In the broader M&A market, news of mega deals hitting the headlines is signaling that companies are aggressively pursuing acquisitions with transaction activity reflecting a mix of corporate and private equity buyers and diverse industries. Deal value in February was up more than twofold from January levels with Heinz, Dell and Virgin Media among the billion-dollar-plus deals.
Local corporate buyers are also flexing their muscle. If February transaction activity is any indicator, momentum is building for what is expected to be an active year for M&A in 2013.
An M&A highlight in the health care arena, Cincinnati’s Catholic Health Partners Inc. announced a strategic partnership with Summa Health System Inc. of Akron, whereby it will acquire a minority ownership stake in the health care provider. The move is reflective of the broader consolidation trend taking place in hospitals and health systems in anticipation of changes from health care reform. Summa announced last July that it was seeking a potential partner as part of a three-year strategic planning process.
The combination brings together two regional leaders and expands CHP’s market share. With $5.6 billion in assets, CHP operates more than 100 health facilities, including 24 hospitals throughout Ohio and Kentucky, and is the largest health system in Ohio. CHP reported $3.8 billion in net operating revenue in 2012.
In a highlight for the industrial market, Beachwood, Ohio-based private equity firm Rockwood Equity Partners completed the acquisition of TIM-CO (aka CAL-RF Inc.), its first strategic add-on for portfolio company Astrex Electronics, which it acquired in 2008. TIM-CO is a distributor of electrical and electronic components and value-added assembler of coaxial connectors and cable assemblies with a focus on the commercial aviation, space, oil and gas, industrial, and military markets.
Also in the industrial segment, Timken Co. announced its second acquisition this year with Roller Bearing Industries Inc. Roller Bearing manufactures balls and roller bearings for the railway and automotive industries. Timken purchased the company from The Greenbriar Cos. Inc.
Deal of the Month
The health care industry garners the spotlight this month with the announced $2.1 billion acquisition by Cardinal Health of AssuraMed Holding Inc. of Twinsburg. AssuraMed distributes disposable medical products for the home health market, with a product range than spans more than 30,000 SKUs from ostomy, diabetic and respiratory supplies to wound care and insulin infusion products.
The acquisition gives Cardinal Health an entry into the growing home health market, adding an estimated $1 billion to the top line. The company estimates synergies from the combination to reach $50 million by 2016. Cardinal Health reported EBITDA of $2.3 billion on revenue of $104.8 billion in 2012.
AssuraMed is backed by private equity firms Clayton, Dubilier & Rice and GS Capital Partners, which acquired the company in 2010. During their ownership AssuraMed completed the acquisition of Invacare Supply Group, the domestic medical supplies business of Invacare, in a $150 million transaction.
Andrew Petryk is managing director and principal of Brown Gibbons Lang & Co. LLC, an investment bank serving the middle market. Contact him at (216) 920-6613 or firstname.lastname@example.org
If you’re thinking about selling your business, there are a lot of factors to consider before making that decision.
“First and foremost, you need to determine whether it is a good time as it relates to you, as the business owner, to help meet the goals and objectives of the business life cycle,” says Albert D. Melchiorre, president of MelCap Partners, LLC, a middle market investment banking firm. “Other factors include trends in the business and the industry, and economic trends.”
Smart Business spoke with Melchiorre about how to evaluate whether now is the right time to sell your business.
How can a business owner begin to evaluate whether selling is the right decision?
Beyond whether it’s a good time for the business owner and current trends, do you have a successor in place? Are you aging and considering a sale because you’re 75, or are you 55?
Is it a good time as it relates to trends in your specific business? Is the business performing at high levels, with the added opportunity for further growth? Is it a good time in your industry? You may be performing, but if your industry is declining rapidly, is the business’s performance sustainable based on what’s going on in the industry?
Also consider whether it is a good time from a mergers and acquisitions perspective. Is capital plentiful? Are there plenty of potential buyers?
It’s good to have all of these factors lined up. Historically, it’s rare, but in the current economic environment, for a lot of business owners, they are lining up.
How can the current mergers and acquisitions market impact the decision to sell?
Although some areas of the economy are still struggling, other industries are doing very well. As a result, the earnings of corporations remain strong, giving strategic buyers the financial resources to be able to buy companies. Right now, there are trillions of dollars sitting on corporate balance sheets resulting in an incredible amount of liquidity from a strategic buyer’s perspective.
