When Frank Lordi was at the boutique management consulting firm he founded, 20 of the 100 professionals who worked there owned shares.
“One of the problems that I had at AC Lordi was that the value of ownership was not aligned with the value of contributions,” Lordi says. “As the business grew, and as we brought on more people, this problem of lack of alignment between what someone owned and what they were worth was getting worse.”
The problem was compounded, he says, by a few partners who were looking to retire and clients asking for services that AC Lordi couldn't provide.
“When you look at those three factors, we became not even an active seller but a passive seller,” he says. “I became more receptive to listening to the calls that I would get quarterly from different firms. And it was a result of one of those calls that I'm now with BDO.”
At the ASPIRE Dealmakers Conference earlier this year in Philadelphia, Lordi discussed the factors that drove him to sell AC Lordi, and offered an inside look at the firm’s acquisition by BDO.
Culture risk
Lordi’s conversations ahead of his firm’s eventual acquisition by BDO had been exclusively with strategic acquirers.
“I had talked to 16 professional services firms of varying sizes over the last five years, and for us the consideration was really looking forward knowing that 17 of our 100 people were shareholders,” he says.
But, with many of those shareholders owning very small stakes, the issue was less financial than it was about how they enhanced their careers.
“They, we, I believed that being part of a larger professional services firm, the right firm that valued our contributions, made the most sense,” Lordi says. “And then it was a matter of finding the best opportunities.”
BDO laid out a plan that was very consistent with the firm’s objectives, Lordi says.
“The culture is critical at any business, but especially a business where your assets walk out the door every day,” he says. “Making sure that they're comfortable and they see not only an equivalent opportunity, but an even better opportunity because going from a boutique management firm that you can walk into the owners office and managing principal's office and voice your concerns or provide input, to being part of a $1.5 billion national organization, there's some obvious risks there for folks.”
Staffers had to be convinced and incentivized to believe in being part of a larger organization.
“We had 130 active clients, 129 of them signed over with BDO,” Lordi says. “We had 100 employees; 99 of them came over with BDO. So as far as our clients and our employees believing that this was a good opportunity for everyone involved, that was a telling indicator.”
Pricing vs. Terms
As a strategic buyer, BDO was expectedly thorough.
“They understood our business, what the risks were what the problems were, and went into incredible detail to evaluate it,” says Lordi, who didn’t work with an investment banker.
“I was effectively negotiating with my future boss, which was tough,” he says.
Without having a banker to give context to aspects of the deal, the negotiation’s hard decisions were exceptionally difficult. It wasn’t so much talk of price that presented difficulty. Instead, it was the terms.
“I don't know how you allocate value between pricing and terms, maybe 60/40, but it's meaningful,” Lordi says. “The attorneys will help you to a point, especially as it relates to reps and warranties and the legal dimension of the negotiation. But when it relates to structuring the economics and evaluating the economics and the risk around the economics…”
What gave Lordi the most trouble was what he called a value alignment problem.
“You had certain people that had a certain future value that was not aligned with their ownership and it was in both directions,” he explains. “One of the problems that I had when I would start talking to firms is, as I laid out what our situation was and what our structure was, I needed someone that could come back with a structure that would accommodate the situation that we had.”
