David Frescoln knows all about acquisitions.
The CEO of Ann Arbor-based Flint Group has shepherded the company through a string of acquisitions during the last 14 years, leading it from $450 million in sales then to $2.6 billion today as the second-largest ink manufacturer in the world.
Frescoln, Flint’s long-time president who took the CEO post in January 2005, faced his biggest challenge with last year’s merger with XSYS Print Solutions.
It was the final piece of a global expansion plan that began in 1992 when he took over as president of Flint Ink Corp. Frescoln saw an acquisition-based strategy as the best way to grow, because the printing industry is a mature one with excess capacity.
“When you have that combination of factors, it’s difficult to grow organically because that is difficult to do profitably,” Frescoln says.
So Flint started acquiring companies, first in the United States and later in Asia, that fit with the company’s product mix of inks, specialty printing materials and equipment. Flint ultimately merged with Stuttgart, Germany-based XSYS, a marriage that united two ink heavyweights with different market exposures and services. That proved to be Frescoln’s biggest challenge yet.
“Whenever you combine entities, you have opportunities to reduce costs in manufacturing, administration and sales, so you can become a more cost-effective competitor in the marketplace,” Frescoln says.
But the XSYS deal was different. For once, Flint Ink was not the controlling entity.
“This was a merger transaction,” Frescoln says. “We are literally creating a new company.”
As a result of the merger, Flint Ink became Flint Group, but there’s more to mergers than just creating a new name. Frescoln’s challenge was to merge different cultures and find the value in the newly created multinational corporation.
The power of listening
Merging cultures is always difficult, but Frescoln’s challenge was complicated by the fact that XSYS was a 10-month-old product of a 2004 merger between BASF Printing Systems and ANI Printing Inks.
“We have all these different cultures, and they all have their strong points,” Frescoln says. “We want to keep those strong points.”
First, Frescoln had to learn what employees expected of the merger and what they had experienced in their former companies.
“You have to sit down with the people involved in the enterprise and listen to them,” Frescoln says.
Much of the integration is taking place in Europe, and Frescoln is traveling to meet with employees throughout the organization.
“Internally, we have to convince our people that this is an exciting new venture that will be highly successful and there is a better future for them in this new organization than any of them had in their respective companies before,” Frescoln says.
These conversations must happen face-to-face.
“You have to get out there with people in their environment whether our employees or customers and you have to deal with them on their turf,” Frescoln says. “You can’t do it by remote control.”
Frescoln notes that mergers often fail when team members can’t voice their ideas.
“You have to let everyone say their piece,” he says. “The key is making sure everyone has a chance to get in their two cents, and after discussions are over, they feel like they’ve been heard and the solution is something that is best for the company.”
Hearing all sides of the story is especially important during a convergence of several company cultures.
“Depending what business people come from, they have different views on how things are and should be,” he says. “So we get these people together at meetings and come to terms with a method of operation that will suit all cultures.”
One such example is the integration of the separate companies’ pigment businesses. One of the appealing parts of the merger was the ability to vertically integrate pigment production so the new Flint Group could make enough of its own pigment to supply its U.S. and international operations.
The merger introduced differing opinions on whether Flint Group should continue to purchase pigment from outside vendors to create competition or rely on its vertically integrated operations to supply it.
“On one hand, you have the theory that the more vertically integrated you are, the more opportunity you have to capture profit within the enterprise,” Frescoln says. “You have to strike a balance between just blindly supplying all pigment internally and using the market to make sure your internal supply is, in fact, cost-competitive. You need to combine those two imperatives in an effective fashion.”
Frescoln says Flint Group reached a middle ground, and the discussions and follow-up with employees ensured that the team would execute the ultimate plan rather than expend energy working against it.
“The key is to make sure everyone participates in the dialogue,” Frescoln says.
A series of quarterly meetings with employees at all levels of the organization shed light on Flint Group’s merger progress and plans. Frescoln announced financial results, integration plans and the company vision, but only after listening to his team.
“You have to listen first before you start talking,” he says.
Through these conversations, Frescoln determined that Flint Group would operate best by centralizing operations such as procurement, and decentralizing HR and marketing functions.
“Procurement is one of those areas where everyone thinks they can get a better deal than the other guy,” he says. “It’s like when you buy a car and you’re excited to tell your neighbor, and he says, ‘I could have gotten a better deal.’”
But procurement is one area where consolidation can help relieve Frescoln’s greatest fear: the rising cost of raw materials. Economies of scale will work toward Flint Group’s advantage in this department.
Leadership changes molded a more centralized operation than employees from the former Flint Ink knew. Previously, HR and marketing were highly centralized, something that changed under the new corporation because human resource issues such as benefits and compensation can vary greatly from one part of the world to the next.
“No one can be an expert on HR practices all over the world,” Frescoln says.
The same goes for marketing. Branding and advertising messages easily get lost in translation. Subtleties such as colors and taglines must be treated with sensitivity.
“A color you use on an advertisement might be popular in one country, but it doesn’t work in another,” Frescoln says. “A tagline that is effective in the U.S. may be offensive in another country. No one can be such an expert on varying cultures to manage all that centrally.”
Finding the value
Part of the value of a merger is meshing complementary products and services or adding geographical coverage. But to fully maximize the value of a merger, you also have to eliminate redundancies.
“There were a lot of cutbacks of necessity, which happens when you put together two businesses of this size,” Frescoln says.
Flint Group’s U.S. headquarters is an example. It staffs one-third fewer employees than it did before the merger because the combined entity’s new headquarters is in Luxembourg. The merger also led to changes in how the company sets up its factories. Each factory now produces a single product line as opposed to making a little of everything, allowing it to focus on being as efficient as possible in one area.
Because Flint Group supplies a larger customer base now and enjoys better buying power on resources, volume is up and costs are down. Fewer resources including human capital fuel each plant.
Still, Flint Group preserved the majority of its sales forces because XSYS and Flint Ink covered different market segments, and their geography didn’t overlap. This diversity is what made the deal so attractive.
“We were strong where they were weak, and they were strong where we were weak,” Frescoln says.
XSYS brought business in Europe and experience in the publications sector. Flint Ink, a $1.5 billion entity before the merger, had penetrated markets such as Latin America, Australia, New Zealand, India and China. Its calling card is a full-range of services, from packaging to magazine and newspaper printing to catalogs.
The merger is still a work in progress, but the dirty work of deciding how the company will function as an entity is mostly done. Frescoln says Flint Group is already seeing returns on the year-old marriage. Business in North America has increased over last year, and the organization continues to work through integration efforts Europe.
Despite change, Frescoln says Flint Group has held on to its corporate identification.
“I really believe that people do business with us because we make it easier,” he says. “That [message] was there when I started, frankly, and it’s still here.”
Also still vital is Flint Group’s growth-though-acquisition plan.
“The big win for Flint Group is we had a strategy we started developing in 1992 to become a global company, and to have balancing shares of the business all over the world, and 14 years later, we’ve come pretty close to achieving that.
“We’ve done what we said we were going to do.”
HOW TO REACH: Flint Group, www.flintgrp.com or (734) 622-6000