In addition, although the availability of bank debt to lower- and middle-market companies remains tight, overall, banks are beginning to lend money again. And with lower interest rates, the cost of capital remains low and there are a lot of private equity dollars looking to invest in good, quality companies.
So if your business has performed well and has good prospects for growth, the trends in your business are positive, and it’s personally a good time for you, it may be a good time to consider a sale.
How could the potential end of the Bush-era tax cuts impact a decision?
Nobody has a crystal ball, but in all likelihood, the extension of the Bush-era tax cuts will come to an end this year. Whether or not new tax cuts go into effect, there is a strong likelihood that taxes will be going up for businesses and that you will pay more next year on the sale of a business.
I would look at that as the tipping point. I don’t think it’s necessarily a primary driver in determining whether it’s a good time to sell, but it may be a secondary driver if everything else lines up for you.
How can an outside expert help you through the process to maximize your return on a sale?
For most business owners, this is a once-in-a-lifetime event, the most significant liquidity event in their lives. Business owners should focus on what they do best and let investment bankers focus on their expertise. The role of the investment banker is to help business owners maximize the value of their business to allow them to reach their goals and objectives in the sale of their business.
The investment banker will also work with the business’s other advisers, such as an attorney, an accountant and financial advisers. While the investment banker may be leading the charge, it is clearly a team effort.
How can a business owner’s decision about whether to stay with the business after the sale impact that transaction?
Some business owners, especially if they are the founder, may be key to the continued success of the business. But many just want to sell the business and walk away today.
If you’ve taken the step of bringing in key managers or finding your successor, you’re more likely to be able to exit the business at sale. But those who have not taken those steps from a succession standpoint will find it much more difficult to exit upon sale, because if you are still very key to the business, that will have a negative impact on the value of your company if you were to leave upon a sale.
How far in advance of a sale should a business owner begin to prepare?
It varies from owner to owner, but you should begin thinking about it years in advance. This is not a decision any business owner should take lightly, just suddenly deciding, ‘Today, it’s time.’
Having an early conversation with an investment banker can help you think through the process and evaluate where you are with the business today, what you can expect to receive and provide you with an overview of the process. It’s a very good exercise to get the input, advice and assistance of someone who can help you execute on that transaction.
Because this may be a once-in-a-lifetime event, you need to make sure it is the right time for you before moving ahead.
Albert D. Melchiorre is president of MelCap Partners, LLC. Reach him at (330) 239-1990 or email@example.com.
Insights Mergers & Acquisitions is brought to you by MelCap
In today’s economy, news of mergers, spin-offs or reorganizations can energize businesses and financial markets. Small businesses can also take advantage of these techniques to merge with a complementary company, spin-off a high-flying division or reorganize their capital structure.
Smart Business spoke with David L. Musser, a partner with Nichols Cauley & Associates LLC, about how S corporations can grow their business through mergers, acquisitions or reorganizations and assess the best tax strategy to achieve this.
How does this tax treatment work for businesses?
The reorganization provisions of the Internal Revenue Code, which are primarily located in the IRC Sections 354, 355 and 368, allow a variety of tax-free transactions in the form of combinations, divisions and recapitalizations. The tax-free treatment of these types of transactions is based on the theory that the corporation has essentially continued its old business within the corporate structure, without distributing boot or assets to the shareholders, despite the various implementing sales and exchanges.
Stated another way, the tax-free reorganization provisions of the Code are intended to recognize that in some cases there simply has not been a sufficient change in the economic circumstances of the corporation and its shareholders to justify the imposition of an income tax.
How can corporations realize tax-free transactions under the Internal Revenue Code?
The Code’s definitions are concerned with the form of the transaction rather than its substance. Accordingly, form plays an important role in achieving the desired tax result. This does not mean the economic consequences of a transaction can or should be ignored. Tests such as ‘business purpose,’ ‘continuity of shareholder interest,’ ‘continuity of business enterprise,’ and the ‘step-transaction’ doctrine can be applied to disqualify what otherwise seemingly qualifies, under the technical requirements of the Code, as a tax-free reorganization.
