PERSON OF THE WEEK: Roger Beane is CEO of LRES, a national provider of commercial and residential valuations and asset management for the mortgage, banking, credit union and real estate industries. In January, the company announced that it had acquired appraisal management company Lenders Choice as part of its growth strategy. MortgageOrb recently interviewed Beane to learn more about how LRES assesses opportunities for acquisition as it continues to expand its national footprint.
Q: There has been a lot of consolidation in the valuations industry during the past few years – with more expected. How do you determine whether a merger or an acquisition is right for your company?
Beane: An organization should consider many factors when deciding to merge or acquire another company. It is important to know if the target company is a financial and strategic fit for the acquiring company's long-term goals. If diversification is the criteria, then does the acquisition help diversify the client and product base? Does the target company increase the geographic reach and the opportunity to cross-sell the existing products to a new market?
Financial capability and the availability of other resources to commit to the acquisition are also important factors for a successful merger or acquisition. Companies should also look at the motivations of the seller – whether the owner is retiring, there has been a change in key resources or if the owner has simply had a change in his vision for the company.
Q: What are the characteristics of a motivated seller?
Beane: The most important quality of a motivated seller is a cooperative attitude. When companies are serious about selling, they are inclined to share their financial and other data quickly and efficiently. A motivated seller will also show transparency about its strengths and weaknesses. Sharing this type of information early in the process enables the acquiring company to get an accurate sense of the selling company's state of affairs and to evaluate the possible synergies between the two organizations. If the seller plans on taking an active role in the post-acquisition operations, they should actively participate in ensuring that synergies take effect in the combined operations.Â
Q: What is a healthy way to merge cultures when bringing together two organizations?
Beane: Combining two company cultures is one of the most important factors in a merger or acquisition because it is an important step in avoiding customer attrition and retaining key employees. Normally, the buyer adapts to the seller's corporate culture, but it is preferable to meet on some shared values and business processes, retaining what makes the selling company unique and worth buying and only changing what negatively impacts the bottom line. During this process, communication through all levels is essential to the success of the merger. Associates have to be kept regularly updated on the combined company's status, and participation should be encouraged from the new associates to ensure a positive transition.
Giving employees on both sides of the merger time to gradually adjust to the changes is essential to the success of the acquisition. Aligning two distinct cultures can be difficult – but if approached properly, can have a positive outcome.
Q: How do you decide if the company's representation of value is fair?
Beane: Determining a fair representation of value can be complex because many business leaders often have a strong emotional attachment to the company they are getting ready to sell. A fair value of any company is arrived at by taking into consideration the selling company's EBITDA performance over the past five years, its cashflow, its projected earnings for the next three years, client list, brand value, intellectual property, technology, licenses and much more.
A fair price is what the business is worth to the buyer and what the seller is willing to pay. Overcoming a strong emotional bond between an executive's ‘life's work’ can be difficult, but a fair offer based on performance metrics helps.
Q: When should you walk away from the opportunity to merge or acquire?
Beane: There are times when the decision to acquire is clearly the wrong one. It is usually hard for both parties to walk away from a deal if a considerable amount of time and financial resources have been invested in pursuing the acquisition. If due diligence reveals serious problems that would increase the acquirer's risk and not meet the goal of the acquisition, it is in the best interest of both parties to terminate the deal. Also, if the parties cannot agree on the final purchase price or other terms of the acquisition and negotiations have stalled, it is in the best interest of both parties to amicably walk away and cut losses.
Just as a well-orchestrated merger can be the key to success for the new, combined company, a poorly executed acquisition can drag both companies down.