A consolidator talks about what he looks for in a potential acquisition.
Every company’s goal is to grow, either organically or through merger or acquisition. As with most companies, Equipment Depot’s day-to-day operations focus on combining everyone’s energy to grow organically since the infrastructure is already in place. Yet when our organic growth options slow, we look at acquisitions to further expand our company’s footprint and the profitability of our bottom line. However, it can be difficult to control the timing of when appropriate acquisition opportunities arise, so it is important to be prepared and poised to pursue potential acquisitions when they are available.
Analyze the Situation
At Equipment Depot, we are typically not interested in situations where companies need to be turned around or “rescued,” as it can be extremely risky to invest the time, energy and money to put those companies on a solid foundation and successfully integrate them into our existing structure. We seek companies with a track record of good earnings and a positive reputation in the industry. We then analyze our current footprint and how the new territory aligns geographically. Other factors to consider following those are economic data, such as population trends, housing starts, non-residential growth, ITA history and more. If all of those factors align with our current operations and our future direction, we then make sure there are no conflicts of interest with our current OEMs or vendors in the new area. Acquiring a company can result in positive growth for OEMs and vendors as well, due to the increase in business; however, one must consider the existing OEM or vendor relationships that are in place with the acquired company and how they affect their productivity. We forecast how these relationships will transform into our existing Equipment Depot structure.
At times, we will attempt to expand within our current footprint by acquiring a company that has complementary product lines. In some ways, these add-ons are easier because they involve products and processes to which we are not accustomed, so we will typically leave what they do in place – thereby expanding our footprint within our current markets.
After all the preliminary criteria are met, we look at culture. Company culture is often the most important area to match and the most difficult to measure; however, the cultures must mix or there is little chance for a successful transition.
There is no one “right” way to merge cultures, but I can tell you one thing: Do not try to force it. Culture is evolutionary. Best practices, procedures and services are all shared and put into place rather systematically, though it takes time. However, as the acquirer, it is essential to realize that the new company has a structure and culture in place. To force immediate change can alienate the employees and destroy the earning power of the acquired company. At Equipment Depot, we walk into these situations with the feeling that the acquired company likely has some successful practices that we can implement into our company. This is why we focus on well-run, profitable businesses—they are typically positive in all facets of their business. We can and want to learn from them and enact what they do better than us.
The purposes of an acquisition are to strengthen your market position and maximize economies of scale to make improvements in the areas of employee opportunities, marketing, buying power and communication with the OEMs. All of these are things the “acquired” employee wants to hear, and they will get excited about them if delivered with the proper emphasis. Communication and understanding are essential to a successful acquisition, and ensuring that all new and existing employees believe in the future direction of the “new” combined company—only then will employees feel that they are part of the future and work hard, as they have in the past, to continue to generate profit.
A Final Word of Advice
If you are examining a possible acquisition, proper due diligence is paramount. It is expensive to do so, but it is worth the cost to make sure your purchase meets and exceeds your expectations. Also, remember that mergers and acquisitions do not seamlessly occur overnight, and they take an unbelievable amount of time away from many people in your organization. Be sure that you have the infrastructure in place to absorb the time required and, ultimately, the increased volume of business that will occur immediately upon the acquisition.
A merger or acquisition is never easy, particularly the first time. However, with a little preparation and strategy, much of the challenge can be mitigated.
|Meet the Author
Bob Schermer is chief operating officer of Equipment Depot, a division of Pon Material Handling, headquartered in Houston, Texas, and on the Web at www.eqdepot.com.