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On the Level: Company mergers.

October 2, 2003
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In June, POB asked its E-mail newsletter readers for comments on company mergers and acquisitions. One respondent suggested that mergers and acquisitions are “threatening” the surveying industry and that some companies are becoming monopolies. The implication is that mergers and acquisitions produce bigger entities that, because of their size, are able to dominate the business. Is that really likely in this market and what are some of the other implications of the merger/acquisition movement (if there is one) in the surveying industry? Let’s consider some of the issues.

Surveying is a service industry and as such its success depends on quality of service, capabilities, price, timeliness, location and name recognition. A merger or an acquisition can have either a desirable or harmful effect on any of those attributes. Whether a combination of desirable effects will produce a monopoly in the industry is questionable.

Quality of Work

A professional surveyor in private practice intends to sell a surveying service and that requires marketing. Successful marketing depends on the attributes listed above. Most of us will maintain that quality is the most important ingredient in any professional service industry and a small company providing quality service can compete well against a larger company with inferior quality. It is also true that a well-run small firm, delivering high quality work in a timely fashion and good location, can be client-selective and can set its fee schedule significantly above its competitors.

Capabilities

A disadvantage for many small surveying companies is the limited services they offer. In some jurisdictions, land subdivision requires engineering input as well as surveying. The surveying proprietor without an engineering capability is at a disadvantage, which may be overcome through a merger. But within the surveying field there are new capabilities that must be considered. GPS requires investment and GIS often requires more education for the professional surveyor. In order to remain competitive, a surveyor in private practice must remain current with new developments in the profession or be at a distinct disadvantage to the multi-disciplined company (which may have been created through mergers and acquisitions).

Fee Structure

In a merger of two firms of relatively equal size with a clear understanding of what the fee structure will be, as well as a well-matched quality standard between the merging firms, the resulting entity should be able to operate smoothly and successfully. But the principals of a surveying firm acquired, for instance, by a large engineering company seeking a surveying capability, may discover a lack of understanding of the need for certain quality standards by the new owners. At the same time there may be imposed upon the new surveying department of this large engineering company a fee schedule appropriate for municipal engineering projects but impractical for property surveys. There is not much threat to smaller competing surveying companies as a result, and little chance that a monopoly has been produced when the surveying department of the large engineering company is, itself, unable to compete.

Company Culture and Employee Morale

Perhaps more so than in many other service industries, people, or employees, are a determining factor in the success of the surveying business. Unfortunately, the planners of acquisitions and mergers do not always take into account the effect upon employee morale. People may not be happy working for new bosses in a strange company culture and with uncertain opportunity for advancement. The result is often a steady emigration of key employees out of the new entity, some of whom may become the new entity’s competitors.

Location

The prime purpose of an acquisition may be to provide the acquiring company with an expanded market area. Competing companies will be faced with a new competitor with increased technical and financial support. Whether this will constitute a monopoly will still depend upon the quality and capabilities of other companies in that location.

Ownership Transition

Acquisitions, and even mergers, can provide a convenient means of ownership transition for the aging proprietor. The proprietor looking forward to a comfortable retirement may find that a sale of the business to a large engineering company seeking a survey capability is the best opportunity to realize some value out of his/her years of surveying practice. There are many considerations for the retiring proprietor of course, like value, deferred payments, continuing activity of the retiree, cessation of professional liability and so on. It has been done both successfully and unsuccessfully (spectacularly so in some cases) but should not be counted upon as a pot of gold at the end of the career rainbow. Luck is no substitute for long-range retirement planning.

Ownership transition, whether by merger or acquisition always raises the issue of name recognition. An acquiring company may see value in continued use of the name of the well-known surveyor it has acquired. The surveyor, on the other hand, may suspect that the new entity’s lack of business ethics and acumen will endanger his own reputation in the community. The retiring surveyor must think very carefully about this issue but for competitors, the emergence of XYZ Engineering Co. Inc. may not present as great a business threat as first thought.

Big Doesn’t Always Equal Better

Bigness need not be a business advantage in the surveying industry. There will always be room for the boutique surveying firm offering quality services delivered on time and within budget; mergers and acquisitions offer no guarantee of success, much less monopolization. But the surveyor who allows himself to be backed into a corner by not expanding capabilities and keeping up with developing technologies should not blame his dwindling business on the “monopolies” of those companies with more foresight.

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