The size of the companies acquired was less problematic than the enmity between the management teams of the two competing companies that had festered over the years. For Schawk, president and CEO of the brand image solutions company, it was like putting lions and tigers in the same cage.
“What was particularly challenging was the fact that we acquired the two largest prepress companies in Europe,” says Schawk. “The scale of the acquisitions was a minor factor compared to the competitive cultures that had developed at these companies throughout the years. There was a deeply entrenched history between the two. To say that they were bitter rivals is not an overstatement.”
The bad blood made for bad business, and critical matters such as closing facilities that duplicated services dragged along with little progress.
“This made integrating the management at both companies a painful exercise,” says Schawk. “In the end, it just wasn’t possible because neither management team respected the other. My decision to allow the management teams the opportunity to try to work it out themselves was a mistake, given the bitter rivalry. If I had to do it all over again, I would have made a change at the top much sooner.
“While we strongly prefer to leave management in place when we acquire a new company to leverage all the positive results of what they’ve achieved, in this case, the negatives tipped the balance.”
After changing most of the senior management, including the top manager, Schawk says, the European operations are finally on the right track. It’s been accomplished by following a simple formula.
“We went back to the basics and what has worked for Schawk for 50-plus years: Make managing directors P&L responsible, create a team-building/working environment, set clear, measurable goals and reward exceptional performance,” Schawk says. “This brought immediate clarity, direction, accountability and motivation to the operation.”
Schawk’s experience with a knotty integration after acquiring the European firms highlights how difficult transactions can be, even for a company and a CEO with a lot of experience at it. The company has made more than 50 acquisitions since Schawk’s father, Clarence, now chairman, started the company in an aunt’s basement more than half a century ago.
Fortunately for Schawk, most of the acquisitions he’s made, including the company’s first international buy in 1996, have gone a lot smoother than the European episode.
A good thing, too, because Schawk has decided that the company’s strategy has to be a global one, that to sustain growth and service its clients, most of them multinational consumer products companies, it has to be close to those customers.
And Schawk Inc. has had a lot of practice at acquiring companies.
Evaluating the target
Schawk makes integrations go smoothly by carefully selecting acquisition targets, making sure that there is a neat cultural fit and evidence of strong future financial performance and, unlike with the case of the big European deals, he does everything he can to keep the management structure already in place essentially intact.
“How we’ve become successful was not moving a bunch of ex-pats around the globe and managing businesses,” says Schawk. “We basically move one ex-pat, have him be in charge and secure local managers to run the business for us.”
Making a good acquisition that fits your company means picking the right target, taking your time evaluating it and being realistic about its performance.
“We do a lot of evaluation, but the primary driver is, to be honest, the account base, what kinds of clients they have, do they have the same mix of clients that we can add to our portfolio,” Schawk says. “Once we’ve determined that they are, we start to do an evaluation of their culture and how and if they could fit in. The next step is obviously negotiations. We closed on a new company in Cincinnati, a design house. That took us six to eight months to come to an understanding of where we’re going.”
And knowing when to back away from a deal is just as important a skill as knowing when to pursue with a full head of steam. Schawk has walked away from several potential deals for a variety of reasons, but nearly always because of factors uncovered in the due diligence process something he isn’t about to hurry just so the deal can close.
“In some cases, the valuation got to where we believed it was too high,” says Schawk. “In others, our due diligence revealed that false data was being supplied, and in one case, we learned that the target’s largest client was planning on moving its business to a competitor. While we are exceptionally disciplined about evaluating potential acquisition targets to ensure that they meet all our acquisition criteria financial, strategic, cultural, and operational it takes a keen focus and persistence over many months to complete the due diligence process.
“It’s as much about energy as it is knowledge and experience.”
Close attention to the due diligence process means some deals never see the light of day because they don’t pass muster.
