The Hunted Featured

8:00pm EDT July 21, 2002
Her grandfather built The Galbreath Co. into a Central Ohio institution. After his death, her father guided it through the next decade and a half before failing health forced his early departure as CEO. She, too, grew up in the business that bore her late father's and grandfather's name. That's why her heart ached at the thought of selling off the 75-year-old legacy they left in her care. Still, she knew this was a business decision. She couldn't let emotions get in the way.

"The hardest part was getting my heart and my head in the same place," says Lizanne Galbreath, former CEO of The Galbreath Co., who divided the family's commercial leasing and property management firm in 1997, selling all but the real estate assets to a Chicago-based competitor, LaSalle Partners. "Intellectually, I knew it was the right thing to do," she says. "My ultimate responsibility was to the shareholders, employees and clients. But emotionally, it was a difficult decision to make."

Ironically, Galbreath found solace in the very person whose business heritage she was preparing to sell.

"My grandfather started a mortgage company [years ago] and in the late '70s he sold it to Chemical Bank," she explains. "That gave me strength that a man I had so much respect for knew it was a business decision and you have to do what's right for shareholders, employees and clients."

For Galbreath-and a record number of other Central Ohio executives these days-that means selling to a larger, better capitalized competitor.

Those dangling carrots

The lure of consolidation is becoming increasingly powerful in Central Ohio. In 1997, more than $24.5 billion in merger and acquisition deals were struck in the Columbus area alone, according to Houlihan Lokey's Mergerstat, a Los Angeles firm that tracks publicly announced transactions of $1 million or more. That's upwards of $67.1 million in deals per day-or $2.8 million per hour. Big numbers, to be sure, but nothing compared to where we're headed now.

This spring's Banc One purchase of First Chicago NBD for $28.9 billion took Central Ohio roaring past 1997's merger and acquisition record, according to Mergerstat, netting a new high of nearly $29.6 billion-and that's just in the first four months of this year.

Power tends to motivate many of these deals. After all, combining forces often leads to a stronger capital position, better economies of scale and a wider geographic reach-all of which were goals in the Galbreath-LaSalle merger.

Other times, it's the allure of big money that prompts a sale. Michael Burton knows that. He sold his 12-year-old Rickenbacker-based transportation and logistics company, Michael Burton Enterprises, for a cool $11 million in cash plus $1 million in stock last fall.

"That's more money than I can spend in my lifetime and more money than my three children can spend in their lives," he says.

Sometimes, though, pure survival is behind the dealmaking. Cynthia Bowersock-Thiel has felt that pain. She reluctantly sold her two Far North Side companies, Health Care Plus and Preferred Care Plus, last year when Huntington National Bank called in the outstanding balance on a $500,000 loan she couldn't pay.

"I lost a lot of leverage because of the situation I was in," Bowersock-Thiel says with a hint of bitterness. "This relationship had to come together quickly." Had it not, her company very likely would've been headed for bankruptcy, she admits.

Making the decision to sell can certainly be unnerving. But the real pressure follows that decision. You're sharing confidential information with competitors. You're negotiating the fate of an entire workforce. You're trying to find a selling price that reflects the value of your company's reputation-not just its hard assets.

"Whenever you're doing a deal of this personal magnitude, where it affects so many people's lives, there's a lot of responsibility," Galbreath says.

Above all, you don't want to have any regrets.

Finding the right suitor

Burton remembers brushing off the first phone call from Jim Crane, chairman, president and CEO of Texas-based Eagle USA Airfreight Inc.

"I wasn't interested until the dollars started bouncing back and forth and I realized I could end up living a fantasy life," Burton recalls. "Potential buyers had come and called before, and sent letters, but I just ripped 'em up. This was my baby. It's like the little daughter you know is going to grow up and get married; no one is good enough."

Still, the money was speaking loudly. And Crane's sales pitch was making sense.

"For me to be a big-time, national player wasn't going to happen," Burton admits. "Besides, my version of the American Dream was not to work until I died. It was to build up something and then sell it and spend time with my children while they are young."

Striking a deal with Eagle USA would allow him to do that. Eagle was a big player with revenues almost 15 times greater than the $20 million Burton's company generated annually. Burton also liked Eagle's top management.

