Building consolidation Featured

12:12pm EDT May 22, 2006
As leader of The Drees Co., David Drees is not only deft at building communities, he’s also deft at building and growing his company. To do that, the president and CEO of the Fort Mitchell-based homebuilder has chosen to focus his company’s efforts on a single growth strategy — acquisitions.

“It’s a very fragmented industry that’s consolidating,” says Drees. “We felt, to go into new markets, new cities, that it was a lot more efficient to acquire a company that already had established relationships, established land position and an established management team in place than to try to grow organically.”

For Drees, the acquisition process is rife with challenges, from keeping experienced and knowledgeable employees on board through the transition period to changing an established local brand to a relatively unknown one. But after averaging an acquisition every two years over the past decade, Drees and his company have nearly perfected the process.

Structural changes
One of the greatest challenges posed by an acquisition, says Drees, is getting employees — and specifically, the acquired company’s management team — through the sometimes-rocky transition process.

Ensuring a smooth transition for staff is vital, because a major portion of what The Drees Co. is purchasing in an acquisition is the employees’ knowledge and expertise. If that staff turns over quickly after an acquisition, much of the company’s value is lost.

For the acquired company’s top leader, the changes inherent in an acquisition can be especially disorienting.

“We’re buying a very entrepreneurial organization, and they’re used to doing their own thing and calling their own shots,” Drees says. “Now they’ve got to be a part of a much larger organization, and from that standpoint, much more bureaucratic, and it’s a huge change for them. I would say that’s the hardest part — can they work for a larger organization where they don’t have all the control and call the shots?”

The answer is often discovered throughout the acquisition process. By working closely with the leadership of the potential acquisition, the Drees team can gauge the fit between the two companies.

“We want to acquire somebody that wants to be part of The Drees Co., and they have the right attitude about the deal,” says Drees. “If we feel there’s a lot of friction there, or the culture’s not right, it’s just not worth it — we’ve got to be able to work with these people in the long run. So we’re looking for that cultural fit.”

The role of management isn’t the only thing that changes after an acquisition. Many of the acquired company’s processes and procedures must change to match those of Drees, as well. The acquired company adopts all of The Drees Co.’s operational systems and key metrics. And while in most areas The Drees Co.’s acquisition management style is relatively hands-off, one particular process — quality-control management — requires heavy corporate involvement.

“We put in place the same quality processes, as far as how our builders are trained, what kind of inspection process we go through, how we handle customer service after the sale,” Drees says. “We think we’ve got great processes, and we instill those processes into the new organization.

“From a construction quality standpoint, we have either a regional production manager or a vice president of production visit each of the cities and basically do quality audits to ensure that the quality of product is to our standards, and primarily to see that we’re following the processes that we’re trying to establish in the organization. And we’ll do that with all facets of the organization. We’ll have a marketing director that would be responsible for that city, and they’ll go down and work with that city on their advertising and their marketing and audit what they’re doing.”

Because this kind of corporate involvement can come as a shock to once-autonomous managers, Drees and his team work hard to ensure that the management team of a potential acquisition has a clear understanding of how things will work once the process is complete.

“As we go through the acquisition process, we’re communicating on how we’re organized and how we’re set up and what our expectations are and what their expectations are,” Drees says. “I would say at that point, it’s pretty clear what each party is getting into. That being the case, the biggest risk is if we fail ... it shows up in our turnover. You’ll see that three years later, you’ve had a very high percentage of employees who are no longer with you. That’s where you can tell that we’ve failed.”

Before an acquisition is complete, Drees and his team often only deal with the acquired company’s management. But as soon as it is finalized, Drees holds a meeting with all of his new employees.

“We’re down there with all the employees, in a group setting, communicating exactly what’s going on, how we’re going to approach things, what’s going to change, what’s not going to change, what’s the benefit package, the whole nine yards,” Drees says.

That initial contact is key in creating trust with employees, one of the most vital steps in smoothing the transition, because if the new staff members don’t trust the company they’re joining, they aren’t going to stick around.

Beyond the initial community meeting, Drees takes other steps to build trust with his new employees.

“We do what we say we’re going to do,” Drees says. “We’ve got a great track record with our past acquisitions to point to, and we use those as references. But more than that ... we’re keeping those doors open, those lines of communication open so it’s just creating a trusting situation. That’s really the most important thing. There’s a bunch of rumors going around out there, and they worried about this or they’re worried about that — that doesn’t help anybody. So we like to be very open with our future employees.”

