Mark Kovacevich is an entrepreneur first. “There’s no mountain that I don’t look at and say, ‘Oh boy, it’d be cool to climb that,’” he says.
Kovacevich started an IT technology firm in Columbus and sold it in 2010 to Improving, a Texas technology management and consulting firm, where he now serves as president of North American operations.
He fulfills his need to be entrepreneurial by being responsible for Improving’s strategic mergers and acquisitions. He’s helped acquire organizations in Calgary, Houston, Minneapolis/St. Paul, Cleveland and Atlanta.
Improving also sold part of its ownership to Dallas PE firm Trinity Hunt Partners last year to accelerate its acquisition strategy.
Through all his experience, the critical component has been culture. “If the culture doesn’t work, the transaction is just not [going to work],” Kovacevich says. “We’re not going to do it.”
What’s your advice to business owners who are novice buyers?
Culture is everything in an acquisition. You can get a financial transaction done and you can get compliance, but you’ll never truly have buy-in, you’ll never truly have ownership, unless you get the cultural piece right.
Organizations that are our size — we’re on track to do $100 million in revenue this year, so I would consider us a small/medium services company — one misstep on a transaction, on an acquisition, can have long-lasting and deep impacts in the organization’s success going forward.
It’s for that reason that we tend to have a longer transaction cycle, to really try to get to know, deeply, the organization that we’re buying. Because if we misfire on culture, it’s not just impacting the organization we’re acquiring, it’s impacting the entire organization, the entire leadership team.
How do you assess cultural fit?
We have a couple parameters that we look for. We look for cultures where the leadership and the overall culture is one, that we would refer to as, a learning mindset.
We look for organizations that pride themselves on excellence, involvement and dedication. Because, in addition to mindset, we want to find out how closely they align with our core values.
Another one of our core values is trust. We try and make sure that organizations have a trusting aura about them, which is harder to get to know than you might think. During the courtship phase, everyone’s got their best formalwear on, so to speak, and is putting their best foot forward. So, you have to sniff these things out and be able to look behind the curtain to the best of your ability and determine that.
One key indicator is ‘OK, how long has your leadership team been in place?’ If there’s a lot of churn there, obviously that’s a yellow flag. I won’t say it’s a red flag, but it’s a yellow flag.
Do you look at more deals than you actually do?
Without question. This year, we’ve spoken to at least 20 organizations. And as of right now, we have nothing papered.
Have you ever made a mistake about culture?
No, not really, and I credit that to the courtship phase, where we do take our time. We typically know organizations for at least six months before we end up with a transaction, which I know is probably unheard of, and will make some of the wheelers and dealers a little uncomfortable. ‘Oh my gosh, that’s forever.’
But we feel that it’s been beneficial to us. We’ve had a couple of times where we’ve taken a pause and not done the transaction, while actively courting individuals in organizations.
So, no mistakes yet — I’m currently searching for some wood to knock on right now, because that’s the stuff that keeps me up at night, what it can do to a company of our size, if we have a true failure. It can be devastating.
You’ve walked away from some deals?
Yep, absolutely. It sucks because it’s a sunk cost and there’s a sense that somehow you failed, as the acquirer.
I have to go back to our leadership team, and says, ‘Hey, listen, we’re not going to do this. Here’s the reasons why. Here’s the reasons why we didn’t catch it earlier. We’re going to learn from this. We’re going to move on, but we’re not going to put the organization in jeopardy, at risk, just for us to feel like we’re right.’ We’re trying to do the right thing for the company, not necessarily for our egos.