If the transaction meets the requirements for a tax-free reorganization, the property, stock and securities passing between corporations involved in the transaction and the stock and securities passing to shareholders of the corporations can be received without recognition of gain or loss. The price to be paid for tax-free (tax-deferred) treatment of reorganization exchanges is in the basis carryover and adjustment rules.
What other factors should a corporation consider when pursuing a tax-free reorganization/recapitalization?
A tax-free reorganization is only one way to acquire the assets or stock of another corporation. A major difference between a tax-free and taxable transaction is that stock of the acquiring corporation is the principal if not sole consideration that can be conveyed in a tax-free reorganization.
Some factors should be considered when deciding whether an S corporation should purchase the stock or assets of a target corporation, or combine with the target via a tax-free reorganization.
- The effect on the S election of the acquiring corporation
- Restrictions on what can be purchased
- Consideration conveyed to the target
- The effect of the target’s existence
- Recognition of gain or loss
- Basis and holding period
Corporations should also consider the following when determining whether to pursue a stock purchase, asset purchase or reorganization:
- Target shareholders often prefer stock sales due to capital gain and installment sales treatment. It may be difficult or impossible if regulatory approval is required. A stock sale avoids the reporting requirements that apply to asset sales (IRS Form 8594).
- S corporations may prefer an asset purchase because it allows new basis for depreciation and eliminates exposure to pre-purchase claims against the target. Paperwork needed to document the transfer of the assets can be burdensome. As with stock sales, regulatory approval may be required.
- In reorganization, the S corporation generally succeeds to the target’s earnings and profits, which can lead to liability for the tax on excess new passive income and termination of the S election after three years. S corporations may also be exposed to built-in gains tax for appreciation assets obtained from the target that are sold within 10 years.
- A method even exists to buy stock but, under IRC 338(h)(10), elect to treat it as an asset purchase.
Are there other options for corporations to limit their tax burden?
Corporations should also consider the introduction of qualified Subchapter S subsidiaries (QSubs). A QSub is a corporation 100 percent owned by an S corporation that has made a valid QSub election for that subsidiary. In addition to being 100 percent owned by an S corporation, a QSub must be a domestic corporation that otherwise meets the basic requirements to be an S corporation.
A QSub is technically neither a C corporation nor an S corporation. Instead, a QSub is not treated as a separate corporation for federal tax purposes (although it is still treated as a separate corporation for other purposes). A QSub’s assets, liabilities, and items of income, deduction and credit are treated as owned by the parent S corporation.
Whether acquiring a company or reorganizing, these tax techniques are highly complex, so it is imperative that you seek a tax professional before proceeding.
David L. Musser, CPA, CIA, CFP, is a partner with Nichols Cauley & Associates LLC. Reach him at firstname.lastname@example.org or (404) 214-1301.
Anxiety. It’s an unpleasant word that makes people squirm, but in 2008, when Bank of America and Merrill Lynch announced their merger, in all honesty, that was the word on the minds of Jeff Markham and Richard Holt.
“I think there was anxiousness just because of what was going on in the financial markets the weekend this was announced,” says Markham, regional managing director of Merrill Lynch’s Texas region.
From an employee perspective, whenever there’s a big merger like this, anxiety creeps in as to the future of their jobs, but Holt, Dallas market president for Bank of America, and Markham were quick to recognize the realities of the situation. On Markham’s side, he had 500 financial advisers, and Holt had 10 client managers, so in reality, the two sides could actually work together and not worry about losing their jobs.
“There was some anxiety because of the market conditions, but because of the respect both companies had for each other, we complemented each other so well,” Holt says. “We didn’t have this big overlap of services that typically requires some reduction in force. We didn’t have any of that, so most of our teammates responded very enthusiastically. Put yourself in a commercial banker’s shoes — if you had 500 financial advisers out there that could make a referral for you, life couldn’t get easier.”
It was on this foundation that the two leaders began moving both sides forward when the merger occurred on Jan. 1, 2009.
To make the merger a success, Markham and Holt had to combine their teams into one cohesive unit, and they started with themselves, which was key.
“We tried to get to know each other quickly,” Markham says. “So many of the things that other people are hung up on — do I pick up the phone for this, do I not pick up the phone? — after we had developed a relationship, it became easy to pick up the phone and get an answer quickly.”
