Bob Deuster, chairman and CEO of Newport Corp., more than doubled the size of the company in one of those single swings, but he is quick to point out that a successful acquisition isn’t a just a matter of signing contracts and cutting checks.
“If you think it’s just a deal, and just buying a company without all of the other pieces being thought through, it’s a 50-50 chance,” says Deuster.
Newport’s 2004 acquisition of a complementary laser products company took its annual revenue from $118 million in fiscal 2003 to $404 million in 2005.
Founded in 1969, Newport developed as a company that provides the enabling technology, optics, motion controls technology and optical tables that are combined with the light sources produced by other companies that are used in laser devices.
Two principal trends the introduction of laser technology in defense systems and the use of fiber optics and laser technology to speed communications helped boost laser applications from the research lab to more broad commercial markets.
Those changes made it clear to Newport that there were lucrative opportunities for companies that could take advantage of the expanding demand for laser devices in the commercial marketplace. And that potential was the impetus for Newport to grow into not just a bigger company but into an integrated solutions provider, the first in the laser industry.
“I came into the company in the mid-’90s, when our company was still primarily focused on research, and our board of directors saw this trend and said we need to turn this company into one that can serve the industrial markets as well,” says Deuster.
The company was well-positioned to provide solutions into various markets, relying on other manufacturers to continue to provide the light source itself.
“So we developed our business model around this integrated solution strategy in the mid-’90s ... not really caring whose light source was used, but we incorporated all of our technology into the solution,” says Deuster. “But as we tracked into the early 2000 timeframe, we saw that we were going to be inhibited in our growth unless we actually had light technology to supply along with it. So we got interested in looking at what laser manufacturers were out there so that we could augment our company through acquisition or partnership so that we could build a strategy, a platform for growth for the next 10 or 20 years.”
Identifying a target
The solution came in the form of Spectra-Physics, a company whose forte was the development of the light sources used in laser instruments, the complementary technology piece to the equipment manufactured by Newport.
“We looked at Spectra-Physics as a prime target for us because they were a company that provided state-of-the-art laser technology, they covered most of the same markets that we did ... plus, they have a lot of factors that were important to us, such as a similar heritage, legacy and brand,” says Deuster. “Their culture was not too different from ours in terms of how it grew over the last 40 years, so we saw that as an important catalyst for building an integrated company going forward.”
Deuster initiated the acquisition talks with Spectra-Physics with a tightly drawn group of executives from both companies to flesh out what the company might look like after the two combined.
“Part of the success was we kept the negotiations at a very small group level, just the senior management level,” says Deuster. “It started in the discussion phase early on, meeting with Spectra-Physics’ management team, having an understanding of how organizations might be shaped, what the growth objectives might be, assuring that we were executing clearly.”
Once a deal was in hand, Deuster and his team hit the ground running the following day to communicate the news to the entire organization.
“We went on the road to share with everybody in the company this vision of a company that had an integrated solution as its strategy, and we did that by myself personally as well as my staff touching the organization, but also having Spectra-Physics people talking to Newport people, so there was an understanding of what the organizational impacts would be,” says Deuster.
A video of Deuster explaining the rationale for the deal was broadcast to everyone in both companies the day after the announcement. He and his senior managers followed up with face-to-face meetings at several major company sites around the world and had several follow-up meetings leading up to the closing.
Deuster structured the transition to a single company so that both sides had a hand and a stake in the outcome.
“My strategy was to effectively balance the management team on both sides,” says Deuster. “This wasn’t viewed as a Newport takeover of Spectra-Physics. We put the best talent we could in jobs and in some cases, those individuals had to change roles, so we had a balanced management team from a Spectra-Physics and a Newport point of view.
Deuster changed his own role in the corporation, moving away from the day-to-day, hands-on operation to a more strategic role in the much larger company. Deuster says he created a chief operating officer position within the company to drive operational excellence and keep the company focused on its goals and objectives.
