Master merger Featured

8:00pm EDT April 23, 2006
Exponential sales growth thrills almost any CEO. It can happen organically, but buying companies often gets you there faster.

That’s why the desire to acquire can be so powerful, but it can also be disastrous if not done properly.

“We walk away from many more acquisitions than we buy,” says Mike Gasser, who has overseen dozens of acquisitions as chairman and CEO of Greif Inc. [pronounced Grife], a multibillion-dollar industrial packaging products company based in southern Delaware County. “The easiest thing in the world to do is to buy a company. The hardest thing in the world to do is to make that acquisition pay off to the shareholders.”

When Gasser became chairman of Greif in 1994, the company had about $500 million in sales throughout North America. Last year, Greif recorded $2.4 billion in net sales and was doing business in 43 countries on six continents.

“A big part of that was acquisitions,” Gasser says.

Greif essentially doubled its size from $1 billion to $2 billion in 2001 with the purchase of Van Leer Industrial Packaging, based in The Netherlands.

Before and since then, Gasser has helped orchestrate many of the smaller-scale acquisitions that have become Greif’s hallmark for fast growth.

“We do small, tuck-in ones that help broaden out a product line we have or enhance a market position,” he says. “We did three of those in about six weeks last year.”

Evaluating opportunities
“CEOs love to grow companies,” Gasser says. “But a big percent of acquisitions fail because they weren’t thought out right at the beginning.

“To do an acquisition just because someone called you and said, ‘Would you like to buy this?’ is a downward spiral.”

That’s why Gasser is very methodical in how he approaches prospective acquisitions.

“What started us down the path was we went back to our strategies,” he says. “We went through a very rigid strategic planning process. You need to start with, ‘What do you want to be when you grow up?’ It’s a very simple expression, but it’s a very real life example of needing to have a plan before you just jump into it.”

Greif’s ultimate plan, Gasser says, was to become a driving force in the industry.

“Once you agree on the plan, then start thinking about, ‘How do I get there?’ Is it product development? Is it organic growth? Is it acquisitions? Look at all the vehicles to get you to where you want to end up.”

Acquiring complementary business and industry competitors fit in well with Greif’s plan. But that didn’t send Gasser running amok with purchase offers. Instead, it got him thinking.

“We looked at our own internal skill set and said, ‘Do we have the ability to take a company outside our entity and merge it into our company?’ And if we did not, then what did we need to do to be able to get that skill set? You need to be honest with yourself. You can’t let an ego get in the way. If you don’t have the horses to pull the wagon, you better not buy the wagon.”

If growth through acquisitions fits in with your strategic plan and you have the organizational energy, intellectual capacity, people skills and financial resources to buy a company, it’s time to identify prospects.

“We have spent a lot of time understanding the industries in which we operate,” Gasser says. “We make sure we know who the players are. We make sure we understand what their strengths and weaknesses are, so if an opportunity comes up that they want to sell, we’re not starting from ground zero.

“There’s a lot of information out in the public domain today that you can get on companies and through trade associations and through contacts with customers and suppliers, so we know a lot about the companies that we compete against and industries we operate in.”

A big part of the information Greif employees gather has to do with company culture. That’s because culture is critical to Greif.

“We’re looking for culture first and foremost,” Gasser says. “If their culture is totally different than our culture, then it’s probably not a good fit. Our culture is one of trust, integrity, giving a fair value for a fair price. If that culture exists, that’s what we look for first. It’s sort of an intangible, but you know it when you see it.

“Obviously as you go through the process, there’s a fairly rigorous due diligence process, but if the culture is right, the numbers are right (then it’s probably a good fit). If the culture is wrong, then you question the numbers. That’s probably one where we’ll walk away.”

Other reasons Gasser would walk away from a potential acquisition target include a bad fit from a product standpoint or a geographical standpoint — or if the company is losing money.

“Our company is really good at taking good things and making them better,” Gasser says. “We’re not real good at taking things that are poor and making them good. So if we look at an acquisition and it’s not doing well or if it’s losing money, we probably can’t think that we’re going to turn it around and make money.

“Some people have that skill set. We don’t. We understand that. You have to understand what your strengths are as you go forward.”

There’s no harm in walking away from a potentially lucrative deal if something — even something seemingly small — just doesn’t seem to fit.