They spent a lot of time around each other and had many conversations about themselves but also about their respective businesses.
“The relationship part at our level was important because that translates down into how our associates feel about each other,” Holt says.
Once the two of them were on the same page and felt comfortable working together, then they started looking at the numbers. Just the fact that Markham had about 500 financial advisers handling $28.6 billion in assets under management and Holt had 10 client managers meant they would have to go through a coordinating process to get them working together.
“We identified very early on that there was expertise on each side,” Holt says.
There were different products and a little bit of a different focus, but they focused on how to leverage the expertise and the relationships that Markham’s advisers had in the business community. They started tracking the referrals from Markham’s business to Holt’s. In 2010, they realized that for every 100 referrals his team made to Holt’s team, about 15 generated revenue.
“We used the process of referrals from Jeff to my world and built out and figured out what worked and what didn’t work, and once we got it right, we flip-flopped,” Holt says.
To help people trust each other and feel comfortable leaning on each other for business, Markham and Holt hosted a number of lunch get-togethers and cocktail hours as well as having educational seminars. They also created teams, so now each one of Holt’s client managers has a team of someone from Markham’s side as well as someone from U.S. Trust and someone from the private bank investment group.
They say the key to building a cohesive team when you merge is communication.
“Communicate early and often,” Markham says. “You can almost overcommunicate. Make sure you’re sharing the vision — that it’s not just that there is a vision, there is a strategy behind this. When you’ve got uncertainty like that, people do want to be a part of something larger than themselves, and we’re all created that way, so they’re going to tie into that vision and strategy. Some of them will happen further down the line. Some of them will jump in there quickly. You overcommunicate and begin to share capabilities and really point out the most important thing to both cultures and that is we’re a client-first organization.”
When Markham and Holt communicated with their people, they made sure it was clear and candid.
“I try to compare it to something the group has been through before, if it’s possible,” Markham says. “It’s not always possible, but if you can compare it, to make it relative, I do find that to be helpful in many ways.”
And they made sure that they kept saying the same things so people would really get it.
“My rule of thumb is that you have to tell people 11 times before it sinks in, so we go back and check with people,” Holt says. “Once I can hear my client managers kind of rolling it out with their broader team, then I know it’s starting to sink in.”
Build a strategy
For the merger to be successful, there had to be a strategy to move both organizations forward, so while Markham and Holt worked to create a unified organization, they also worked on building a strategy.
“Part of it is defined for you,” Markham says. “You can see the natural synergies when Jan. 1 came around. Then the other part of it is sitting down and taking a broad look at what the market has, knowing that you’re client-first, you’re going to be serving clients, so you have to back into, ‘What are our clients and what are our future clients telling us, and then you share that.”
What they found was that as the world had gotten more complex on the financial services business, they needed to be able to help clients meet their needs by listening to them and helping them create goal-based planning to take out some of the complications. They needed to provide more tools and a broader platform to service clients — both things the merger could help them do.
They looked at each company’s footprint and found that each organization held about 25 percent market share in their respective industries. Despite that, on Holt’s side, less than 10 percent of his CEOs and owners had a relationship with Merrill Lynch, and the number was similar for Markham’s clients having a relationship with Bank of America.
“That’s pretty easy to identify an opportunity, and so then you develop strategies and tactics around that,” Holt says.
So they got together and did a gap analysis to create those strategies to go forward.
“Where is there a gap where we have a client need or a client opportunity, and then trying to fill those gaps with those teams where we have someone from the commercial banks and U.S. Trust, private banking investment and the wealth management organization,” Markham says. “Many times we have relationships and are able to go out there and say, ‘Where could we provide value for this client?’”
Staying rooted in reality is one of the most important things you can do in creating your strategy, according to Markham and Holt.
“One thing I learned early on is to get the right facts,” Holt says. “Get the right facts so everything you’re doing is based on good facts and not intuition. Start there and come up with a good strategy and get the buy-in from the various teams, attack the market, and then stay with it. Too often, companies come up with the right strategy, but they give up on it after six months because they’re not seeing the results. Something like this is going to take years. You just have to stay after it.”
Track your progress
With strategy in place to move forward, the last step to merging the organization was to track their progress to make sure the strategy was actually getting implemented and people were actually working together.
