Hoddy Hanna’s rules for acquisitions has Howard Hanna making bold moves

 

Howard W. “Hoddy” Hanna III’s role has changed dramatically at the company his parents started from a single Pittsburgh office in 1957. The chairman of Hanna Holdings Inc. isn’t as involved as much in the day-to-day operations; he’s focused on strategy.

Hanna Holdings includes the subsidiaries Howard Hanna Real Estate Services, Howard Hanna Financial Services and First Priority Mortgage. The family-owned and operated real estate company specializes in residential and commercial brokerage service, mortgages, closing and title insurance, land development, appraisal services, insurance services, corporate relocation and property management.

It is the third-largest real estate company in the nation with $18 billion in 2017 sales. The largest home seller in Pennsylvania, Ohio and New York also employs more than 9,000 people in 262 offices.

With such a vast organization, it’s no wonder that Hanna has surrounded himself with decision-makers who can take on responsibility. But what surprises many people is that of the top 10 people in the company, more than half are nonfamily members.

Hanna says being the face of the company can be both a good and bad thing. It’s amazing how sometimes nobody wants to talk to anybody at the company but him.

“We have a collaborative decision-making organization here. It’s not one or two people,” he says.

The management structure also is very strong with a president in each state and then regional and office managers, for example.

Hanna spends his time looking at where the business is going and anticipating where it needs to be five years from now. Howard Hanna wants to stay ahead of the curve and be a disruptor in everything it does, including technology, which is now one of its bigger expenditures.

Hanna also has worked on the acquisitions of commercial and real estate brokerage firms and mortgage banking firms in Howard Hanna’s eight-state area. The company has completed more than 15 acquisitions since 2015.

“We’ve pretty much grown in concentric circles, building the company from the core in Pittsburgh,” he says.

The Hanna family came to the conclusion about 20 years ago that if it wanted to grow the company — because Howard Hanna had about 20 or 30 percent of the market in metropolitan Pittsburgh — it needed to go to other markets, Hanna says.

A 30 percent market share is actually very good for the industry. He says many real estate firms don’t want to go outside of their community or city because they see it as such a risk.

But it’s only a risk if you don’t know the day-to-day business. While Howard Hanna may not know the neighborhoods or communities, it understands the mindset of brokers, the thought processes and how sales are transacted.

While Hanna can’t see the company operating in a place like New York City, which is a very different animal and would require a huge learning curve, Howard Hanna knows real estate brokers and real estate mortgage banking in the Mid-Atlantic and Midwest.

“You have to know the business you’re making a deal in,” he says. “I know there are people who can buy and operate a steel company, can buy and operate a trucking company, can buy and operate an electrical business, but it’s hard if you’re running the parent company and you really don’t understand that business.”

From a long-term viewpoint

Over the past year and a half, Hanna says Howard Hanna has been working to blend its new companies together into one business. An acquisition won’t be successful if you cannot blend the culture and business model together.

Sometimes, that blending is more difficult, not on the sales side, but with the backroom functions — IT, accounting and human resources. Getting all those clicking together, as well as the individual cultures of the sale organization, is always a work in progress, he says.

Howard Hanna is in such a people business that if the cultures aren’t going together right, you have a lot of problems, Hanna says.

The company also walked away from a deal after the management team started to delve into it and got past the numbers to how the target company ran its business and the structure of its team.

“We said, ‘This isn’t for us.’ Because we can make this deal and it will look good the day we make it, but I’m not sure it will work through the next three years. I just saw the conflict of it. It’s just one of those things,” Hanna says. “It doesn’t mean that they were bad people. It was just, I didn’t think it was for the best. You’ve got to walk away from those transactions, and you hope you can pick it out before you close.”

And if you don’t pick up on it before you close, then, he says, you’ll have great war stories eight or nine years later — once it works out.

“If you can stay with something long enough, you can work it out, but you really don’t want to because it can be very time consuming and intensive through the whole organization if things are not working smoothly together,” he says.

Hanna likes to tell the business owners who are selling that he wants them to be happier five years from now than on the day they closed.

“And I want to be happier five years from today,” he says.

