You’re not acquiring a revenue stream, but those who produce it

By Sharon Thomas

Just as much needs to be done in order to prepare a company for a sale, much needs to be done on the buyer’s end to ensure a successful transition. Associate Editor Sharon Thomas spoke with executives of SolomonEdwards about acquiring San Francisco-based M Squared Consulting from South Africa- based Kelly Group Ltd. in 2013. Participating in the interview are Edward Baumstein, president and CEO of SolomonEdwards, and Dirk Sodestrom, former CFO of M Squared and managing partner of the San Francisco office.

Here are their perspectives.

Q: What were the reasons behind M Squared’s acquisition?

Dirk Sodestrom: In the early 2000s, M Squared had been purchased by South Africa-based Kelly Group Ltd., which at the time planned to expand geographically. But that never really happened, so they had lots of operations in South Africa and then this separate company headquartered in San Francisco. Then the goal became to find a home for M Squared that allowed us to be more part of a company as opposed to just a subsidiary of a foreign entity. From a Kelly Group standpoint … they wanted to focus on building their operations in South Africa. From a cash standpoint, they were definitely motivated to make this happen. We were involved from the get go to make this happen.

Q: What was it about M Squared that attracted SolomonEdwards?

Edward Baumstein: Several things. It was important for us to have a presence on the west coast and they provided that, having been in San Francisco more than 20 years. Through our due diligence, we confirmed that they were extremely well thought of. The brand was very strong.

Another thing is they offered us a set of intellectual capital and service offerings that were different from the core competencies of SolomonEdwards’ legacy, but complementary. We felt that they enhanced our total service offerings, giving us the strength to go after newer pieces of business that we weren’t capable of going after beforehand.

Third, they had a very important list of clients with very deep relationships. We were interested in those relationships.

Fourth, they were making money.

Q: Speaking of the clients, how did you communicate with them to alleviate any concerns about the acquisition?

EB: As part of the due diligence process, we identified three or four very important clients that I wanted to make sure would stay on board — and I met with those clients personally. The M Squared team did a great job of paving the way. M Squared’s business development managers have excellent relationships with their clients and it was a very easy conversation for them.

Complicating matters were South Africa’s rules for disclosure as a public company — Kelly had to announce the deal before it closed. Because of that, we had to make the announcement in the U.S. as well. We announced the transaction three months before close, maybe even four, so I think that forced every- body to start getting the message out.

Q: Because M Squared had a corporate infrastructure already in place, how did you approach integrating the two?

EB: First, I’d like to explain my mindset. Prior to SolomonEdwards, I was a president and COO of a company where the CEO’s mindset was to just buy a bunch of companies and not worry about how they were operating. My focus was on the quality of the people and of the operations and the culture, things that make professional service firms work as the glue that binds them all together.

We never really were able to achieve the kind of synergy I wanted in that environment. A year and a half later, I left the company and founded SolomonEd-wards. Because I was so focused on culture and the people, we waited over 12 years before we made our first acquisition [in 2012, prior to M Squared].

With M Squared, the first thing that I was concerned about was integrating the leadership team, sorting out who was going to stay and ensuring those who did believed in our vision and our culture. Of the four people on M Squared’s leadership team, three stayed. [CEO John Kunzweiler, who is now on SolomonEdwards’ board; COO Chris Marshall, now partner; and Sodestrom].

Q: What about the staff? Were they left more or less intact?

DS: There were some redundancies from a back-office standpoint as some of those shared services were consolidated. But the bulk of the staff remained.

Q: Is there more to be done?

EB: What’s left is the operational integration, which we hope to tackle this year, perhaps into 2015.

We just had our companywide national business conference in March, where we laid out the strategy, and the staff was very enthusiastic about how things looked. In fact, I got thank-you cards from several M Squared staff saying what a treat it was to be a part of the conference and understand the vision of how we’re all going to work together.

Q: What advice would you have for others who are looking to acquire another company?

EB: Pay attention to the people. When you buy a professional services firm, you’re buying people. I think people that acquire companies tend to buy revenue streams and they forget that the revenue is the byproduct of the glue that holds the people together.

Sharon Thomas is associate editor at Staffing Industry Analysts. She can be reached at smthomas@staffingindustry.com.