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Home Magazine [Mergers & Acquisitions] Six Strategic Steps to a Successful Acquisition

[Mergers & Acquisitions] Six Strategic Steps to a Successful Acquisition

Supplement - Mergers & Acquisitions Supplement

Rand Hollon shares observations he’s made of successful acquisitions.

PCT Magazine | January 28, 2014

As a pest control industry broker for the last 25+years, Preferred Business Brokers’ Rand Hollon has seen the good, the bad and the ugly when it comes to mergers and acquisitions. Hollon shared six strategic steps to a successful acquisition as part of his presentation during PCT’s M&A Virtual Conference.
 

1. Create an Integration Team.

Don’t go under the assumption that all integration matters will resolve themselves post-close “on the fly.” When appropriate, prior to close, the buyer should assign operational responsibilities. In short, pre-close, the buyer should know who is going to be responsible for what post-close.

The buyer should also remember to guard against operational burnout. The extra burden of integration activities will have an effect on operational people that have regular jobs and duties. Don’t shortchange the challenges of balancing day-to-day job responsibilities with additional integration duties.

Lastly, when I say “team,” this can mean two people or 10 people. Do whatever it takes to get the job done right the first time. And, of course, on a smaller scale, the “team” can simply be both buyer and seller working together to produce a successful integration.
 

2. Identify Your Integration Strategy.

Buyers don’t buy a business for what it’s doing. Buyers buy a business for what they are going to do with it. And as a buyer, your overall strategic intent should be communicated to everyone on the team. Team alignment is critical. The buyer should create a compelling vision of the road ahead and communicate it to everyone involved.
 

3. Learn the Business.

It is important that integration team members understand how the acquired business worked prior to the acquisition. Talk about the acquired company’s weaknesses — and its strengths. Prior knowledge of the acquired company’s operations brings a lot to the table when it comes to integration. The ability of integration team members to share a common language with acquired-company employees is huge. It can be as simple as having the integration team understand the seller’s “language” when it comes to offered services. In reality, many companies share similar service packages, but they label them differently. This works wonders to speed along the integration process.

I’ve seen many instances where buyers have picked up pretty good ideas and processes from sellers. Know what your team needs to learn the most and from whom. How can they best learn it and when?

 

Florida’s Arrow Environmental Services: 15 Acquisitions in Past Year

Arrow Environmental Services has purchased 15 pest control companies in the past year, extending its reach throughout Florida, while also moving the company into Georgia for the first time.

The largest transaction in the group, a $2.25-million September acquisition of Bay Area Termite & Pest Control, dramatically grows Arrow’s presence in the Tampa area, adding $1.9 million in annual revenue and 15 employees. Combined with other 2013 acquisitions, Arrow has added a total of 18 new employees in the Tampa area.

Meanwhile, Sarasota-based Arrow has also acquired companies that provide entry into Naples (adding 10 employees), Lakeland (adding 15 employees), Crystal River (adding 5 employees), and Atlanta, Ga. (adding 41 employees). Overall, the acquisitions, combined with healthy organic growth, are expected to move Arrow into the group of the 60 largest U.S. pest control companies, based on the most recent rankings by PCT magazine. Arrow now has over $18 million in annual revenues.

In all, Arrow has purchased 15 companies since December 2012. Here are the companies, with the month in which each transaction was completed:

  • Bruce Pest Control, Lakeland – December 2012
  • Polk County Termite & Pest, Lakeland – December 2012
  • Bell’s Quality Pest, Sarasota – January 2013
  • ServiceMax USA, Naples – February 2013
  • Executive Pest Control & Lawn, Brandon – May 2013
  • Pest Terminator, Naples – June 2013
  • Penny Pest Control, Valrico – June 2013
  • Aaction Pest Control, Sebring – July 2013
  • Arrest-a-pest, Tampa – July 2013
  • Total Pest Management, St. Cloud – August 2013
  • Aero Pest Control, Crystal River – September 2013
  • Bay Area Termite & Pest Control, Tampa – September 2013
  • Stanley’s Pest Solutions, Sarasota – September 2013
  • JR’s Lawn & Shrub, Homosassa – October 2013
  • Skyline Pest Solutions, Atlanta – October 2013


As Arrow continues to make acquisitions, the company also continues to focus on organic growth and customer retention, keys to continued success. “We are making sure we have systems in place to successfully handle our growth, tied to training that ensures that our quality will remain at high levels,” said Arrow Chairman George Pickhardt.

It’s also important to find like-minded business owners to merge operations with, said Arrow CEO Bill Hurd. “We only talk to potential partners who are as obsessive about customer service as we are,” he said.


 

4. Establish Integration Priorities.

It’s a little like a marriage when you bring two companies together. Many times, what counts in a happy marriage isn’t how compatible two people are, but how they deal with incompatibility. On levels discovered, and undiscovered, pre-close, there are going to be instances of incompatibility. You can bet on it.

