Incorporating an outside company into yours involves everything from practices and procedures to company culture to safety training. You have to go through a lot of deals to find the perfect fit, said Mike Bogan, CEO of LandCare, at a panel discussion during Lawn & Landscape magazine’s Top 100 Executive Summit held in Cleveland June 6 and 7.
Do the diligence.
While M&A can be exciting, don’t get caught up in the enthusiasm and emotion. Instead, make sure you’re looking at things like location, business mix and, above all, culture. “At the very top of the list, the business has to fit into the culture of our organization,” Bogan said. “The team members of the organization tend to follow their leader. If they buy in, their team will too.”
Expanding is a great opportunity, but it’s also a painstaking process that requires detailed research when done properly. “Researching the company, you use everything that’s available to you – interviews, customers, dealers, website, social media,” Bogan said.
Look at the customer concentration and really dig in. Many companies are in the $6-8 million range with about 350 customers, said Dean Murphy, president of Terracare Associates. “Sometimes it looks right when you first look at customers, but 30 to 50 of the largest are with the same company.”
That’s a customer concentration problem. Also consider how long customers have been with the company and whether or not the company you’re acquiring has been raising their prices.
And don’t forget to inspect the equipment. Terracare looks at each piece of field equipment and pulls oil samples from each truck. “It may sound excessive to some folks, but we do that,” Murphy said, noting that if the oil looks bad, it’s a sign that the company wasn’t doing general upkeep.
On the other hand, Ruppert plans to sell 80 percent of what it acquires so Key and his team just look for wholesale numbers. LandCare also plans to sell most of the equipment from a merger or acquisition. They’ll start with the owner’s assessment and go from there.
Pay attention to people.
It’s important to look to the future as well, particularly in terms of strategic planning. “I think it’s more efficient to understand market-wise where you want to go,” said Phil Key, partner, Ruppert Companies. And the one thing to never forget, no matter if you decide to acquire or merge with another company or not, is that you can always take away something from any company you’re looking at. “Never think you can’t,” Murphy said.
Once you’ve made the transition, it’s a matter of communication with your customers to make sure they keep your services. Key said keeping the crews in place on the routes is always best. He says the process of transitioning takes about three months at Ruppert.
His company sends out an initial letter and schedules meetings with larger clients to explain how the transition will work. “To some degree, it’s no different than transitioning when an employee is promoted,” he said.
You have to keep the account managers engaged, Bogan said. If the higher-ups in the company don’t want to be a part of what’s happening, it’s easy for them to leave and start their own business, taking a big chunk of your customers with them.
To make the transition as painless as possible, be transparent throughout the merging or acquiring process. “Try to get out in front of negative anticipation,” Murphy said. “Unfortunately, people have a sense that if you’re sold, that means something bad – ‘Something is going to change and I’m not going to like it.’”
He recommends trying to have individual conversations and allowing employees to ask questions to dissuade their fears.
At the end of the day, remember what you’re really buying. It’s not the brand; it’s the people and the customer accounts, Murphy said. “To me, at the end of the day, we’re going to run the business the way we’re going to run the business.”