When National Interstate Corp. bought Vanliner Insurance Co. in 2010, Tony Mercurio was confident the deal would be a good thing for both companies.
He underestimated, however, the amount of work it would take to reach that point.
“The first year was rough and looking back, a major mistake was only bringing two managers with me to transition the business, spread the culture, embrace the employees at the company we just acquired and make the tough decisions,” says Mercurio, who served as CEO at St. Louis-based Vanliner before becoming president and COO at National Interstate, which is based in Richfield.
“We had 180 employees on day one and while we had a lot of support from the home office, we made the battle tougher by not bringing more leadership with us.”
The joining of the two companies has proven to be quite successful, as Vanliner has become a leading business for National Interstate. But it wasn’t always easy and it would have been even harder if Mercurio had not laid the groundwork for the future with his soon-to-be new employees.
“Aligning the cultures is the single most important thing you can do after you make sure the numbers make sense,” Mercurio says. “We met with every single employee on staff once the deal was announced, but before it was final. That gave us a great sense for the culture and earned us respect with our eventual associates.”
Mergers and acquisitions are what make the world of business go round. The ability of leaders to make informed decisions on which company to buy and which one to sell, which deal to make and which one to walk away from can go a long way toward determining their future.
Smart Business surveyed members of the ASPIRE event host committee, as well as panel speakers, to gather their perspective on M&As and dealmaking.
Here is a sampling of their feedback:
What are the critical elements that can make the difference between an OK business deal and one that leads to substantial profit?
“Put your house in order. You want your books to be squeaky clean. You don’t want people to come in and find things that raise concerns. Many companies have sacred cows, but if you bring them to the forefront, they usually can be dealt with. That way, there are no surprises.”
—Bob Shearer, Shearer Solutions
“Understand what you are trying to accomplish with the transaction. Too often, organizations don’t think through all of the intended and unintended consequences short, mid and long term while fully exploring on the front end before a transaction is completed.”
—Greg Skoda, Skoda Minotti
What are some common pitfalls associated with the M&A process (buying or selling a business, raising capital or liquidity events)?
“If you are the buyer it is important to have a good idea where the capital is coming from or how you are going to fund the acquisition before taking on additional expenses to go through the process.”
—Greg Seeley, Seeley Savidge Ebert & Gourash Co. LPA
“On the buy-side, I often see goodwill eroded when the buyer sets unreasonable expectations for the timeline of the deal. Buyers often promise they can close ‘as soon as possible;’ unfortunately, a seller that is looking forward to liquidity on their most valuable asset usually has a different perception of how fast that should be.”
—Tony Kuhel, Thompson Hine LLP
What are some keys to putting together your M&A team?
“For smart people and smart money, you’re going to engage people that are professionals and know how to do this. Otherwise you’re going to shortchange yourself. If you hire the right people to advise you, it’s going to be some of the best money that you ever spent. It’s their job to shop and get you the best fit, the most money and the best deal.”
—Mark Goldfarb, BDO USA LLP
Where do companies looking to grow
or expand typically run into trouble?
“Making acquisitions a part of your long-term business strategy is a good idea. Making it an annual objective could be deadly. Most deals are not good and you have to be willing to kiss a lot of frogs to find that prince. Too many companies take an optimistic view on potential ROI, and force a deal vs. practicing patience.”
—Tony Mercurio, National Interstate Corp.
What is a common misconception
of the investor community?
“One common misconception is that all financial investors are the same — they are simply looking to make a return on an investment and don’t really care about the company or its management team. Some financial investors want to support the businesses they invest in and do what is in the best interest of the companies.”
—Tom Littman, Kirtland Capital Partners
What’s a good tip to keep in mind with any M&A activity
“Don’t be protective of historical pay scales and commission/bonus structures.”
—Daniel Callanan, Western Reserve Valuations
“Understand why the seller/founder is seeking an exit event and focus on providing an incentive to the seller/founder to remain active in the business after the closing of the transaction.”
—Carl Grassi, McDonald Hopkins LLC
“As things change or shift in the process, having the courage to be honest and upfront about challenges is essential to a profitable transaction.”
—Debbie Donley, Vocon
