It was September 2001 when Bill Murdy trekked to New York to talk to a number of investment bankers about arranging a high-yield bond deal to help pull Comfort Systems USA Inc. out of massive debt.
Murdy says that when he took over as chairman and CEO of Comfort Systems USA a $1.1 billion company that designs and installs commercial HVAC systems in 2000, the company had amassed about $350 million in debt brought about by, among other things, aggressive spending on acquisitions during what Murdy described as a “frothier time,” during the Internet-driven economic boom of the 1990s.
“The trees were going to grow to the sky; everyone had this kind of exuberance (about the economy) from the Internet bubble and all of the other things from the late ’90s,” he says.
The economy started to wilt throughout 2000 and 2001, and Comfort Systems soon found itself in a large financial hole. Internal spending cuts reduced the debt by about $150 million, but Comfort Systems needed help from the outside to pare down the remaining $200 million.
That’s why, on the morning of Tuesday, Sept. 11, Murdy stood on the trading floor of JPMorgan Chase & Co. in midtown Manhattan, attempting to hammer out a deal that would allow Comfort Systems to pay off the remainder of its debt through manageable, mortgage-style payments.
Then came the news flash. Airliners had crashed into the World Trade Center, several miles away from the very room in which Murdy was standing.
Manhattan was on lockdown. Towers were plummeting to the ground. America was sent into a state of shock, both emotionally and economically.
The previous year had been difficult from a financial standpoint, but things were about to get a lot worse before they improved. Murdy knew right then and there that the road ahead was about to get extremely bumpy for his business. It didn’t take long for his hunch to be proven correct.
“When the buildings came down, the deal came down with them,” he says. “We knew we had to do something because we were headed for a big downturn in the commercial HVAC business.”
The months that followed were full of difficult decisions for Murdy and his management team.
Pick up the pieces
After the Sept. 11 attacks, Murdy was left with about $200 million in debt and an economic downturn that was turning into a landslide. A situation like that can be overwhelming, but Murdy says the first thing you need to do in such a crisis is develop a realistic picture of the situation.
The fact that Comfort Systems USA had been preparing for an economic slowdown helped the company’s leaders deal with the economy post-Sept. 11.
“Remember, the Internet bubble had started to burst, the economy had become way overheated and we knew that there was going to be a downturn,” he says. “That’s why we looked at a high-yield financing. We knew we couldn’t squeeze any more out of the business to pay down the debt.
“The events of 9/11 sort of punctuated that, but the world did not end. I think we can tend to get overdramatic about this. We didn’t think the company was going to fail necessarily.”
With the high-yield bond deal dead, Murdy and his senior leadership re-evaluated the company in an effort to find alternate ways to cut away the debt. After rounds of discussion, the company’s leaders came to the conclusion that the only realistic solution was to sell off assets.
Murdy began contacting various companies, looking for potential buyers for the company’s union shops.
“There was a good amount of discussion about whether we ought to sell these entities for cash, and I was in favor of it,” he says. “I contacted the other company and had discussions about it, devised a way to pay down our debt and get ready to weather what was clearly a coming economic downturn. As it turned out, the economic downturn on the commercial (HVAC) side was even worse than I thought. A lot of people didn’t recognize that because construction in general wasn’t that bad.”
Comfort Systems struck a deal to sell off all 19 of its union operations at once. Murdy says it was a difficult decision for the company as a whole, but it was a sound financial decision for both buyer and seller. The deal allowed Comfort Systems USA to pay off the remaining $200 million of debt in one move.
“We sold those (union operations) and paid down the debt,” he says. “It was a very good deal for them and for us, all things considered, but some of those entities we sold are some of the best mechanical engineering companies in the country, on the union side of things. But that’s how we paid down the debt, and we’ve been debt-free ever since.”
Selling the company’s union shops essentially marked a new beginning for Comfort Systems USA. The company was now free from the debt that had plagued it for years, but a new set of challenges soon became evident.
Comfort Systems had been pieced together by acquiring smaller companies, many of which were start-ups still fronted by the entrepreneurs who founded them. Murdy says there had been a lot of talk but little done, with regard to pulling the remaining business units which now number 42 together into a single, aligned business plan.
“A lot of words were being thrown around, but the hard work of pulling it together and moving it in the same direction had not been done,” he says. “So the biggest challenge we’ve had is pulling those companies together into a cohesive whole, at least in terms of their direction, focus and processes.”
