David vs Goliaths
Brennan Industries makes big move into Canadian market
Who: Brennan Industries
What: Bought Versa Fittings for an undisclosed sum
Why it matters: Deal strengthens Brennan’s growing position in battle with industry giants
When you compete with the likes of Eaton, Parker Hannifin and Swagelok, you better have a good growth strategy.
The deal unites Brennan’s U.S. locations with Versa’s Canadian sites for a combined footprint of 11 distribution centers and 2 manufacturing centers, further decreasing the distance between customers and available inventory. Carr sees the combination boosting sales as much as 25 percent and providing substantial inroads into the Canadian market, momentum that he can build on to continue expanding Brennan’s global reach.
“We’re going to be able to offer Canadian customers a better depth of product than what they’ve had before from us with all the products Versa offers that we don’t,” Carr says. “Once we get things squared away up there with our products, we’re going to start offering the products Versa has in the U.S.”
Here’s a closer look at how this deal got done and the role Carr played in making it happen.
Write it out
The pathway to completing the acquisition of Versa began with a letter. Brennan wrote letters to the principal owners of 10 different companies that had crossover appeal, offering items that Brennan could seamlessly add to its own product portfolio. The intent was to lay the foundation for a deeper conversation.
“We’re looking for companies that complement what we do,” he says. “All the letters we sent out, it was made very evident who we are and what we do. We didn’t come right out and say that we’re interested in acquiring you. We said we think there could be some potential synergies between both our companies and we want to talk about the future of your company and how that might fit with ours.”
Carr was able to engage in conversation with seven of these select companies. From there, the list was ultimately whittled down to two businesses — Versa and one of its Canadian competitors. The other company was significantly bigger than Versa, but it had one fatal flaw.
“When you acquire a business, it’s almost like you’re marrying that person for a period of time,” Carr says. “Part of the dating phase is doing the proper due diligence in the market. What is the reputation of the company? What is the reputation of the principals? What do you know about them? Our team in Canada had done some of that research on our behalf. Relative to Versa’s competitor, the company we opted not to buy, one of the things that came back was their reputation in the market wasn’t as good as Versa’s. They had better systems in place and they were bigger in terms of size, but their reputation wasn’t as good.”
While it’s tough to measure the benefits of cultural alignment from a financial perspective, Carr says it’s not hard to quantify the effect of acquiring a company that is a cultural mismatch.
“We don’t want to acquire a company that is perceived from a culture standpoint to be dramatically different than us,” Carr says.
To avoid that fate, it’s crucial to take the time to engage in face-to-face conversations so you can get to know the company you’re looking to buy.
“You need face-to-face meetings so you can see whether or not you can trust that person,” Carr says. “You can tell a lot by looking at someone and evaluating what they are doing and how they are responding to your questions. There are also ways to ask a question multiple ways to see if the answer differs.”
Build a team
In addition to himself, Carr has a group of people on his team who represent manufacturing, finance, operations and sales. He also has built a strong consulting relationship with Skoda Minotti, which lends its expertise to Brennan during its M&A activities.
“Everyone has different roles or assignments,” Carr says. “When we look at due diligence, we break it up into different areas of expertise.
“We put a laundry list together ahead of time of what we want to know,” he says. “We meet every week and go through the whole list to see where we are at. There are certain weeks where we may need everybody involved based on everything we’re trying to get through. I think it’s really important to stay on point. If you don’t have a project management group and you don’t have a way of managing those things, you’re not going to be successful in my opinion.”
Constructing a project team to manage the M&A process can be helpful in keeping everyone on point, both for your sake and that of the potential target you are negotiating with.
“I don’t think you can beat around the bush,” Carr says. “You have to be clear and decisive about what you mean and what you want to do. You don’t want to waste their time, you don’t want to waste your time.”
In the end, the consensus was that Versa had a strong presence in the brass fittings market that could be of great value to Brennan.
“We’re going to utilize Versa as a brand name for brass products and some other products we didn’t offer,” Carr says. “They’re in galvanized fittings and tubing, not only food grade tubing, but pneumatic tubing, steel tubing, stainless tubing, coil tubing — things that we weren’t really in.”
Another interesting aspect of the deal is the fact that when Brennan contacted Versa, the primary owner of the company had been a silent partner for a number of years.
“They had some financial difficulties,” Carr says. “He was really a financial guy, so he got back involved with the company to turn things around. Three years ago, they went from being in a bad financial position to being pretty strong. But he was at an age where he wanted to get out and kind of enjoy his life and retire.”
While the deal was timely for Versa, it presents great opportunity for Brennan.
It boosts the company’s product line by more than 25 percent to about 50,000 fittings, adapters and accessories from aerospace certified hydraulic connectors to brass pipe fittings.
“I would anticipate that our sales this year as a result of this deal will be up between 20 and 25 percent,” Carr says. “Last year we did about 15 percent. If the infrastructure bill passes this year, we won’t be able to keep stuff on the shelf. If oil continues to climb over $65 a barrel, those are all big things that will impact our business. I wouldn’t be surprised to see us do a lot more. But I’d rather err on the side of reality. “
How to reach: Brennan Industries, www.brennaninc.com