Terracon Consultants, Inc.
Headquarters: Lenexa, Kan.
Number of branch offices: 79
Total number of employees: 2,077
Year firm was established: 1965
Total billings for last fiscal year: $224 million
Since Terracon's inception in Cedar Rapids, Iowa, more than 40 years ago, we have seen growth as a fundamental need and exciting opportunity. We have established and expanded additional offices across the country. Our successful acquisition experiences have made growth a true cultural value of the firm. Healthy internal growth makes for a prosperous and dynamic firm.
Terracon's strategic goal is for our growth to consist of twothirds internal and one-third acquisitions. We have made 16 acquisitions during the past 20 years, averaging about one to two firms per year. Of our acquisitions to date, we consider 70 percent of them to be clear successes. During the past 10 years, we have grown on average about 15 percent per year, and about 40 percent of this growth has been through acquisitions. Our firm has now grown to about 2,000 employees across 79 offices in 26 states.
Fortunately, if you consider our total investment or the total number of employees involved, our success rate is well over 90 percent. So what are the lessons learned from our experience? Acquisitions made for geographic expansion of Terracon's core services (geotechnical, environmental, and construction materials engineering and testing) have been highly successful. In contrast, we have not been successful in acquiring small, niche firms that were brought on board to begin a broader expansion into a new service line. The now obvious lesson is that these were small, niche firms for a reason. Strong practitioners led the firms, but they did not have the background and skills to lead a broader expansion effort as part of a substantially larger company. Furthermore, because these firms specialized in areas outside our core services, we did not have a Terracon manager with the background and commitment to champion the niche service line expansion.
Our approach going forward has continued to evolve and improve as a result of our experience. I see three critical factors to executing successful acquisitions—be flexible, pay for winners, and take a recruiting approach.
Be flexible—Clearly, each firm that is a candidate for acquisition has its unique history, circumstances, and aspirations.
Flexibility involves how fast or slow the acquisition process moves forward. In some cases this includes working together on projects as a get-to-know each other step.
We also take many different approaches to how the transaction is structured, Financial terms have ranged from all cash to all stock, or a combination of the two. Post closure, our goal is to fully integrate the firm into Terracon. However, we have taken a flexible approach to when and how this integration occurs.
Pay for winners—Certainly in acquisitions, prices have to match a firm's values as determined by both past performance and future projections. In developing the price, we consider three valuation models that we have developed over the years.
Based on our experience, we would much rather pay a higher price for a strong, high-performing firm than pay a bargain price for an underperformer. We have confidence that we can take a good performing company and help them excel. However, there is some subjective threshold below which, despite the attractive price, the acquisition will not be a long-term success. The acquisition process typically gains momentum and takes both parties along in the process. I strongly suggest that at some point in this process, take a step back and ask two simple but fundamental questions—are the key individuals winners, and can their company be a winner in our firm? Take a recruiting approach—From the time of initial discussions to beyond the close of the transaction, the key people, and ultimately all the employees, will be making an employment decision.
From the beginning of our interaction, I see the need for Terracon to look at an acquisition as a short- and long-term recruiting process well beyond the transaction. Our goal needs to be to help the key people, and ultimately all employees, feel good about "joining" Terracon, rather than focusing on "being acquired." This process involves extra effort by all parties. During acquisition negotiations, we like to meet and get to know as many key individuals as possible. Once the major terms have been agreed upon, and well ahead of the transaction, we encourage the company being acquired to proactively communicate with its employees.
Post closure, we have found it important to minimize disruption and address peoples' highest concerns. To do this, we first concentrate on collaborating to win and perform projects.
Nothing builds goodwill faster than teamwork. Second, we concurrently communicate and help employees get comfortable with Terracon systems, including employee career development, compensation, and benefits.
For us, minimizing employee turnover post closure is important and a key indicator of success. From our initial discussions to well past closure of the transaction, this involves taking positive steps toward addressing two fundamental needs: 1) building mutual trust and confidence, and 2) providing information to minimize everyone's fear of the unknown.
Making successful acquisitions is a learning process, and we will continue to make improvements as we go.
David R. Gaboury, P.E., is president and CEO of Terracon Consultants, Inc. He can be contacted at email@example.com.