“It’s not rocket science, but it’s hard work,” Holt says. “You have to get teams on both sides coordinated, sit down and go through the [planning] process and obviously include the client in on the discussion. It takes some time every day, and that’s why we track all of this, because we want to be moving the needle every day.”
Markham and Holt say it’s important to identify key indicators of success for your combined organization.
“You only track the performance of things you want to do well in, right?” Markham says. “You track it and celebrate it.”
He and Holt initially tracked how many referrals were made from one business to another. The initial numbers are just a starting point, so if he says he wants everyone to get one referral in the first half of the year, he can use how people perform to that to change goals.
“Everyone may get one done in January,” Markham says. “Well, then you know I’ve set the goals way too low — we can get 18 done a year. I’m just using those numbers — heck, it could be 1,800 is the right number, but you have to somehow get started, and then it will tell you what the market will bear. Then you can usually stretch that if there’s the time to put the focus on it.”
It’s important that after you set those initial indicators that you adjust your expectations quickly based on initial performance instead of just going with guessed numbers.
“Start with the facts, because a lot of times people just come up with these grandiose goals, and it’s like, ‘Where’d you get that number?’” Holt says. “One of the things we did was we went in there and said, ‘What is the number? Where are we? What’s a realistic number?’ and set a plan around there. What I’m giving you is the basics, but that’s what a lot of this is — we’re building a business around the basics.”
The numbers you track won’t lie. If you start to see the numbers flat-lining, it may indicate that you’re pushing your team too hard and it’s time to pull back a little on your goals.
“There were times when we could have pushed everybody to go a little bit faster, but the fact is, everyone shows up with a full day ahead of them,” Holt says. “You have to stage this, because one thing you cannot do is you can’t exhaust your team. There’s a lot going on, so you have to make this part of the routine, part of the culture. That takes time. You can’t just change a routine or culture in a week.”
But the numbers can also help you see if you have a problem with just one or a few individuals if everyone else is meeting his or her expectations and one person or team is not.
“Sit down and lay it out say, ‘Here’s what I’m seeing,’” Holt says. “Get their feedback on what’s working, what’s not, and if you’ve got a gap, you agree this is a gap, and you go about coming up with a process to close it. You’ve just got to do this on a constant basis.”
As employees get wins, that will also help bring around the people that aren’t meeting their goals or have poor attitudes, because they’ll be motivated by other people’s successes.
“You’re going to have some that are slower to adopt, but you know that going in, and you continue to coach, communicate, and they see you celebrating someone’s successful acquisition of a new opportunity, so they’re only hurting themselves,” Markham says. “Then you just repeat and repeat until done.”
It’s been more than two years since the merger, and Markham and Holt are both pleased with the results that their organizations have achieved.
“I won’t say anything has become routine, because every 15 minutes something new is happening, but this is starting to become more routine,” Holt says.
The teams are now working together so well that often Holt and Markham don’t even know about meetings that are occurring.
Markham says, “The bridges between all the businesses within the organization are getting built every day and getting stronger every day.”
The Markham file
Born: Fort Worth, Texas
Education: Bachelor’s of business administration degree in marketing, Baylor University
What’s the best advice you’ve received?
Life’s about relationships — that’s from my grandfather.
As a kid, what did you want to be when you grew up?
I wanted to be a quarterback.
What was your first job ever as a kid?
My first job ever as a kid, I believe, was at a landscaping business. I was 15. I did drive a forklift, though, all the way through college in the summers.
What’s your favorite board game and why?
I guess Sorry because it brings back too many memories, and I played it as a kid and I play it every now and then. Sorry can be so exhilarating and so absolutely disappointing all within five minutes.
The Holt file
Born: Midland, Texas
Education: Bachelor’s in business administration, Abilene Christian University; MBA, University of Texas San Antonio
What’s the best advice you’ve received?
My best is from my father, and it was work hard every day.
As a kid, what did you want to be when you grew up?
I wanted to be a professional baseball player. It’s where the girls were.
What was your first job?
I started out on the family farm. We didn’t believe in child labor laws back then so we started at about [age] 10, hoeing cotton and moving irrigation pipe. That’s why I got into banking because it was indoors and air-conditioned.
