The new deal Featured

8:00pm EDT September 25, 2008

VWR International LLC has a stated goal, summed up succinctly by the its chairman, president and CEO, John Ballbach: “We supply all of the items used in a research laboratory, so we position ourselves as that one-stop shop — anything you need to run a laboratory anywhere in the world,” he says.

However, the goal that can be summed up in a few sentences takes many hours of work and drawing from many different resources to turn into a reality.

For Ballbach and his management team at VWR, maintaining a presence as a global one-stop shop for medical research laboratory supplies means a carefully developed approach to external growth.

One of the main pillars of VWR’s growth strategy is acquisitions, of which it has completed seven since April 2005. VWR’s leaders seek out companies that can add new geographies and new competencies to VWR’s array of products and services. External growth has allowed VWR — a company with $3.5 billion in 2007 net sales — to develop a presence in both Europe and Asia.

“We have significant operations in over 20 countries, but we distribute into many more countries than that,” Ballbach says. “One of the reasons why acquisitions have been an important part of our strategy is because our customers are globalizing. They are looking for a select few distributors to handle their business on a global basis.”

Growing through acquisitions has meant frequent change for employees, an ability to adhere to well-defined plans and a willingness on Ballbach’s part to oversee it all from start to finish.

Prepare your people

VWR International is a company that can trace its roots back more than 150 years. For the first 100 years or so — from the company’s 1852 founding until the mid-20th century — the company that would become VWR was relatively small in scale. But as the business world started to expand, VWR began to expand along with it, rolling up acquisitions and broaching the European market in the second half of last century.

In the 21st century, VWR has been one of the companies that has led the consolidation of the laboratory supply industry.

In the historically fragmented industry, companies switch hands on a regular basis. In addition to its own acquisitions, VWR itself has been bought twice in the last four years. In 2004, the company was purchased from Germany’s Merck by Clayton, Dubilier and Rice. In 2007, CD&R sold the company to Madison Dearborn Partners.

Acquisitions have many different ramifications to those in management, but to those further down the ladder, they mean one thing before all else: change. Ballbach says that as the head of the company, your job is to keep everyone under your command ready for that change.

“How acquisitions affect a company from a people standpoint is always one of the things you have to take into consideration,” Ballbach says. “When you do these deals, you inevitably bring about a lot of change, but this is something we’ve grown accustomed to as an organization, and it’s something we expect.”

When VWR purchases another company, it is in the position of having the more established culture and practices, so the integration process normally involves assimilating the people in the acquired company to the ways and means of VWR. Even though the acquired company shares an industry with VWR, it still takes time to plug people into their new roles.

To make the transition as smooth as possible, Ballbach and his management team have instituted a process management program that includes training, frequent communication and feedback opportunities for employees.

“First and foremost, everyone wants to know how it’s going to affect them directly,” Ballbach says. “Early on, following an acquisition, we use what we call associate forums to communicate our goals and objectives. That’s part of the culture of our firm even when we’re not implementing deals. We require our executive leadership team to travel to all of our VWR main locations at least once per quarter to attend associate forums. The forums are an opportunity for us to stay in touch with our employees, hear what they have to say and address issues like acquisitions directly.

“When we acquire a company, we utilize the town-hall forum since we’re doing them on a very regular basis to deal with the messaging we want to put in place.”

The forums are led by VWR’s in-country management teams to ensure that people are communicating with their most direct managers. Ballbach says town-hall meetings are set up at newly acquired companies as soon as possible to communicate VWR’s mission and objectives. One of the main keys to achieving buy-in is to make yourself and your leadership team visible as soon as possible after the purchase announcement is made.

“We quickly communicate whatever we possibly can about VWR; we welcome them on board,” he says. “It’s a very visible activity. It leads to and fosters good understanding and a sense of trust. So we let our newly acquired employees understand our objectives, and we do a number of things like Web-based sessions for the people who aren’t located close to a site.”

The senior leadership of the acquired company is engaged by VWR’s leadership immediately after the acquisition is completed. The two groups quickly begin to construct and implement an integration plan.