"Our philosophies are pretty much the same," Burton says. That gave him the confidence that Eagle wouldn't come in and make sweeping changes.

After just three meetings with Crane, the deal was done.

For Bowersock-Thiel, the right suitor had to be the one who could cut a deal most rapidly. That was particularly frustrating since she had turned away plenty of potential buyers in previous years when her negotiating power would've been stronger.

"I had people knocking on my door my first year into the business," she recalls. "But times were good and I was just getting started. I had absolutely no interest."

Last fall, selling her suddenly struggling companies, which together had grossed more than $2 million in 1996, became her sole interest. She had to get the bank off her back. Randy Mason, CEO of Marden Rehabilitation Associates Inc., jumped at the opportunity to bail her out.

"Ninety-nine percent of the reason this deal was consummated with Marden was because they could act quickly," Bowersock-Thiel says.

"As it turned out, the best deal that could've happened happened," she adds. "I talked to a lot of very large companies where we would've been one of 200 health care offices. I also talked to some non-profits that moved at a glacier's pace. I would've died in those kinds of environments. Marden is a small, entrepreneurial, pro-active company ... They're about three times our size in revenues and very profitable. They also have venture capital money available to them that I never had."

Galbreath also went out looking for the right deal-but she did it before times turned tough.

"This a service business in a very cyclical industry. We wanted to be well capitalized so when the downturn came, we could survive it," she says.

LaSalle was the most attractive prospect of the 15 to 20 Galbreath considered, primarily because it had properties in the Southwest and Northwest United States, where Galbreath did not, and because it seemed to have a complementary corporate environment.

"The fact that LaSalle was a Midwest-based company was important to me," Galbreath says. "The culture of a Midwest company is very different than a New York company. I think the cultures have to fit well together when you're looking at a merger. That's extremely important."

Coming to terms

Bowersock-Thiel may have been in a hurry to ink a deal, but she didn't want to act in haste. She wanted to know just what she was getting into with Marden.

"I talked to their customers," she says. "I talked to their employees. I researched the heck out of 'em. We had to find out as much about each other as quickly as possible."

What she found was encouraging.

"They told me [Mason] is a man of his word," she says. "Once he commits, you can take it to the bank. He can put policies and procedures in place to quickly turn a company around. I've found that to be very true."

Marden's strengths also seemed to complement those of Health Care Plus and Preferred Care Plus.

"We were the marketing and sales and business development they lacked," she says. "They were the back office we lacked-the payroll and billing which, quite honestly, was the stuff I don't like to do-and which is probably why we ended up where we were with the bank."

The match seemed good. Next came the sale price.

"What was hard was putting value on the name and the goodwill," Bowersock-Thiel says. "This is my life. This is my livelihood. This is jobs for 150 people. It became extremely emotional."

The combination cash-stock deal she ultimately agreed to was valued at less than $1 million, she says, declining to give a more precise figure. The sale price was largely based on what other independent, nurse-owned home health organizations had sold for in the past.

"Is that a good benchmark? Not always," she admits. "I got the deal I had to take because of the timing."

Galbreath sold her company for a 17 percent stake in LaSalle Partners, which puts the value of her deal at roughly $15.6 million, based on LaSalle's stock price when it went public three months following the buy-out.

"I did not take cash and go sit on the beach," Galbreath says of the deal. "We took stock back so I had to really believe in the company."

Burton preferred to take his retirement funds in cash. He entered negotiations with a specific dollar figure in mind and Crane quickly met his price. Then Burton pushed the envelope.

"As bad as it sounds, I reneged on the deal and he upped the ante on his own by about $1 million," Burton says, adding that the final $12 million sale price was a drop in the bucket to Eagle.

"Their stock was at 29 when the deal was announced and it went up to 38-1/4 the next day," Burton says. "They made all that back in one day."

Don't forget who got you there

Once Burton was satisfied with his impending fortune, his attention quickly turned to his workforce.

"Nobody could be let go and they had to be guaranteed a position for two years," Burton says. "That was mandatory." Eagle did him one better here, too.

"Every single person got a raise and better medical benefits," Burton says. "No one was removed at all. If there was duplication [of duties], there was a slight retraining."

That was a crucial issue for Bowersock-Thiel, too.

"There had to be a place for the key people here," she says. Two administrative positions were cut when the payroll and billing functions were moved to Marden's headquarters in Marietta, but the management team remained untouched.