What’s your favorite board game and why?
Chess or Trivial Pursuit — that’s a better board game.
In his time as president and CEO of Syniverse Technologies Inc., Tony Holcombe has seen many different opportunities for growth and expansion come across his desk. From new products to new markets to old competitors exiting the space, there is frequently a chance for Holcombe to expend company resources securing a new entity that might allow Syniverse to operate in a new space.
But the road to growth can be lined with potholes before you encounter even a streak of golden pavement.
That’s why Holcombe places an emphasis on due diligence that goes beyond the bottom-line revenue numbers. Just because a growth opportunity will make you more money in the short term doesn’t mean you’ll be able to sustain the revenue. The success of your expansion will hinge on your strategy and your people.
In short, Holcombe says you need a plan, and then you need your people to buy in to your plan. If you lag strategically or on the teamwork front, you probably made a wrong turn somewhere, and the new venture is ripe for a downfall.
“We have a very clear strategy,” Holcombe says. “Our strategy is that we need to be able to integrate the acquisition immediately. That means we have to have a plan laid out, and we have to think through how we get the people integrated, how do the customers get integrated, how do the systems get integrated. The good thing is, that forces you to get a lot of questions answered throughout the process — questions that you might otherwise put off.”
Armed with a policy of thorough due diligence, Holcombe has been able to carefully select the acquisitions his $483 million company has pursued, and Syniverse has weathered the recession well.
Develop a plan of attack
To decide which growth opportunities to move on, you need to first define your field of play. You need to know what it is your company does well, the skills and talents your people bring to the table, what type of resources you are willing to invest in a growth opportunity, and then measure the opportunity against those criteria.
If your company doesn’t measure up, you either need to move on or add the competencies and assets that will allow you to make the new addition to your business a success.
But it all comes back to defining what you do well as a business. It’s the first question you should ask of yourself and your leadership team.
“When we look at new markets or services, whether it’s something we want to build or something we want to buy, we always challenge ourselves by asking, ‘What do we know how to do?’” Holcombe says. “If it’s something we don’t know how to do, generally speaking, we’re not going to get involved in it. You want to be really focused on your strengths, and build and buy based on those strengths.”
You need to match your competencies not just to the product or service you are considering adding to your arsenal but to the entire process of developing, marketing, selling and supporting it.
“You don’t get involved in things you don’t know how to do, and that mentality has to run from the actual product or service, how it is priced, how it is sold, what is the business model for it, what is the sales channel for it, what is the value-added service you’re providing to the customer,” Holcombe says. “When we do that, we kind of check it off against an internal matrix to see if it fits with what we do.”
But the most important question you can ask when deciding whether to move on a growth opportunity is a question of culture. The acquisition, service, process, any new people you might add — does it all fit with the values and mission of your company?
A bad cultural match could have long-term effects for your business, especially if you’re considering a large-scale addition that will significantly alter your company.
“If you’re considering an acquisition, culture is what I would consider the most important thing,” Holcombe says. “Are the two cultures going to work together? If we try to put a culture into our culture and it’s completely disparate, what happens is we lose all the people. So that has to be part of the due-diligence process. You’re trying to find out if these people in the company to be acquired have the same type of approach to customers that you have, do they have the same business model, do they have the same kind of service mentality? If those things fit, that is kind of the key issues for us.”
And you have to be willing to walk away if the pieces don’t fit.
“We’ll walk away from a lot of deals where the business model doesn’t fit, but we’ll also walk away from deals where we could tell the culture just wasn’t going to fit well,” he says. “That is really critical for us as a global company with 1,400 employees and 600 of them outside the U.S. We have to knit not only our culture but also a global culture.”
When considering an acquisition, Holcombe wants managing members of all departments at Syniverse to come to the conclusion that it’s a good move.
The “conclusion” factor is an important element in the vetting process. Holcombe doesn’t want a bunch of ministers preaching to a like-minded choir. He wants debate, opposing viewpoints and some amount of disagreement. If those differences among the leadership team can be ironed out over time, it’s probably the right move. If the differences can’t be resolved, it’s time to step back and figure out why.
“Everybody needs to have that ownership,” Holcombe says. “From the sales leaders to technology leaders, office leaders, finance, human resources, legal, everybody has to own their piece of that integration. We all have to come to an agreement that this is a good deal, we all have to agree that we can make it work.”