“I tend to focus on the bigger picture, the longer-range objectives, involvement at the business development level side, acquisitions side and with key customers,” says Deuster.
One of the obstacles to mergers in the laser products industry has been the specialized nature of the technology and the relatively narrow body of expertise that individual companies tend to possess, making it difficult to bridge the gap between the two to produce an entity that can create synergy with two different competencies.
“We had to bring two companies together that had distinctly different product lines, and we had to combine our sales teams so that they appeared as what we call one voice or one face to the customer,” says Deuster.
Rather than create a sales force in which each member was versed in all aspects of the technology, Deuster leveraged the expertise of each organization’s sales reps in a team concept.
“There’s no question that our Newport sales force was very much oriented toward the optics, motion controls and vibration isolation products, and the Spectra-Physics team’s was light source,” says Deuster. “We knew right up front that we didn’t want super salesmen who had all the knowledge that they could explain to the customer any time of the day.”
Newport teamed up, either regionally or by top-tier accounts, Newport product specialists with Spectra-Physics reps. Goals for the teams were consolidated so that everyone shared responsibility for success, making each dependent on the other, says Deuster.
“We introduced a selling strategy I call hybrid selling that created integrated solutions for customers. Where you normally had a sales team that would sell lasers and then the Newport team would sell the other products, we now have account teams that will go in and sell the customer a complete light system. And that we did mainly because there’s a lot of value captured in the total solution.
“We take responsibility for the customer for the performance of that solution. We gave our sales teams a much stronger competitive advantage in selling that way than we did before.”
Creating the hybrid selling model required a lot of cross-training to build awareness on both sides of how laser products sales transpired and how the sales of the follow-on optics and motion control occurred. Deuster points out that each side of the sales team was able to share leads very quickly and get earlier indications that there would be a larger sale available because the Newport people were involved at the very first stage of a laser inquiry.
“Within six months after the deal was announced and done, we had sales teams that were account selling into all the target markets we had identified,” says Deuster. “I think that’s one of the key success factors.”
The role of technology
While much of the emphasis when it comes to combining companies is placed on the people factor, Deuster heavily emphasizes technology as a means to glue two entities together.
“We’ve moved off those days of only talking about integration and starting on our growth track two years ago to even more tightly couple the company, not through just people and management, but we’re changing our information system within Newport that literally breaks down all the walls between the divisions,” says Deuster.
The heart of it is a new material resource planning system that integrates the companies’ systems into a single global information system that can facilitate design and manufacturing functions in any of Newport’s locations worldwide. That gives the company the capability of planning and launching production of its products in any of its plants for customers in those locations. It also provides that sales team with better information on market dynamics and customer needs.
“Systems can help amplify the pace at which companies become more tightly coupled, and we believe that communications is everything if you’re going to operate on a global scale,” says Deuster. “So it’s more than people; it’s building your business around information technology.”
While integrating two companies can be a complex process, Deuster warns that letting the process drag on can impede progress and limit its success.
“I believe very much in speed of execution once you decide what you’re going to do, because what it does is it tends to get everyone focused on the end goal, as opposed to what they’ve got to give up along the way to get there,” Deuster says. “Usually, that’s the hardest part of a change process: ‘What am I giving up as opposed to what am I getting?’”
That’s why Deuster created a COO position that went online the day the deal was closed. The COO and the CFO led a team to focus on the main deliverables that were the most important integration factors, including cost reductions, organizational change and realization of synergies that would be necessary to make the deal work optimally.
“It’s easy to buy companies,” says Deuster. “It’s very hard to make them productive very quickly. One of the things that we believe in here is you need to envision how the business is going to operate after the deal, and you need to let the management team know what to expect. Eliminate the uncertainty.
Whether they like it isn’t the point. The point is there has to be this clarity of where we’re going and how fast we need to get there.”
How to reach: Newport Corp., www.newport.com