialist Brewster Leech.
Mundy says: “We knew the people involved long before we merged. There wasn’t a fear that we would sit down the day after the merger and realise they weren’t the right sort, or we didn’t want them working with our clients. We knew all the individuals involved. It is a very close market in the West End and personal relationships are important when you spend eight, nine or 10 hours a day with them – as do your clients.”
“We looked in advance at the way they worked, and they way we worked, so nothing was a surprise.
“It must be very different in the big firms. There would have to be a reorganisation of who deals with which clients – something that didn’t change for us – and in the big firms that’s going to put noses out of joint, especially if valued clients get assigned to somebody else. These structural issues will need to be resolved, and there is going to be fallout.
“My advice to merger candidates is know how your potential partners treat their clients, because their clients are about to become your clients, and vice versa.”
Merger is hard, like marriage
CBRE is probably the king of mergers. Since it acquired retail specialist Dalgleish in 2005, it has gone on to acquire a host of others, including investment boutique Franc Warwick and Midtown practice EA Shaw in 2012.
Martin Samworth, European chief executive at CBRE, says the complications of mergers and acquisitions should never be underestimated. It is as multi-dimensional, as financially stressful and emotionally exhausting as marriage.
“There’s a lot to integration, and it starts before you even embark on the journey. The two firms have to make sense together, there has to be a common vision, you ask yourself is it meaningful? It’s like a marriage, and by the time you get to church, if you are not sure, then don’t do it,” he says.
“The financial component is important, but it is the human and business dynamics that make a merger or acquisition a success. Integration is time consuming – and you just can’t short-circuit it. Be under no illusions that it is straightforward. It will be complex, whatever the scale.”
Keeping the new recruits on board is one of the biggest headaches. Perhaps to the horror of his legal counsel, Samworth does not put too much reliance on the contractual restraints of golden handcuffs: “Terms of employment are one thing, but what you have to ask is why people chose to participate in a business? Is it because they enjoy the environment, the platform it provides, makes them feel motivated and invigorated? Hopefully, yes. You can have whatever contracts you like but it is these issues that make the difference.”
CBRE was careful to keep the EA Shaw team together after the 2012 deal, thus keeping relationships intact.
“Personal relationships, people’s motivations – all these things matter because, like a marriage, you are choosing to travel together for quite some time. And I can’t emphasise enough the need to talk early. You always get surprises in long-term relationships, and you try to minimise them through due diligence.
“Just as the marriage certificate is not the key to a successful marriage, in a merger it is about working together and respecting one another. Simple as that.”
