Deal maker Featured

8:00pm EDT May 26, 2007

It was closing day, and it seemed promising. Charles W. Walton was supposed to wrap up a big acquisition, but this next leg of Wastequip Inc.’s growth journey would be delayed.

“I can’t sell,” the seller told Walton that day, despite having already signed the definitive agreement. “I know you own my company, but I can’t work there. My grandfather started it, and I just can’t sell it.”

“Well, I don’t want the company then, so put the agreement in your desk drawer,” Walton told the man. “When you’re ready, call me.”

Two years later, the man finally called, and they completed the deal. Now that company is one of Wastequip’s major divisions.

This type of patience and persistence has taken the waste-handling equipment manufacturer from one employee in 1989 to 1,800 employees today. Walton, who serves as chairman, has led the company through more than 20 acquisitions in 18 years, and it now generates about $500 million in annual revenue.

That growth has been facilitated by thinking big from the beginning.

“I used (accounting firm Ernst & Young) right from the start,” he says. “I obviously didn’t need E&Y, but I knew that if I grew as rapidly as I planned to, then I was going to need a big-time accounting firm.”

He enlisted the services of a large law firm for the same reason, but to get Wastequip to where it actually needed to use the services of large outside firms, he had to get going quickly, and acquisitions were the quickest path to growth.

But at the same time, he didn’t want to bully any owner into selling just to benefit his company. So over the course of more than 20 deals, he has perfected the art of the acquisition and continued to take those pieces and put them together, creating a unified, forward-moving company.

Here’s how Walton has conquered some of the challenges of making acquisitions to fuel growth.

Know what you are looking for

When choosing acquisitions as a means of growing, leaders need to first have criteria so they know what to buy.

“When I would look for a potential acquisition candidate, not only did I look for companies that were in geographic markets that we wished to penetrate but also companies that had a complementary product line that we wanted to add,” Walton says.

When determining where he wanted Wastequip to have a presence, he didn’t just take a map of the country and throw darts at it. Instead, he looked at what his company was trying to be and where it needed to be to do that.

“It’s people and industrial activity that generate waste, and if you’re making equipment to collect, process and transport waste materials, you want to be in the markets where waste is generated,” he says.

In addition to geographic area, he looks to buy companies with solid people who can contribute to the combined company.

“I would also look for companies that had what I felt were superior staff that would stay on because we did not have anyone at the corporate level to step in and run these companies,” Walton says.

He first evaluated if the people would mesh with Wastequip. To do that, he would look at a company’s overall performance as an indicator of how good its people are.

“If they had grown rapidly or profitably and were the market leader in their area, that was an indication that they had good staff,” Walton says.

But that’s just a surface indicator. He says it’s also important to form personal relationships with people to determine whether they’ll jive with your company. He does this by golfing or dining with people from the potential acquisition to get a feel of whether there’s compatibility.

He also suggests talking to other employees of the company to get a feel for what they think about the deal, and have others from your company talk to them, as well.

Beyond the people, the actual products are crucial, too. In terms of product lines, Walton looked for companies that had similar manufacturing processes to Wastequip’s and that used similar materials, which you can leverage when purchasing the material.

“It’s always good to stay in an area where you have some experience and some advantage in terms of knowing the processing techniques and not get too far up field,” he says.

Know the seller

Potential acquisitions also need to be approached in a delicate, friendly way. Walton made many initial contacts with potential sellers by attending trade shows. If one stuck out to him, he would do more research and then contact the owner and ask to talk.

“I always used to say to them, ‘It doesn’t cost anything to talk,’” Walton says. “‘You might as well see how your business would be valued.”

When meeting with people about selling their businesses, he says it’s important to understand their backgrounds and situations because it helps you better gauge how likely or unlikely someone is to sell. For example, if an owner has four children and is close to retiring, he may choose to sell his business because it’s easier to split money from the sale among four children than it is to turn the company over to the one or two who are actively involved in it while excluding the others.

