By Steve Michaels
Telemessaging businesses often expand by purchasing client lists. This growth strategy is successful for some businesses and expensive for others. The four real-life acquisitions described below may help prevent you from making costly mistakes.
Business A: The owner of a large east coast company did little due diligence when he purchased one set of accounts because he perceived the sellers as caring, honest, and trustworthy. Consequently, that belief instilled in him a false sense of security. He bought this unprofitable business with no retention clause and did not have the previous owner’s wife or any of the employees sign a non-compete. Due to the lack of accurate due diligence, the new owner discovered after cutover that he was understaffed because there was more traffic than was stated by the seller. Since he moved all 250 accounts in one day, he lost over 40% of the clients because the client information transferred was not reliable. For example, he did not receive the on-call schedule for the doctors until three days after cutover. This was not a good acquisition.
Lesson: In retrospect, the new owner stated that he would not have terminated the staff of the other company so soon, had them sign non-competes, taken his time to get all of the correct client information, and made the purchase based on a retention clause. He also stated that he would have heeded the valuable advice given him by others.
Business B: This business purchased 75 accounts and lost only three or four of them – not to other services but to voice mail or simple attrition. The owner’s philosophy was to do the research and contact every client, some face to face, bringing their account information up to date with no gray area’s being left behind before or after cut-over.
Lesson: Contact all clients; update client information; start completely fresh.
Business C: This company buys accounts only, but leaves them in place from three to four months using the same company name. As soon as the business is purchased, the new owner sends out a letter from the purchased company to the clients informing them of a new rate structure that is going into effect based on a per minute charge. This can only be accomplished if the seller’s equipment has that capability, otherwise he goes to a per call increase. He does not inform them that the business has been sold. He purchases these accounts without a retention clause, so he still pays for the cancellations, which are in the range of 10% to 30%. However, this buyer’s revenue increases by 10% to 15% due to the new rate structure, so he does less work for more money while getting rid of the low paying accounts. This owner stated that in a recent acquisition, the billing went up from $17K to $28K in one single month. When queried by complaining clients about the price increases, the new owner very diplomatically explains the need to increase rates to a competitive level and if pressed, suggests to the client that they make a few phone calls to confirm the going rates from similar services.
Lesson: Increase rates as soon as possible if they are not profitable. Solidify a good relationship with the staff from the acquired business and offer them jobs. Input correct data and slowly move the DID’s to your service.
Business D: This entrepreneur buys the accounts only and leaves the business in place from four to six months. During that time, he gets a handle on the pricing and increases client rates to either a per call or a per minute increment while updating client information to his system which is located out of state. On his last acquisition, he lost his least profitable accounts of around 25% but picked up an additional 13% in revenue. After he is satisfied that the information is reliable, he brings remote positions to the acquired service and starts training the staff on the new equipment. Once that is completed, he closes the office and has the staff work remotely out of their homes directing only the local traffic to them. After a period of time, the new staff members are then opened up to all of the traffic handled by the service. This strategy results in very little loss of accounts with the losses coming from the low paying accounts.
Lesson: Be effective at maintaining good will with the acquired services’ staff and keep them on board after the transistion.
As you can see, there are many different ways to move accounts. However, it seems that the more successful individuals are the ones who take time for thorough due diligence, update account records, maintain the good will of the former business staff and think outside of the box.
Steve Michaels and TAS Marketing have been serving the TAS industry in the mergers and acquisitions market for over 24 years with over 230 businesses sold. His years of experience have widened his scope and knowledge in buying and selling businesses nationwide. He may be contacted at 800-369-6126 or firstname.lastname@example.org.
[From Connection Magazine – Jul/Aug 2003]