“We spend a lot of time communicating with them about their role in the organization,” Ballbach says. “We spend a lot of time putting their organization and our organization together to understand how we can best coordinate the sales force, customer supplier issues, pretty much all tactical matters. We engage the executives of these acquired entities very early in the process. We want them to know that we care about their role in the process and let them know that we want them to have a role in the process.”

Each acquisition is an opportunity to encounter new people and an opportunity to make a new set of first impressions. Ballbach says the first impressions you leave will either help or hurt your company when you encounter future growth opportunities. The lesson is probably one you learned as a child.

“It’s the whole idea of mutual respect,” he says. “When you give people an opportunity to be successful, it really doesn’t matter what side of the fence you’re on. People will be treated the way they treat others. That is one of the universal truths I’ve learned about leadership. It’s the Golden Rule that is commonly associated with Christianity, but it’s found in different forms in Judaism, Hinduism, Confucianism and Buddhism. It’s just a fundamental principle of how you deal with people.

“Leadership is not what you know; it’s what you do. To the extent that you treat people poorly, that word gets out on the street, and it makes it difficult to get other acquisitions done. It’s a very competitive world, and if we were to become known as a company that treats people poorly, the other companies that come up for sale over time aren’t going to be interested in doing a deal with us.”

Manage the process

VWR divides its acquisition integration into two phases. Phase one oversees the first 60 days of the process, with phase two covering the ensuing several months. The process is designed to be streamlined and to allow an integration team composed of representatives from different parts of the company to react quickly and make course corrections as necessary.

“We work hard not to build bureaucracies in the process,” Ballbach says. “We try to keep it as streamlined as possible by having a very small team that is empowered to make very quick decisions. Folks know who those people are, whether it’s coming from the finance portion of the organization, from human resources, information systems and so on. We have a person who is responsible as the lead person for the functions on the integration team. Everyone understands who is making the decisions.”

Ballbach says the best acquisitions get many different kinds of people involved, but you won’t be able to optimally leverage the skills of your people unless you create a well-defined, start-to-finish model for purchasing and integrating the business.

“What happens is when you leave the two organizations alone and don’t integrate them quickly, you end up with a company that is not unified,” he says. “The people don’t really know the direction, and it just leads to confusion. There is just a feeling of not being one company. The synergies you might expect to get just flat out won’t materialize.”

At VWR, acquisition ideas are generated in the field, as potential acquisition candidates are identified by the company’s associates who are working directly with customers. From that point, the company’s investment committee, composed of senior managers and company board members, must perform research and build a solid financial case for making the purchase.

“The business management needs to understand that they own the deal, that they’re responsible for delivering and executing the transaction,” he says.

Ballbach says you should take special care to do extensive due diligence on international acquisitions, particularly in countries that might have different business standards.

“When you get into some of the emerging markets, it’s really important to make sure that you take a good, hard look at due diligence and some of the things that can appear there that might be outside of your expectations,” he says.

Ballbach has an overarching rule he follows during the due-diligence process: Don’t fall in love.

If the research tells you the purchase isn’t a good idea, follow the facts, not your heart. Forcing an acquisition to happen could have disastrous results for all involved.

“It’s pretty easy to get the numbers to do whatever you need them to do in order to get a deal done,” he says. “We find that if the economics are stressed and we just don’t feel right about the deal, you have to be prepared to walk away.”

To ensure that he maintains the discipline to walk away, Ballbach meets frequently with the investment committee, following the numbers through every step of the process, before any commitments are made.

“We have a very sophisticated financial modeling system and are very disciplined about it,” he says. “We do lots of quantitative and qualitative analysis. In the investment committee, we have legal oversight, finance and accounting oversight, and ownership oversight. I sit in on those meetings, and we literally go through deal by deal, so that by the time we look at the financial models, the investment case and the integration plan, we feel confident that this is something we can achieve.

“Making successful acquisitions goes back to some of the basics of running a business. You have to focus on three things: growth, people and process. Without profitable growth, you can’t survive. Without the right people developed, motivated and rewarded, you can’t be successful. Without good processes, you cannot be an industry leader. It boils down to those three things. You need to have all of them.”

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