Growing with TiER1: Our Acquisition Strategy

Growing with TiER1: Our
Acquisition Strategy

Acquisition—that can sound like an ugly word. Yet since 2011, TiER1 has been growing both organically and through small acquisitions. And while we recognize that many acquisitions don’t go well (and we actually help our clients address that!), we believe we’ve developed a strong model for acquisitions that can benefit everyone. We’re happy to say that our retention rate through acquisitions has been exceptionally high, and along the way we’ve continued to win awards as a best place to work.

So, here is our acquisition thesis:

Many companies in the highly fragmented space of “people services” were formed by good, talented people who are passionate about serving clients. Some of them have deep experience in a specific discipline; others have a strong knack for consulting, leadership, or being an entrepreneur. Whatever their unique combination of talent, skill, and experience, they have had success. As the success mounted, so did the clients and the project work. Along the way, great services and capabilities were built and strong healthy relationships were built both internally and externally.

Given all of that, you may be wondering:

Why would you sell a business like this? Why might a firm want to be acquired by TiER1?

The reality is that the ups and downs of a services business are stressful; the responsibilities to employees and clients are demanding; and the investment required to continue growing can be significant. Businesses can get a bit stuck. They are big enough to continue to survive—and during some years even thrive—but they’re small enough that the risks to further growth are substantive. In some cases, there may not be any clear exits in the near term or even the long term.

Most of these businesses aren’t for sale, because the business and its associated relationships are highly personal. Even if they were for sale, they can be hard to sell. Services businesses are risky for pure investors because they are so tied to people. Larger firms or investors doing a “roll up” might be interested, but much of what has been built by way of relationships can be destroyed (which is not very attractive to the people who started the business).

We know all of this at TiER1, because we’ve been in that very situation.

For our first eight years, for better or worse, we were in a race to get to a size that could sustain growth. We brought in investors and bought out investors; we built and re-built infrastructure; we experimented with sales models; and we learned a lot along the way about scaling up. All along we invested heavily in our culture and our relationships. It was long and risky and difficult, but we crossed the proverbial chasm and came out the other side stronger and with a platform that we believe can benefit others. Ultimately, at TiER1 we created an employee stock ownership plan (ESOP) transaction, transferring ownership to current and future employees. We’ve done the hard work of creating an environment that fosters that personal, relationship-based feel at scale for the long term.

As we continue our growth through an acquisition strategy, there are three things we consider when assessing whether an acquisition holds potential for both parties:

1. We look for culture fit.

More specifically, we look for values fit. We’re looking for good people as much as good professionals.

  • Are the principals of the organization also servant-leaders?
  • Does TiER1’s purpose (to help people do their best work) and mission (to build a better world) resonate with them?
  • Would we all enjoy working together?

2. We look for client fit.

Do one or more deep client relationships with large organizations (the type that TiER1 serves uniquely well) exist? If so, there’s often an opportunity to jointly grow the value created for those clients and everyone involved.

3. We look for value growth potential.

We’re looking for situations where TiER1 can add value to the business. This usually looks like one or more of three opportunities:

  • Providing more services and offerings to the existing clients
  • Leveraging TiER1’s business development and marketing experience to expand relationships
  • Leveraging TiER1’s infrastructure (physical space, tools, software, processes, systems) to help scale

For company owners, the acquisition makes most sense when you are ready to be part of something else. Most sellers are looking for a fair financial return; a home for their employees and growth potential for them; a good future for their clients; and a place for them personally to belong, contribute, and grow. It is generally important to us that the owners stay engaged with us when they join, as they are critical to the relationships both with the existing team and the clients themselves. These relationships are irreplaceable and essential to our ability to mutually create value for everyone.

For the employees, there is an opportunity to join something bigger that offers greater personal and professional growth and a chance to be a part of ownership for the long-term.

For the clients, there is an opportunity to build off the great relationships and value that’s already being created and provide more services, offerings, and innovative capabilities.

And for TiER1, our employee owners benefit both from the opportunity to expand the value we create and also from the new relationships that are formed.

Through acquisitions, we are expanding our reach and impact, allowing us to collectively unleash new potential and work toward our vision of potential realized.

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