The overarching problem was figuring out a way to get the entrepreneurs within the Comfort Systems network to speak the company language and embrace the company values, without turning them into corporate robots.
“You’re dealing with individual entrepreneurs, many of whom have built these businesses, some of whom have taken over from the prior owner as companies were taken into Comfort Systems. You want to maintain all of that entrepreneurial drive, that local spirit and focus,” Murdy says. “But the business was very fragmented around the country, and even within markets it was very fragmented.”
Murdy hit the road, traveling to Comfort Systems’ business units around the country. He had to show the leaders of each of the business units the value of aligning, and the most effective way to do that is direct communication.
Murdy focused on selling unit leaders on the idea that corporate headquarters is a resource for growth, not a power-usurping entity looking to manipulate puppet strings from above.
“It’s a process of showing (the business unit) the value of working together and having common resources for purchasing and financing, human resources, benefits, safety, legal, all those things that corporate can provide,” he says. “It’s important that you provide that, but that you sell it, you don’t force it. You show the operating entity that it has value in and of itself. Where the situation is marginal, maybe they have to compromise from the way they did it before, maybe it’s suboptimum, but they recognize the overall benefit, that it’s not that much of a burden for them to utilize a central system or a common way of doing things.”
Once some of the business units were on board with the new alignment plan, Murdy used numbers as his most convincing argument to win over other business units. If you show others that the company is making more money and achieving greater levels of performance as it operates according to your plan, chances are business unit leaders will find it much harder to continue in another direction.
“We are very cash flow positive, we operate in the upper percentiles of the industry,” Murdy says. “We think we’ve brought a lot to the operations in terms of bringing greater productivity, education, training, so there have been a lot of things brought to people. All this stuff relates to leadership and having a common purpose, moving toward what is important.”
Comfort Systems USA is a far cry from the fragmented, debt-riddled company that existed during Murdy’s early tenure. From a low point of $350 million in debt, Murdy says his company had about $139 million in cash at the end of 2007.
The events of the past seven-plus years have reinforced some valuable business lessons for Murdy:
Rely on others. In any challenging time, business leaders need to know that they have surrounded themselves with great leaders, and then be able to rely on those leaders to help steer the company through the stormy waters.
Murdy says the groundwork for that is laid at the interview table, the first real chance you get to comb through a person’s background. Some of the qualities that make a good leader are universal across the business world, such as integrity, solid ethics and an ability to relate to people. But the ability to dig down and find people who embrace those qualities in good times and bad can be difficult.
“A lot of it is intuitive and understanding, people not lying and cheating and stealing, people doing what they say and being completely above the board and honest about transactions,” he says. “But there is no test that you can give them during the interview to truly measure those qualities. A lot of it is reference-checking, looking at their experience and background. If there is one mistake I’ve made in my career, it’s not making enough phone calls about people.
“We’ve made mistakes on bringing people in who say they are one thing and turn out to be something else. Largely, you have to look back at what they’ve done and how they’ve done it. Those actions are a good indicator of what the future will be like.”
Keep your focus. Don’t panic if your company suddenly finds itself in a financial bind and begin venturing into areas you are not prepared to enter. Murdy says Comfort Systems USA was encouraged by outsiders to diversify and enter markets outside of commercial HVAC.
“I think that would have been the ruin of the company,” he says. “You have to stay focused. Do what you’ve done well before. Stay at it, but with room for the proper modifications with regard to circumstances, technology and everything else. Don’t reach for possible solutions that might end up being possible complications.”
Spread best practices. A company particularly a large company that is spread throughout a wide geographical area will run more efficiently if everyone is on the same page with regard to policies and procedures.
Even after initially bringing all units together under a new alignment, Murdy still works with unit leaders and regional leaders to make sure units in Florida know how units in the Pacific Northwest operate, and vice versa.
Periodically, Comfort Systems will gather six or seven unit heads together for several-day operational review meetings. Those meetings provide a chance for ideas to cross-pollinate throughout a region, and from there, possible throughout the entire company.
“These are intensive day-and-a-half or two-day meetings where leadership and other people go over all the activities in the company,” he says. “We look at everything from business development to accounting, looking at how jobs are gotten, how they’re estimated, how they’re accounted for. All aspects of the operation are considered and talked about.
“The leaders take that back to their own operation to work on. It’s not an automatic, e-mail type of system that propagates best practices. Throughout the leadership chain, company to company, in regions and across regions, we identify these things.”
HOW TO REACH: Comfort Systems USA Inc., www.comfortsystemsusa.com