The company keeps those lines of communication open in part by including the new employees in all company correspondence immediately after the acquisition is completed, adding them to the employee newsletter and e-mail lists. It also ensures new employees have a complete understanding of The Drees Co. by sending them through an intense, comprehensive training program that covers everything from company culture to organization management, quality control and new policies.

And while turnover is an obvious indicator of the acquisition’s failure, Drees also searches for less-obvious signs that employees are dissatisfied.

“We have an employee survey that we do about once every 18 months where we gauge the satisfaction level of our employees,” he says. “And that gives us a very good barometer of the satisfaction of our employees in each of our cities.”

From this, he and his management team can see where the process needs improvement and what they need to do to boost employee morale.

Building the brand
Another challenge that comes with acquisitions is the transition from the acquired company’s brand to the Drees brand. Drees and his management team look to acquire companies that have strong, solid reputations in their market, but after the acquisition, they are moved under the Drees name. The trick is to execute a rebranding strategy that changes the company’s name without losing its reputation with clients.

It does that with a co-branding strategy.

“No. 1, it’s all about communicating to the general public and to your associates and your key trades that The Drees Co. has acquired Ausherman Homes, for example. Now we’re part of the Drees family, but we still have the same traditions that Ausherman Homes always had,” says Drees.

That initial communication is achieved through press releases, individual meetings with key clients and real estate agents, and by updating the way the brand is presented on signs, letterheads, cards — anything with the acquired company’s brand. The dual brand may be presented as “Ausherman Homes, a division of Drees,” for example, and that dual band will be used for about a year to familiarize people with the Drees name.

After that year, the brand changes again, moving Drees to the forefront, and it continues to evolve until the Ausherman name is dropped completely.

“We understand there may be some short-term disadvantages to that,” says Drees. “Ausherman homes has been doing business in Frederick, Md., for 35 years — people know the name, they trust the name. Now a couple years later, there’s no more Ausherman name, there’s the Drees name. Although we have the co-brand strategy, they are not necessarily clued in on who Drees is. We’re certainly at a disadvantage that way.”

But that short-term disadvantage is outweighed by Drees’ long-term gain in expanding its national brand, because developing and maintaining that national reputation and presence is one of the major goals of the growth-through-acquisitions plan.

Having a national presence helps Drees in two ways. First, it helps it attract more attention from one of its most valued client bases — the relocation market.

“A big part of our business, especially in our price range, is the transient market — people moving from one city to another because of job opportunities,” says Drees. “If they’re moving from Dallas, Texas, to Frederick, Md., they hopefully have a good impression of Drees Homes from Dallas, and that will give us a competitive advantage when they move to Frederick. A person moving from Dallas to Frederick isn’t going to know who Ausherman Homes is — they won’t have any impression of Ausherman homes. [But] they’ll have this image of us. And that gives us an advantage.”

The second advantage of a national brand is evident on the Internet — conduct a search for The Drees Co., and you’ll find a single, comprehensive Web site that allows visitors to access information about homes and communities in each of Drees’ 10 markets. If the company maintained the brands of each of its acquisitions, its Web site would have to promote those and could lose much of its clarity or comprehensiveness.

But having a national brand doesn’t mean that the company applies a national advertising strategy. It treats each of its 10 markets as distinct and separate, with unique needs and selling points.

“We’re in 10 different isolated cites, if you will, so advertising is very local,” says Drees. “We have the uniform Drees name, the uniform Drees standards, but we do take a slightly different position maybe in each city, as far as how we position the brand.

“We try to have consistent values, communicate our consistent values through our brand, but depending on the price range that we’re strongest in each of our cities, we’ll change our advertising message to appeal to that particular price range.”

Foundation for the future
While the challenges of keeping employees after an acquisition and changing an acquisition’s brand are daunting, The Drees Co. has conquered them and made its growth-through-acquisition strategy a success.

In the past 10 years, the company has made five successful acquisitions, expanding into new markets and further building its national reputation. In addition, it has nearly doubled its revenue, growing from $606 million in 2001 to a projected $1.16 billion in fiscal year 2005.

“(Acquisitions have) been our primary growth engine,” says Drees. “The real financial advantage to us is that we can grow their presence within that marketplace, use that organization as a vehicle to become a stronger, larger player within that marketplace. And by combining our processes, our management talent and our capital, we should be able to create a better, stronger operating company. It’s pretty good.”

How to reach: The Drees Co., (859) 578-4200 or www.dreeshomes.com