The integration team should create a platform for problem solving at every level. Be prepared to include things like the need for additional technical training or cultural alignment. And to solve problems the integration team will need support. This leads to the fifth item I think is critical.
 

5. Create Supporting Alliances.

Integration team members should use their knowledge of the acquired business to figure out who, at every level, of the acquired business has influence. And, as anyone in the pest industry knows, influence doesn’t always follow the organizational chart. There’s always, “that guy,” or maybe a senior administrator within the seller’s business that others look to for direction.

The deliberate creation of these alliances will ensure better traction for the buyer’s strategic execution. An added benefit is that these supporting alliances work proactively like a safety net for managing customer issues certain to arrive post close.

And you know they will. Let’s face it, the seller has known their customers longer than the buyer. On a side note, when creating these alliances, the buyer should avoid using words like “bought” and “acquired”— instead, use words and phrases like “coming together,” “merge,” and “joining forces.” It’s also helpful to use “we” in conversation instead of “us” and “them.”

 

Terminix Expands into Canada

Terminix announced its entry into the Canadian pest control market with the acquisition of substantially all of the assets of Toronto-based Magical Pest Control.

Founded in 1997, Magical Pest Control is one of the largest pest control companies in Ontario, specializing in commercial accounts and the property management sector, while also treating residential customers. Led by President Mark Joseph, the Toronto company served customers throughout Ontario and eastern Canada. Terminix’s Toronto operations will provide commercial and residential pest control services under the Magical Pest Control name. Under Terminix’s leadership, Joseph will continue to operate the business and work closely with the Terminix Commercial team.

“Our acquisition of Magical’s operations marks an important strategic opportunity to expand our business to the growing Canadian market,” said Larry Pruitt, COO of Terminix, a subsidiary of ServiceMaster, one of the world’s largest residential service networks. “Magical’s impressive focus on customer-centric service, innovation, as well as its strong commitment to its team members, made for a perfect match as we begin to establish the Terminix footprint in Canada.”

“When comparing companies with the resources to grow and improve Magical, our top priority was making sure our customers and our employees would be taken care of,” said Joseph. “We have a tradition of providing exceptional service to uphold at Magical, and we were very careful to select a company that would enhance our service offerings, provide more opportunities for our associates, and maintain our tradition. We’ve found that in Terminix.”


 

6. Be Gradual and Deliberate.

Some acquirers go in with a big bang post-close like Conan the Barbarian. It’s in their wiring, or DNA. I get it. It’s easy and initially attractive to get caught up in the synergistic drum beat. But getting caught up makes it easy to lose focus on true, value-creating, integration.

So be sure to pick your battles. Go after synergies selectively and in stages. Look first for opportunities that yield savings without disrupting operations. Integrate the acquired business in phases and consider all options. Achievement may come through influence versus the old school “command and control” thing.

Acquirers at every business level who work on the front-end to create these integration teams and follow these steps will create additional acquisition value to what was initially captured by the transaction. Remember, that when it comes to pest industry acquisitions, near-term value is captured but long-term acquisition value is created…and value creation is the brass ring.

Make no mistake about it: Integration is where acquisition failure lives. Great integration management can’t turn a bad deal into a good deal. But time and again, history has proven that bad integration management can certainly turn a good deal into a bad one.


 

Preferred Business Brokers has provided the pest control industry with more than 25 years of M&A transaction support and closed deals. To learn more contact Rand Hollon at 800/633-5153.
 


 

Q&A With Rand Hollon


(Visit online extras on the PCT Online homegage for additional Q&A with Rand Hollon)


As part of his M&A Virtual Conference presentation Rand Hollon answered a variety of questions PCT received from attendees. PCT’s Brad Harbison conducted the Q&A.
 

Brad Harbison: What are some creative ways that buyers have financed deals?

Rand Hollon: You name it. I’ve seen everything from stock, buyers financing it through growth like an earn-out type fashion. Creative really covers a lot of ground. I’ve seen many things thrown in the deal, sometimes last second, to make it happen.
 

BH: To sellers, the money part of the deal is obviously important. That being said, how important is it to the seller that a buyer’s business practices reflect those of the seller?

RH: Paramount. It’s just as critical to the seller. The back-of-the-book answer is that the typical pest business is a closely held company that is hard-wired to both their customer base and community. It’s of primary concern to the seller that their customers be transferred to good, capable hands that offer the same, or better, service. With few exceptions, most sellers correctly view themselves as being in the “people” business….and they (correctly) want it kept that way post-close.
 

BH: For acquiring companies, what do you recommend as first steps to finding companies in areas that are good geographical fits?

RH: Put themselves out there. Everyone wants to follow that path of least resistance. I think for companies within a certain geography, it’s important for them to get involved with the local pest organizations. Like GPCA or FPMA or state and local organizations. and mingle.

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