Respect the process. It’s a simple request, but one that Lee Zapis expects adherence to when he’s negotiating an acquisition.
“I want to like the person I’m investing in,” says Zapis, co-founder and president at Zapis Capital Group. “I don’t want to go someplace and think this guy is full of shit. I don’t need that aggravation.”
It’s a philosophy that has served Zapis well whether he’s investing in software and health care companies or back in the day when he was buying radio stations at Zapis Communications.
“I’ve always had that thought process, but it wasn’t as well-developed early in my career,” Zapis says. “There were times in the past when I went ahead and did something and in hindsight, it was against my better judgment. The thought was, ‘This could make some decent money,’ so you put aside the idea that this guy is a jerk. The reward could be really positive, so I can put up with that. The reality is, it’s usually not the case.”
Zapis shares tips for making better acquisitions, lessons learned from mistakes and the evolving role of culture in the dealmaking process.
What does a buyer need to know before acquiring another business?
Most entrepreneurs are very optimistic or else they wouldn’t be an entrepreneur. They think they can do better than the person they bought the business from. If they didn’t have a better idea for how the business should be run, they wouldn’t be making the deal. So everyone thinks they have a bit of an angle. Can they integrate their existing business into the new operation? Can they find efficiencies through consolidating talent or reconfiguring personnel? Can they open up a new sales angle? There are a lot of moving parts to making an acquisition. The bottom line is a new acquisition is going to take attention away from your current business. You need a strategy for the impact it will have.
How do you develop personnel who can fill important roles in the companies you acquire?
It’s a mindset. If you’re going to grow through acquisitions, you want to have a bench of talent that you can plug into needed roles in the companies you acquire. There are a lot of things going on during an acquisition. You have to integrate the various aspects of operating the business, in addition to meeting new people, trying to learn the way they work and getting to know their strengths and weaknesses. The best thing you can do is to have a bench of talent in your existing operation to plug into the new operation. That will make things go much smoother.
If you’ve got really good people and you’re not giving them opportunities to move up, the risk is they leave and search for those opportunities. If you have the mindset that you want to grow your business through acquisitions, bring them into the discussions so they know there will be opportunities. Develop their talent, encourage them and hopefully you can find the right spot to plug them in.
What role can culture play in an acquisition?
The more I’ve been around, the more I’ve come to realize that culture is critical and something that is not easily duplicated. Years ago, we purchased a radio station, and in hindsight, we should have not rehired anybody when we made the deal. We should have had everybody re-apply for their job and go through an interviewing process. We were trying to do the integration fairly quickly and thought, ‘Let’s just keep everybody in place.’ We learned pretty quickly that they had operated in a much different fashion than we did. In just a few weeks, it was clear the majority of people did not fit in with our culture and philosophy. It was a long, slow process to replace people over time as opposed to everyone reapplies for their job, there is an interviewing process and you figure out who fits and who doesn’t.
What about the anxiety created if you force people to reapply for their job?
Short term, it’s obviously going to be difficult for the staff. This deal, we were integrating the two operations into one. It caused anxiety on our existing staff knowing we brought these people into the operation who were maybe not on the same page. But it’s a short-term pain for a long-term benefit. You have to look at what’s best for the organization as opposed to what’s best for the individuals.
Why do you avoid buying companies that match your personal interests?
It’s important to have discipline. Let’s say you have a hobby or a passion you want to explore. If you have the resources to buy or launch or a business and it doesn’t work like you thought it might, the passion can dissipate pretty quickly. I like to keep hobbies and business separate.