“Our biggest competitor was not another company that wanted to acquire the company but the owner or potential seller who had to make a decision — was he better off keeping the business or selling?” Walton says. “My job was to convince him he was better off selling it.”

One way he did so was by providing names and contact information of other companies that Wastequip had acquired. As it completed more acquisitions, that Rolodex grew and became a strong chain of references to convince companies that Wastequip had their best interests in mind.

“I said, ‘Call any of these people and ask them if we did what we said we were going to do, and if they’ve enjoyed working at Wastequip,’” he says. “‘Ask them anything.’ That’s a good reference.”

Another tactic he used was to throw out scenarios about how the market could turn.

“They’d say, ‘Gee, if I kept the business, I’m taking X dollars out every year, and if I keep the business another five years, I’ll have as much money as you’ve offered me now, and then I can sell it,’” he says. “I’d say, ‘Yeah, that’s if everything goes well. What if there’s a recession?’ It’s a question of risk-reward.”

A couple of times he made fair offers to two of his major competitors, but both declined. A few years later, Wastequip acquired both for 10 percent less than the original offers, proving that sometimes it’s better to sell early.

While Walton obviously negotiates with Wastequip’s best interests in mind, he doesn’t bully or push people into a wrong deal, and he’s just now in the final stages of an acquisition he first contacted back in 1992.

By contrast, some acquisitions can take as few as three or four months from initial contact to completion. Either way, he says, the key is maintaining patience and maintaining contact by visiting with the owners at trade shows and staying in touch in between.

Integrate new employees

Buying a company is just the first step. Once the paperwork is completed, you have to start integrating the new people into your culture to keep everyone working toward common goals.

The key is to start with knowing what you want overall for the future, and Walton knew what he wanted.

“The culture was work hard, have fun, make money, be an industry leader,” he says. “I wanted Wastequip to be a place where people wanted to work.”

Start by appealing to the material needs of employees from the acquired company to make sure they stick around.

“Provide them with a very attractive incentive program where, in addition to their salary, which has to be industry competitive, if they meet certain financial targets, they will be handsomely rewarded,” says Walton.

New employees outside the management ranks had to know what was going on, too, so he, and eventually his management team, would explain why they needn’t worry about their jobs.

“We’ve never closed a plant, so that should provide them with some security,” he says.

Beyond simply communicating the company’s track record, he says it’s important to give employees from the acquired company resources and help them get to know other colleagues. He charges facility leaders with creating opportunities for employees to get to know each other better, and they do this through holiday parties, softball teams and other social activities throughout the year.

“If you put together a company that’s growing largely through acquisitions, it’s very important that, early on, you get the people to interact with each other,” Walton says. “Everybody’s pulling for the same goals. It just won’t work if you don’t do that.”

While it’s important to build camaraderie at the local level, it also has to exist at a management level. After three or four acquisitions, he formed a president’s counsel to help leaders get to know each other and other senior managers from corporate headquarters. He also encouraged them to get out of their plants to meet other leaders.

“We encourage people who recently joined our companies to go around and visit our other plants because they’ll learn something from that,” he says.

It helps the new leaders feel like part of the overall team and understand the company better. Getting to know their peers also gives them the confidence to call someone and ask how to do something better or to talk to them about problems.

He and his team also take a best-practices approach and prefer to implement whatever the new acquisition does best into all its facilities, so this open dialogue helps with implementing new techniques as well.

“You always learn something new from each acquisition,” he says. “Someone always does something a little better than the rest.”

Learn to delegate

While making one of his earlier acquisitions, Walton met with a man four or five times. Each time, he was baffled that the man didn’t have any papers or files on his desk — only a copy of The Wall Street Journal. It made him curious.

“Where do you spend most of your time?” Walton asked. “Are you involved with marketing? Sales? Manufacturing?”

“I only have one job, and that’s to put the right people in the right place,” the man responded.

It’s something Walton has taken to heart, and he says is key to sustaining growth. When the right people are in the right spots, it makes delegating easier.