“Certainly, some of the best deals we ever made are deals we haven’t made,” Schawk says. “We do a lot of historical analysis. We are very stringent on high integrity, clean books, good management, valuation. Typical buyers look into the future, ‘Their revenues are going to increase 20 percent next year.’ We do a lot of historical analysis.”
Judging the success of an acquisition comes down simply to the numbers.
“Financial is really the only way,” says Schawk. “They’re a success when they fit in with us culturally and make us money and get our investment returned as quickly as possible.”
Schawk says ensuring a cultural fit is often simply a matter of getting familiar with the target company’s owner, who sets the tone for the company and whose attitudes and values usually trickle down into the rest of the organization.
“It’s spending time with the owners. Typically, the owner’s personality and business acumen are transmitted into the business. Those generally spread down and usually, the way he acts is the way the rest of the company acts.”
Leverage internal talent
Schawk says keeping the transition smooth means constant communication with the employees of the acquired company, leveraging their skills and keeping them involved directly in the integration process.
“Look for exceptional talent inside the acquired company and assign them a role in the integration process,” says Schawk. “Keep all employees informed as much as possible about changes being considered and made, and also about progress toward shared goals. It’s not possible to overcommunicate in these situations.
“It’s also important to make yourself as visible as possible during this time and available 24/7 to handle any critical issues that may come up.”
Keeping the right team in place at the acquired company is key to keeping the business running smoothly and retaining its clients.
“The biggest thing is keeping the same management team and keeping the same employees in place,” says Schawk. “We don’t go into deals thinking that we’ve got people waiting on the sidelines, ready to go in and manage the business.”
While Schawk tries to keep management teams intact, it’s not always possible keep companies or their personnel together. Some acquisitions, such as its purchase of Seven Worldwide Inc. in New York City, have required trimming operations to ensure profitability. Schawk had to consolidate some of the New York operations, moving the prepress operations into a single facility and eliminating some jobs.
The workers’ union took legal action against Schawk, but later dropped it when the company offered a settlement package for the separated workers. A potentially ugly situation was smoothed over by Schawk, which subsequently received a letter from the union praising the company for its fairness in the way it had handled the situation.
Schawk says the best outcomes in such situations arise from keeping employees apprised of what’s going on and keeping the lines of communication open.
“Especially with plant closures, if there’s consolidation going on, we certainly inform them personally, if not by me, then by the other senior leaders,” says Schawk. “We have a quarterly newsletter that gives them information about what the company’s doing, which direction we’re headed. We do it primarily through communications and make sure everyone knows what’s going on, whether it’s good news or bad news.
“I personally visited every office in Europe when we went through those changes. I met with all the employees, I gave them our game plan, I told them what we’re doing, how we’re going to do it and how we’re going to get there. Again, people want to know what’s going on, whether it’s bad news or good news, and that’s probably what we do best.”
For CEOs who are considering striking out on the acquisition trail, Schawk advises they have a carefully thought out strategy, exercising discipline and careful evaluation of target companies.
“My advice would be, have a game plan and stick to it, have measurement tools to measure your progress as far as the direction you’re heading and how you’re going to get there,” says Schawk.
Schawk uses a variety of tools, including EBITDA earnings before interest, taxes, depreciation and amortization and pretax profits to judge an acquisition target’s performance, but insists that it’s accretive to earnings the first year.
“Make sure you have the discipline of sticking to especially if you’re making acquisitions value,” Schawk says. “Don’t get caught up in the hype. Be realistic about it, and stick to your guns on the value metrics that you come up with, and those are different in every industry and every part of the world. And again, surround yourself with a great team. I couldn’t do this without my executive team working hard every day.”
And the bottom line in making successful acquisitions is, well, the bottom line.
“Never take your eye off the bottom line,” says Schawk. “Always maintain a strict focus on fiscal responsibility. It may not be glamorous, but earnings, cash flow and the proper leverage are critical to achieving success driving your growth plan forward.”
How to reach: Schawk Inc., www.schawk.com