One solution provider, who just completed his first acquisition, wants to remind his peers that the process requires a lot of attention to details well beyond what is offered by the selling party.

Dave Sobel, CEO of EvolveTech, a Fairfax, Va.-based provider of managed infrastructure support services to small and midsize businesses in the Washington, D.C. metro area, thought he had the acquisition of a small solution provider all wrapped up, but instead found out that there were a lot of issues that could have been avoided with a bit of experience.

"The process was painful, but it exposed flaws in the acquisition process," Sobel said. "But I guess that's a positive. We learned a lot."

Sobel said he was approached in May by a small solution provider looking to sell its customer base and provide employment for its staff. "The deal sounded good," he said. "They had a good staff with some skills we didn't have."

Never having done an acquisition before, Sobel started doing a lot of research on the process, and hired a lawyer to help.

One of the results from the preliminary research was to decide to do the deal based on realized revenue, which meant that the purchase price would be determined based on the estimated revenue that EvolveTech makes as a result of the acquisition. The payment for the acquisition was structured to be paid out over three years, with yearly audits of the incremental revenue potentially changing the payment terms.

"So even if the deal totally went to Hell, we wouldn't pay for something we didn't get," Sobel said. "So on paper, it seemed like we did a pretty good job. The deal structure protected us."

Unfortunately, issues related to the acquisition started accumulating after the deal was signed, issues that should have been addressed as part of a more lengthy due diligence process, Sobel said. "The seller rushed the deal," he said. "It moved us through the due diligence faster than we wanted. The only way to learn these things is by doing."

One of those issues was the claim by the seller that EvolveTech would be acquiring its contracts and hiring its employees, but not any of the liabilities. The expectation, Sobel said, was that any liabilities to vendors or others that occurred before the day the deal was sealed would not be assumed by his company.

"But this became a problem with a customer who owed a lot of money and had become a deadbeat," he said. "They had a track record of not paying before the acquisition, and it's hard to expect all of a sudden they'll start paying after the acquisition. It was only one customer, but it was one of the more valuable customers."

A second issue was EvolveTech's assumption that maintenance contracts related to the acquired customers would be handled in a similar fashion as those that EvolveTech handled in the past. But that ended up not being the case, Sobel said.

"When we brought several customers into our regimented management style, we found them to be too chaotic in their maintenance," he said. "That caused a lot more customer churn than we expected."

Sobel said that EvolveTech should have gotten involved in the HR issues earlier in the acquisition process.

"I didn't have any control over the HR part," he said. "The seller essentially told its employees that the company was sold. 'You are going to work in this new environment, isn't that great?' He put a positive spin on it, but didn't give the employees advance notice and prepare them. That led to a lot of employee churn. It would have been better if EvolveTech got involved earlier."

The issues have made Sobel a bit gun-shy regarding future potential acquisitions. "But I still feel that if the right deal comes along, I'll be interested, but I will be more careful."

The experience also caused Sobel to see the value in smaller acquisitions. "Maybe I'll look at one-man shops, and hire the owner and bring on his customers," he said.

Sobel is also not discounting the possibility of being acquired. "I think anyone is silly to say, 'not at all,'" he said. "I won't close the door. But that isn't my end game."