“If you have a good operations officer and a good financial officer, then you feel comfortable delegating,” says Walton.

Of the current management team, about 60 percent came with the companies he bought, but 40 percent he brought in from the outside. Many of the businesses Wastequip acquired were small, so often the people didn’t have the experience in human resources, environmental issues, finance and law that he needed for scaled growth. He evaluated whether the skills he needed were inside the company already, and when they weren’t, he looked outside.

When interviewing, he finds it important to talk to people inside the office and in more casual settings. He’s looking for someone who not only has technical skills but who will also fit with the culture he’s built.

“In the office, you get a good sense of the professional and technical capabilities of the individual,” Walton says. “On the golf course or at dinner, you get an idea of whether you’re going to be a good team working together.”

Create a clear plan

Filling holes with the correct people ensures he has the resources to fulfill his overall strategy, but that’s only part of the solution. You also have to have a clear plan for those people to follow.

“Look at how the economy, in general and the industry in which you operate, is changing,” Walton says. “Are you gaining market share or losing market share? If you’re losing market share, you have to sit back and say, ‘Why is that happening?’ Is it because we are not cost-competitive anymore, or is it because there are new products being introduced that we don’t have? And if we don’t have them, can we develop them internally, or do we need to go outside and acquire those products?’”

When leaders discuss these issues, it helps them create a solid plan for the company, but at the same time, Walton says it’s important to not be too set in one’s ways.

“Have a strategy, but don’t be a slave to that strategy,” he says. “If it’s not working, don’t be afraid to adapt it.”

Having accurate, current data is crucial in determining if a strategy is working.

“You’ve got to make sure you have the data flow and the ability to get the data, and you have the right data to let you assess the business in a sense that you can and will know when it’s getting away from you,” Walton says.

To keep Wastequip in check, Walton gets a simple report each week that shows each company’s bookings, backlog and sales, monthly sales estimate, next month’s budget, and previous year comparison.

“When you get that, it’s pretty simple,” Walton says. “There’s nothing fancy about it. When you start to see that your backlog is declining, or you start to see that the estimate for that month is starting to be lowered by the people running that particular unit and it’s falling behind the plan for the year, that’s an early warning sign that something’s going wrong.”

When leaders see those early flags, they need to get their team together and ask some blunt questions.

“What’s the problem here?” he says. “What are we doing wrong, or what aren’t we doing that we should be doing?”

Finding the answers to those questions often requires getting out of the boardroom and talking to someone closer to the problem.

“You have to talk to the guy responsible for that division and ask him why he’s lowered his estimate,” Walton says. “He may say, ‘My competitor is lowering his price,’ or, ‘The market is weak.’ Based on his response, that would indicate different strategies to address that issue.”

Communicate and motivate

In a growing organization, leaders may have to make small changes, but rapid growth sometimes brings intense change. No matter how big or small the changes, Walton says it’s always important to have strong communication.

To ensure people get the message, he has monthly telephone conferences for all the group presidents, sales managers and group controllers. A smaller management group meets once a quarter, and he also has an annual meeting. All of these meetings facilitate dialogue about the business and keep people focused.

Part of keeping people focused is motivating them, Walton says. While he strives to have both financial and bonus compensation that make employees feel valued, he also motivates them in how he plans the annual conference.

“If the company makes its annual plan, we have our annual management conference in a nice, warm place, and they can bring their wives,” Walton says. “If we don’t make our plan, then we have it in Cleveland in February — and no girls.

“If we meet the goals and go to a nice, warm place, we have two or three hours of meetings and play golf. If we go to Cleveland, we have eight hours of meetings a day.”

He uses these meetings, no matter the length, to recognize his people, although some recognition is aimed at motivating the bottom tier.

“Peer pressure is important,” Walton says. “When we have those meetings, we show who met their budget, who’s ahead of their budget and who’s behind the budget. People don’t like to be the laggards. When they come back next year, they want to be one of the leaders.”