Contractor Exit Strategy 4 of 6: Merger with a Similar Contractor

Merging with a contractor that has a complementary market position and management team can be both a great exit strategy as well as an effective growth strategy.

D. Brown Management Profile Picture
Share

The valuation of this type of deal is less than a strategic sale to an outside buyer, where the buyer is looking for rapid scalability to get their return on a high valuation.  

Succession: Exit Strategy 4 of 6 - Merger With Similar Contractor.

In this type of a merger, there might be some modest operating synergies and growth opportunities, but for the most part, the business is expected to continue to perform as it has been.

Achieving these synergies requires complementary management teams and aligned cultures. Preferably, this has been tested before the deal through working together on a few projects.  

The most important financial dynamics to analyze in this type of deal are:

  • What will be the combined financial strength of the two contractors? Stretching too far will endanger the owners of both.  
  • Don’t overestimate the operating synergies or growth that will be achieved in the deal.  

The major upside for the owner(s) that are exiting is the security and the stability of the combined operations as they will most likely be getting their capital out over time depending on the structure of the deal.    


Succession
Continue building value in your business, yourself and your key team members with a good succession strategy....

Succession
Continue building value in your business, yourself and your key team members with a good succession strategy....

Building a Systems Development Team - Risk
Minimizing the business risk of a developer leaving. The better you are able to make your company a great place to work (culture & communication), the easier it will be to retain your top talented team members.
Elon Musk - Be Less Wrong
Leaders of construction companies will likely never be at the same level of cutting-edge development as Elon Musk is between Space-X and Tesla. Except; of course for the first contractor on Mars!
If a Problem is Worth Solving, It's Worth Solving All the Way
Not all problems are created equal and not all problems are even worth solving. When they are; be aggressive in solving them so they never come up again. Remember that 90% of continuous improvement is just about eliminating problems consistently.