Galbreath employees weren't as fortunate. Hundreds of workers between the two companies lost their jobs as a result of the LaSalle-Galbreath merger, including more than 60 in Galbreath's Columbus office. Most of the casualties came in the corporate support and brokerage staffs.

"The way a merger is financially successful is to eliminate duplication-especially in corporate types of jobs," says Galbreath who let a team of employees from both firms decide what positions would have to be dramatically altered or cut from the payroll in the first 60 days. "As difficult and emotional as it was from my perspective in terms of placing people, I think ultimately doing it with speed was the best way to do it."

Should I stay or should I go?

Bowersock-Thiel had no intentions of staying with Health Care Plus and Preferred Care Plus after she found a buyer. When negotiations got serious with Marden, however, it became clear the company's CEO wouldn't allow her departure. He knew home health care was a relationship business and without Bowersock-Thiel's presence, clients might be lost. She was in no position to argue.

"It really was a prerequisite that I stay," Bowersock-Thiel says. "It was very much like giving a child up for adoption. I gave birth to it, I raised it, and then, in its seventh year, I gave it up. It would've been easier to walk away than to watch them raise my child in front of me."

After all, Marden's business approach was a bit different from her own.

"Our culture is very creative and innovative," Bowersock-Thiel says. "They are very black and white.

"It was difficult at times to stand by and watch someone else discipline my child," she continues, noting that she preferred to focus more on feelings than numbers when she ran the company. "What allows it to be OK, is the new disciplining works. The company is doing very well financially. In the last three months, our revenue volume is up 30 percent ... I have a lot of mixed feelings about that; bittersweet feelings."

Burton thought he wanted to stay on after the sale to ease his company's transition into Eagle USA, so he agreed to a three-year phase out of his contract. That may have been a mistake.

"They needed a security blanket," he says. "Since the name is Michael Burton Enterprises, to not have Michael Burton was very scary to them. But every day seems like a week. It's not mine anymore. I want to go on with my life."

Burton is in the process of building a $1.3 million home in an exclusive Walt Disney World resort community. He recently offered to forfeit his salary for the remainder of his contract if Eagle would let him out of his three-year obligation. Eagle declined his offer, but may let him transfer to the central Florida office to finish out his commitment once his new home is complete.

Galbreath never questioned whether she would remain involved with her company after its merger into LaSalle.

"I've been in the real estate business for 18 years and I enjoy it," she says.

Her concern was what role she would play.

"It actually evolved," says Galbreath, who has already run through at least three different job titles since the buyout. "Where I was originally going to play a stronger role on the development side, that has changed so I'm working across the firm geographically and functionally. I spend a lot of time with existing and potential new clients as well as with employees within LaSalle talking about what other groups are doing and trying to cross market ... I had confidence I would figure out the right role going forward."

In retrospect

No business deal is without its flaws. Learning from them is what matters.

"This is not what any business school or class can get you prepared for," says Bowersock-Thiel. "There are a lot of things I should've done differently."

For one, she regrets not hiring an experienced accountant and a business broker to help her cut a deal.

"That's not anybody's fault but my own," she says. "We decided to represent ourselves. Business brokers, in my opinion, could've been the way for us to go. It became a chess game and I'm not a very good chess player. I needed to have a good chess player on my side."

Burton's big regret is his extended involvement in the transition process.

"I wish I would've fought harder to reduce my commitment to maybe 24 months," Burton says, noting that others should learn from his mistake.

"Remove yourself from the equation as quickly as possible," he suggests. "Be cognizant of the [ramifications] of sticking around. It's like getting a divorce, but you still have to live in the house with your ex-wife."

Galbreath, too, says selling her company was a learning experience-in more ways than she imagined.

"I've learned information and control of information, understanding your business, the importance of process ... negotiating skills, self confidence, not to take yourself too seriously and to surround yourself with very good support," she says. "You have to really understand why you're doing it-and know you have the courage of your convictions. In the heat of it, it's too easy to say, 'This is just too hard.'"

Though a financial crunch forced her hand, Cynthia Bowersock-Thiel, former owner of Health Care Plus and Preferred Care Plus, now says selling her businesses to Marden Rehabilitation Associates last fall was "the best thing that could've happened to us."