That’s why the final months before the sale are so important. It’s not just about the acquisition price. It’s also about how it’s going to work, who is going to be responsible for what, and what will be brought to the table on Howard Hanna’s end to help the acquired company’s clients.

Win them over before the disruption

While there are exceptions, Howard Hanna generally follows a few rules with its acquisitions.

Hanna says they usually don’t change the name for a couple years. There’s no reason, and it gives Howard Hanna time, as a company and as a family institution, to win the hearts and minds of the acquired company.

“We’re not a manufacturing company, where you’re buying the machines and the equipment and the warehouse. We’re primarily buying people — managers, sales associates, support people that work other places — and we want to win the hearts and minds of those folks. So, we’d rather do that than make too many changes too quick,” he says.

That also means generally keeping the compensation plans, the managers of the branch offices and the office locations the same. Howard Hanna encourages the previous owner to stay engaged for the first few years, which can be difficult because sometimes he or she wants to retire or move away.

The big exception to these rules came in 2009, when the recession sped up the integration plans for Realty One in Cleveland. Hanna says with so much overlap between Realty One and Howard Hanna Smythe Cramer, including offices in the same block, they didn’t want to have two brands in the same market.

“It was not in our original plan. Our original plan was to merge offices that were overlapping within a three-year period. And we did it, all but two, I think, in 14 or 15 months,” he says.

Luckily, the name wasn’t much of a concern for the employees who worked there, and it was a relatively easy decision in the midst of a recession.

However, change is hard for people, so the company typically tries to keep the disruptions to a minimum. It takes time to learn the acquired business. Hanna says you can’t understand a real estate market from the numbers or a map.

“You can’t look at a market and say, ‘Well, this community shouldn’t have an office or this one should,’” he says.

The company sends senior managers to new markets. They spend a lot of time learning the business, the people and interfacing, so Howard Hanna can be a better decision-maker and create what will work for them in that market, he says.

Howard Hanna also can show its programs and products that are unique, which can help both the support people as well as the salespeople and managers.

“You’ve got to be there — and don’t just look at numbers from the last couple of years,” Hanna says. “So, we try not to disrupt too much for a couple of years as we get to learn their business better. But also, as I keep saying, ‘We want to win the minds and hearts of the folks.’ Let them know us; see what we do, the positives we bring to the table.”

 

Takeaways:

  • With acquisitions, you have to know your business better than anybody else.
  • Consider how to blend cultures and business models before the deal closes.
  • Learn about the acquired company before you start making changes.

 

The file:

Name: Howard W. “Hoddy” Hanna III
Title: Chairman
Company: Hanna Holdings Inc.

Born: Pittsburgh
Education: Bachelor’s in political science from John Carroll University; gave the commencement speech at John Carroll this past May.

What was your first job? I was a paper boy, and then I worked around the office. We had three or four people then. I worked around the office the first couple of years — putting up for sale signs, vacuuming the office, that kind of stuff.

My senior year in high school, I passed the real estate exam. I had a summer job lined up at J&L Steel in Hazelwood. This friend of my dad’s was in the real estate business and he knew me from being around the office. He knew I’d passed the real estate exam in May, and he said, “You don’t want to work in a steel mill. There’s no future in that business at all. You’ll make more money this summer doing that, but you’ll learn something in the real estate business.” So, I started to sell real estate that summer and went to John Carroll in the fall. I got so excited about it.

After I graduated, I went into the Army for a little bit, and came back, and sold real estate the rest of my life.

What was the hardest management skill for you to learn and why? For me, personally, it was twofold. One, to work with people rather than lose my temper because something wasn’t done correctly. You want to work with the person, teach them so that they won’t make that same mistake the next time. In the early years that was difficult for me to do. You have to take the team you have and boost that team up.

Second was to allow other people to make decisions. I don’t find that hard anymore, but there was a learning curve. Because if you have a lot of people around you, 9,000 people, and everybody is afraid to make a decision, you have major problems.

You are dependent upon other people, who are managing the day-to-day enterprise. So, you’ve got to build a cadre of people around you who understand the way you want the business to be run and then let them go out there and do it. You certainly can’t make as many decisions.