To ensure that the various departments within Syniverse communicate with one another, Holcombe’s merger and acquisition team work as part of the leadership team, not as a separate field unit that beats the bushes for purchase opportunities, then hands them over to upper management.
“We don’t do what I’ve seen a lot of companies do,” he says. “We don’t have an M&A team that just goes out and buys things, kind of throws them over the wall and says, ‘OK, we think this is a good idea; now you guys figure it out.’ My M&A team is part of the executive team, and we all figure it out together. The ownership is established, everyone has bought in to it, and if some members of the executive team think this isn’t going to work, we hash that out before we buy the acquisition. That is the key to making sure we get it right.”
Holcombe wants the initial discussions between members of upper management to create a hypothesis of how the acquisition will be integrated into the company. With that basic assumption in place, he and his leadership team set about challenging the assumption throughout the due diligence process. As questions arise and new information is gathered by the due diligence research team, the assumption is refined and, in most cases, dissenters have their concerns satisfied.
However, discussion and research must lead to an ultimate decision. As the leader, that responsibility falls on your shoulders.
“We’ll talk through why someone doesn’t agree with a certain area, we’ll bring our due diligence team back together for more information,” Holcombe says. “We may adjust the thought process about how we’re going to pull it all together. But it’s also my responsibility as CEO to say, ‘OK, we’ve debated it; I need to make the call.’”
In the end, if debate and discussion lead nowhere constructive, you’re probably not headed down the right growth path for your company.
“If you don’t have that high degree of buy-in from your team, chances are you’re not doing the type of deal you need to do, and you might think about trying other things with your time and effort,” he says. “But you do want to get everyone involved. You want everyone on the leadership team to have the same information. You want to give everyone a chance to vocalize their issues or concerns. You want the team to own the decision, not just one individual.”
Blend, don’t stitch
When you have decided to add a new unit, acquisition, product or service, you want to make the addition as seamless as possible. You want the acquired entity to blend with your company. You don’t want to stitch it on so the seams show.
Solving that problem comes back to combining cultures. There are different ways to accomplish that, based on the size and nature of the acquisition.
At Syniverse, Holcombe’s team has completed one acquisition on average of every 12 to 18 months during his tenure. They’ve ranged from a 2007 acquisition that added more than 100 employees in Germany to a smaller acquisition of a Boca Raton-based company.
The Boca Raton acquisition was a product-based addition. The European acquisition, which also added personnel in England, was much more focused on the people involved and took more resources on Syniverse’s part.
“The key was getting our teams in Tampa and Germany to work together,” Holcombe says. “We tried to cross-pollinate the teams; we had them travel back and forth and spend a lot of time talking about the project plan. When you do an acquisition on a global basis, there are just differences on a cultural basis on how people communicate, what people say to each other, do they interpret things differently. Those are all things that make the process more complicated. Geography and time zone differences make it very difficult to pull that kind of information together.”
That’s why Holcombe stays involved in the merger and acquisition process at all times. Though you don’t want to micromanage your people, when it comes to moves that could radically shift your culture, you need to be hands on. You need to be the voice that is reinforcing the common themes you want all areas of your organization — both older and newer — to live by.
“First, I want to go back to how the new part of the organization treats customers,” Holcombe says. “Are they service-oriented, do they put customers first, do they make sure they do all the right things for customers? That is our big key, because if you’re working on a problem together and they’re putting customers first and you’re putting customers first, you’re all working toward the same goal. Then you know you’re living by the same cultural principles, which is good for the entire organization.”
How to reach: Syniverse Technologies Inc., (813) 637-5000 or www.syniverse.com
The Holcombe file
president and CEO
Syniverse Technologies Inc.
Born: Carrollton, Ga.
Education: History degree from Georgia State University
First job: I started stringing barbed wire on my grandparents’ farm when I was 14 or 15 years old. Being out there stringing barbed wire in the hot Georgia sun convinced me at a pretty early age that I wanted to go to college.
What is the best business lesson you’ve learned?
The purpose of business is to create a customer. There is nothing more important than that for a business.
What traits or skills are essential for a business leader?
