If you guessed technology, you would be wrong. As witnessed by the ongoing raids among the tech giants in Silicon Valley, skilled and dedicated people are considered the key to success. And, it’s not just Apple, Google and Facebook that understand that people are a “condition-precedent” to success.
Venture capitalists have long considered the skills, experience and commitment of the start-up team to be the most important consideration when deciding to make investments. The reason: great ideas are plentiful, but a team with the skills and drive to make them a reality are extremely rare.
Less discussed is the fact that private equity and strategic acquirers also consider the qualities of the acquired company’s team to be a key determinant when deciding to buy and how much to pay. The reason buyers are also focused on the seller’s team is a bit less obvious. After all, doesn’t the buying company have its own management team and infrastructure? For financial buyers without a “platform” company — the answer is no. Like the venture capitalist, they must also rely on the capabilities and commitment of ongoing team to achieve a desired return on their investment.
What about strategic buyers and financial investors with a platform company? It is true that unless they are entering a new vertical market, this class of buyer is less dependent on the acquired company’s team. But the fact that most acquisitions fail to produce the desired results has taught buyers a valuable lesson. Namely, that the quality and commitment of the holdover team more often than not make or break the outcome.
This lesson is consistent with our own experience running a dozen companies (including a number of post-acquisition turnarounds) and managing more than 200 M&A transactions over the past 45 years. Something we are continuing to see play out in 2013, with the majority of buyers heavily focused on the quality and ongoing commitment of the seller’s team.
None of this is to say that all of the other issues on the M&A checklist aren’t also important. Or, that the weight being placed on people by the buyer doesn’t change based on circumstances. But buyers continue to believe that people are an extremely important factor when making a purchasing decision, and (importantly for sellers) how much they are willing to pay, and how to structure the transaction.
The message is clear: building and maintaining a strong and engaged team continues to be the key factor not only among the tech giants, but for staffing industry sellers as well. This is especially true when you consider that a significant portion of the total value of most transactions in 2013 heavily depends on an earn-out.
MORE: Talent acquisition at the heart of M&A
