Tying the Knot

Mergers & Acquisitions Supplement - Mergers & Acquisitions Supplement

M&A veteran offers valuable insights about how to arrange successful company ‘marriages.’

Subscribe
January 13, 2016
Jordan Fox
© kmlmtz66 | Thinkstock.com

It’s been said that in the mergers and acquisitions universe, an M&A effort can be likened to setting up an old-fashioned arranged marriage. A business marriage may initially look promising, but when two firms merge, conflicting cultures, personnel problems and failures to communicate adequately can combine to result in disaster.

Ryan Bradbury, president of Viking Pest Control, headquartered in Warren, N.J., with 10 offices servicing New Jersey, Pennsylvania, New York, Delaware and Maryland, says the idea is certainly true of the pest control business.

“Our company is a 35-year-old, growth-driven organization that is constantly looking at expanding,” he said, “but I’ve found over the years that you must do careful research and planning to acquire the right companies with the right people. We’ve grown though purchasing good companies with good procedures, good bottom lines and good people who are potential leaders and share our vision.”

WHAT WORKS? Bradbury has been actively involved in the M&A arena throughout the past decade. During that time he’s either started or closed negotiations with dozens of pest control companies. “I’ve learned a lot about what works and what doesn’t,” he said. “And much of what I’ve learned applies to most small businesses.

“Looking over my years dealing with this aspect of the business, I’ve come to realize that when owners get involved in an acquisition, their original role with their company will change,” he said. “It’s like a new job. They must devote a great deal of time to merging two companies with different cultures and different personnel. And they must then undertake the difficult task of running that new entity.

PCOs looking for sellers should listen more to the prospects they’re contacting — and talk less. It’s really part of due diligence.” — Ryan Bradbury

“Small business owners normally spend some of their time managing their company, but the majority of their time working with existing clients and getting new clients,” Bradbury added. “In larger companies, these functions are separate jobs. That means owners of small companies looking for acquisitions will have to choose one of those hats to wear and focus strongly on that area. If they want to manage their company and can afford to put an M&A team on that task, that would be great, but they’ve got be sure that the team can dedicate themselves 100 percent to that job. And they’ve got to look at the cost factors to be considered before making a final offer to acquire the desired company.”

CAREFUL PERSONNEL PLANNING. Bradbury discussed the need for sensitivity and careful personnel planning while preparing for the merger. “For sellers, there’s usually a level of personal pain in letting go of what they’ve created and built. It’s not their company anymore and if they do stay on board, that’s an adjustment that can be a shock to their system. In my experience this is something that rarely goes smoothly and frankly this is something that our company tries to avoid if possible.” Due diligence and relationship forming must be done if the previous owner is intending to stay, he emphasized.

Bradbury says it’s necessary for the buyer to be able to be brutally honest about how things are going in his or her original company and then deal constructively with it. That means stepping back and looking at the company objectively. Old problems brought into the buyer’s new business only create bigger problems and decrease the maximum return on the deal, he cautioned.

DEALING WITH CHANGE. “The owner of the new entity must accept the fact that the existing comfort zone is lost and many or all of the old company routines will need to be changed. Buyers should realize that they may be pushed to a new limit in a short time; things will come at them from different directions and they will have to manage new responsibilities and new people.”

He said he wishes he could create a formula on how to handle this, but he doesn’t really think there is one. “I’ve seen that organized and thoughtful managers handle this better than those who are not clear on what to do. But if they do things right, they should have faith that they’ll eventually create new routines and new comfort zones.”

Borrowing the expression “don’t sweat the small stuff” from the military, he’d recommend that buyers be flexible in their efforts to make their mergers work. “When I look back on when I started my M&A actions, I laugh and wonder what I was thinking. In part I was just trying to exert control over our new environment, but I can tell you what I did was a waste of time and energy.

Ryan Bradbury

“Creating a new entity after an acquisition is not easy. It’s not easy to predict what will happen and what will be important to the merged company in the future. My experience tells me that 80 percent of what an owner expects to happen won’t happen. So from time to time it’s a good idea take a hard look at all the things worth fighting for, and to remember that decisions can be made to change the things that aren’t working out.”

CLOSING THE DEAL. Bradbury says that there must be a driving force to get an M&A deal to closure. Deals close fast if both sides are realistic and levelheaded, he said. Sellers in particular are usually very concerned about privacy and confidentiality. “They don’t want their employees and customers to know they are shopping their business. Buyers with integrity do not cause information of a pending deal to leak out to the street. If the deal is to conclude, both parties must compromise on the factors that are not the be all and end all. Sellers have decided to do the deal and must focus strongly to get it done. Buyers have to respect the seller’s decision and abide by the agreed-upon deadline to make it happen.”

He also cautioned that pest management company culture is an important consideration in looking for an acquisition. “A pest control company that prides itself in white glove service and high-end residential business who is looking at a lowball company specializing in low-income housing should be aware that it’s probably going to be a bad fit. And if the buyer has all of his technicians park their trucks at the office and punch in and out for hourly pay, and the seller pays by production and allows employees keep track of their own time and take their vehicles home, there’s sure to be a culture clash.”

Bradbury says in his experience, many people think the concept of culture is fluff and doesn’t matter. “But I don’t think that is true. Culture clashes can be a major problem for an M&A deal,” he said.

“Another important thing I’ve learned over the years concerns the quandary of keeping or not keeping newly acquired, non-productive employees coming into our firm. I’ve concluded that ‘dead weight’ must go. Our company, in trying to make a merger work, has changed job descriptions, moved employees around and even created new positions. And that hasn’t always worked. The seller should identify those questionable employees, especially if the buyer is unable to meet, talk to and spend time with every employee of the acquired company. Having determined who they are, they should be terminated so they can make positive contributions elsewhere,” he said.

HIRE FOR ATTITUDE. Bradbury also suggested heeding the old human resources department saying, “Hire for attitude and train for skills.” It’s important, he said, for an acquirer to find a seller with a great, company-wide attitude. “This will make the deal close faster and return more profit to both the seller and the buyer. It’s ideal to have employees who are focused on generating the biggest, positive impact on the future of the merged company in both the short and long terms.”

Bradbury also stressed the importance of good, clear communications. “PCOs looking for sellers should listen more to the prospects they’re contacting — and talk less. It’s really part of due diligence. It’s the best time to learn about the company they are considering to purchase. Good communication skills are something I try to continue to do and improve upon — in all aspects of my life,” he said.

“To enhance an M&A deal, PCOs need to have plans in place on how to avoid culture clashes, how to integrate top positions and how to handle employee conflicts. The more focused and organized a buyer can be in advance, and the better his or her communications skills are, the better the newly merged organization will be later.”

Bradbury said mergers and acquisitions usually start off with a great deal of excitement and vision, but many deals oftentimes blow up. He emphasized that the two parties concerned take the time to carefully explore the perceived opportunity and carefully navigate through the possible “minefields” with their eyes open.

“At Viking we understand that business is a risk but we know more today than we did yesterday about how to gauge that risk,” he said. “We’re more than happy to pay top dollar for a winning acquisition, but we don’t want to buy the wrong company at any price. It just isn’t worth it.”