Think strategically and understand the markets of your customers. Your job is to lead the organization to different levels, which means you have to love the organization and meet the needs of your customers and shareholders.
What universal truth have you learned about leadership?
You need to get focused on the ethics and integrity of the people you hire, and you need to set that example yourself. Be honest and forthcoming, and let people know well in advance if something is going to happen. And if you mess something up, work to satisfy any customers that were affected.
What is your definition of success?
Do we retain employees, and keep our shareholders and customers happy? If you do that, you’ve satisfied everyone involved in your business.
Neil Mortine needed to show people that he had a plan. It was something he needed to do three times in 2010 as Fahlgren Inc. made three acquisitions to its business.
“You have to be able to convince people that you’re taking them somewhere good, somewhere that is a better place,” says Mortine, president and CEO at Fahlgren Inc. “You have to have clear goals and plans of where you want to go and what you want to achieve. Then it’s not that hard.”
Mortine’s 160-employee public relations firm has added Edward Howard & Co., Grip Technology and, most recently, Sabatino Day Inc. to its organization in 2010. One of the biggest challenges that comes about in acquiring a business is integrating the two cultures.
Fortunately for Fahlgren and the companies that were joining it, cultural integration was part of Mortine’s plan in each case.
“Culture is king,” Mortine says. “It is the primary driver for what we’re doing. … If the culture is not solid, I don’t know how it all hangs together.”
Mortine initiated the creation of cultural integration teams that would be made up of employees from both Fahlgren and the company it was acquiring.
“We wanted to have people involved that really understood our culture,” Mortine says. “We didn’t want it necessarily to be the senior executives. We wanted it to be people that had spent some time here, maybe some of the ones who had come to us just out of school but were still young in their careers, up-and-comers and overachievers. We purposely put those people on the team on our end. We asked the executives at the other company to do the same.
“The executives are always talking before, during and after. But we wanted the rank and file to be talking to each other just as fast as possible. We put the teams together and introduced them.”
When you put together teams for anything, be it cultural integration or some other special project, you need to empower that team to do its job. It can’t just be for show.
“Give people the ability to fail and the opportunity to be heard and to go out there with ideas and not be afraid of failing,” Mortine says. “Empower folks and act with a sense of urgency and give guys a freedom and authority to take action and influence change. We support that. We give them tools and resources they need and the confidence to stand up there. Part of what I need to do is build leaders that can move this thing forward after I’m done with it.”
You’re looking to convince people, especially the ones at the company that you are acquiring, that you’re not simply imposing your will on them.
“We told them it wasn’t going to be our way or the highway,” Mortine says. “We were looking for recommendations to make us even better and stronger. We didn’t want to force anything down anybody’s throats.”
Make sure the team members meet on a regular basis and feel free to check in on their progress. But for the most part, let them do their job.
“We gave them parameters of what to look for,” Mortine says. “But the ones we selected, we knew their credentials and we knew why we wanted them on the team. They would dig for information, they were collaborative and they were our overachievers.”
If your team comes back with ideas that you’re not sure about, don’t just reject them without consideration. That power and freedom to fail is something you need and your people need in order to achieve success.
“That’s what life is all about,” Mortine says.
Neil Mortine has been on both sides of the table when it comes to business acquisitions.
“Fahlgren acquired my company eight years ago, so I know what it’s like to be acquired,” says Mortine, president and CEO at Fahlgren Inc. “I know what it’s like personally to be part of a new team.”
With that experience, Mortine also knows what it’s like to be the CEO one day and an employee at someone else’s business the next.
“It can be pretty emotional,” says the leader of the 160-employee public relations firm. “Try to work through the title and roles and responsibilities very early on to see if they are interested. ‘Here are some new areas you can work in that can be exciting now that you don’t have so many administrative responsibilities. Can we take advantage of all that you’ve learned and your relationships?’”
If the person seems open to working with you, do yourself a favor and listen to what he or she has to say in terms of ideas for the business.
“I tend to come off a lot smarter to people if I’m quieter and just listen as opposed to just putting my opinion out there on day one when people meet me,” Mortine says. “People want to work with me a lot better and a lot more closely if I give them the lead and let them talk a little bit and give their point of view and ask questions.”
How to reach: Fahlgren Inc., (800) 731-8927 or www.fahlgren.com.