“Some of the things you decide not to do are probably as smart or smarter than some of the things you decide to do,” Gasser says. “We pride ourselves on being very disciplined buyers, disciplined from the standpoint of making sure we don’t overpay for what we think the value is, that we don’t get out of our core competency, that we don’t invalidate our beliefs.

“Figure out what is important to you and your company and try to be disciplined to that. If culture is important, be disciplined to that. If it isn’t important, what is important to your company?”

Moving quickly
Acquiring a company can be a slow process. But it doesn’t have to be.

“Sellers go into two categories: Those who completely open their books and say you can see whatever you want to, and those that are fearful and say, ‘I’m only going to give you things piecemeal-style until we get to the end,’” says Gasser. “So it really depends on what their attitude is.”

Because Greif does so many acquisitions — an average of two or three a year, Gasser estimates — the company has developed a due diligence checklist to help ensure nothing gets missed.

“That’s where people get into trouble, when they’re overly anxious and they miss a step or take something for granted,” Gasser says. “That’s why we try to make sure we follow a process and not let our excitement or enthusiasm for doing something overshadow the fact that we have a responsibility to make sure it’s the right fit for our company. You have to understand what is out there. Sometimes you find the grenades hiding in the weeds.”

The integration
Even if all the criteria fit and an agreeable purchase price is reached, the acquisition is destined to fail if integration is neglected or drawn out for too long.

“Integration is a very important part of any acquisition,” Gasser says. “There are two ways, in my experience, that you can do integration. You can do one with speed and less certainty, saying, ‘I need to get it done quickly and if I make mistakes, I’ve just got to be flexible enough to change those mistakes.’ Or I can do it slowly with certainty.

“What we have found that’s best for us is speed with less certainty and we make the changes, as opposed to letting it draw out.”

Take the Van Leer acquisition, for example.

“We were in The Netherlands to sign the papers on a Friday,” says Gasser. “We talked to them over the weekend and three days later — the following Wednesday — the people who led this company from around the world were here in our offices. That was our way of saying, ‘You’re now part of Greif, and we need to start this right now.’ Each entity has its own way of doing things, so the sooner we can integrate it into one, the better off we are.

“When I look at some of the failed acquisitions of other companies, the Chrysler-Daimlers, those, from afar, were probably because they didn’t try to integrate soon enough. They let them be their own entities. The longer you do that, the more entrenched they get and the harder it becomes to bring them into one.”

Finding the value
When companies are bought or merged, it inevitably leaves redundancies — in jobs as well as facilities. Often, the purchasing company simply eliminates positions and locations from the acquired company. That may be easy, but it’s not always best.

“We made a promise to ourselves when we did acquisitions that we will always keep the best people and the best plants — regardless of whether it was a Greif plant or an acquired plant,” Gasser says. “That’s the best thing for us long-term.”

Deciding what is best can be sticky, as each manager thinks his or her plant and people are the best. But Gasser has found a way around that.

“I have a big belief in human beings that they generally want to do the right thing,” he says. “So we try to put teams together made up of an equal number people. If we have five from Greif, we have five from the company we just bought. We give them a fairly quick timetable to go visit all the facilities that are in question and come back with a joint recommendation. It is very hard, but I’ve always found them to be able to come back with a recommendation.”

Checking your work
Charting the financial success of an acquisition at regular intervals is a good way to ensure the integration process is going as planned. Greif conducts post-acquisition audits in six-month, one-year and two-year increments.

“It doesn’t make much sense to measure it any sooner than six months,” Gasser says. “We have the business present ‘Here’s what we accomplished’ versus our plan. There is no plan that is fail-free, but we try to do a review just to make sure we are on track, and if we’re not, what do we have to do to tweak it? Did we not have as much sales retention? Did we lose more sales than we thought? Did we have more costs incurred during integration? Did we have logistics issues? People issues? The post-audit really focuses people back on the plan.

“After two years, it better be integrated into our systems enough that we should not be able to break it apart. There is a point in time when it is so immersed into the system that you cannot say which is Greif and which is the acquired company. If it’s not in two years, we have probably failed in that standpoint.”

Fortunately for Greif, that has yet to happen.

“We’ve been down this road a few times ... and if you go through all those steps, then I think you are well on your way,” Gasser says.

“In acquisitions, one of the most important things is to not get caught up in the moment. Ten percent is buying for the right price. Ninety percent is executing.”

How to reach: Greif Inc., (740) 549-6000 or www.greif.com