The most important dealmaking lessons Frank C. Sullivan has learned in his career have come from his father, Thomas, who was involved in more than 100 transactions during his career at RPM International Inc.
“He taught me the importance of patience when dealing with entrepreneurial business owners,” says Sullivan, chairman and CEO at the $5 billion company. “In most cases, they are not going to sell their ‘babies’ overnight. They want to know that their employees and customers will be taken care of and that their legacies, which they built over many years, will be maintained. Often, it takes years to build a relationship and establish trust with these business owners.”
Thomas C. Sullivan partnered with James A. Karman to lead RPM for more than three decades, with Sullivan as chairman and CEO and Karman as president and COO. Frank succeeded his father in 2002 and has continued to lead the company in a manner consistent with the legacy created by his father and grandfather before him.
The company has more than 14,000 employees and operates 139 manufacturing facilities in 27 countries. Its products are sold in 170 countries and territories.
Through all those years, dealmaking has been an integral part of the company’s growth strategy.
“We primarily pursue independent entrepreneurial companies and product lines that complement our portfolio of specialty coatings and sealants businesses,” Sullivan says. “We completed our first transaction in the mid-1960s, and since then, we have completed more than 200 acquisitions. Over half of them have come during my tenure as CEO.”
Earlier in his career, Sullivan was more involved in the finer details of transactions, including deal sourcing and due diligence. Today, he has help.
“Our operating groups now have corporate development personnel who are also seeking out and vetting transactions,” Sullivan says. “So, I’m not nearly as hands on as I used to be. I still meet with many acquisition candidates when I’m traveling for business.
“I personally review and approve valuations and, from time to time, I get involved in some of the negotiations. And, of course, I make sure to take time to personally meet with the leaders of every company we acquire to welcome them to the RPM family.”
Smart Business spoke with Sullivan about his approach to making acquisitions and how he balances M&A with his leadership of the business.
What key attributes do you look at to determine whether a company is a good fit for acquisition?
For entrepreneurial acquisitions, we seek out successful, niche businesses in specialty coatings, sealants and building materials. These companies have strong, leading brands, above-average gross profit margins and an entrepreneurial leadership team.
We prefer that the team which made the business successful in the first place stays on to continue running the business as part of RPM.
Once on board, we provide them with resources to accelerate their growth, including investments in modernized manufacturing equipment, access to our global purchasing network to reduce raw material costs and connections to our other operating companies for shared technologies, warehousing and distribution worldwide.
We also take care of their long-term employees with a generous benefits package that includes a comprehensive health care plan, a 401(k) with a matching corporate contribution, plus an active pension plan.
Having said that, more than half of our acquisitions over the last decade have been product lines that bring new technologies or put us in new markets and are completely integrated into an existing RPM company.
How do you balance the day-to-day responsibilities of leading a business with M&A activity?
Good leaders establish the overarching M&A strategy, but realize that they cannot micromanage every aspect of every transaction. Doing so stifles growth. Instead, they surround themselves with strong, experienced teams who are given clear directives and empowered to make key decisions.
These teams are comprised of company employees and external advisers. They rely on their teams to handle the day-to-day aspects of a corporate development program and to provide a regular flow of communication on market trends and dealmaking activities.
What is one of your most memorable deals and why?
Among the most memorable acquisitions was one that we just completed last year. It wasn’t so much that it was a transformative deal, or overly complex. It was more about how the transaction was initiated.
About a year-and-a-half ago, I received a letter from a gentleman named David Barton, the president and owner of Prime Resins. He explained that his company was a manufacturer of specialty chemicals used to maintain and repair infrastructure.
Dave had been researching RPM and wrote that he thought his company, “might be a good fit as an RPM subsidiary.” Financial information, an analysis of the company’s performance versus its competitors, a map of where it conducted business and some product literature were enclosed. I had never met Dave and was not familiar with Prime Resins. Yet here he was, sharing all this confidential information with me.
Periodically, I get unsolicited letters like the one Dave sent me. I suspect few CEOs in our industry, or any other industry for that matter, receive such overtures. These letters are born from RPM’s strong reputation within the specialty coatings industry as being the best home for entrepreneurial companies.
It’s a reputation my father, Tom, spent decades building by being open, honest and trustworthy in his dealings with entrepreneurial owners like Dave. It’s something I strive to maintain because it is an incredible competitive advantage that enables RPM to attract the best businesses and people in the industry.
So, I picked up the phone and called Dave. I learned that he was in his early 70s and, typical of an entrepreneur fueled by passion for his business, was just starting to consider slowing down. Two weeks later, I visited him outside of Atlanta and we had a good conversation.
I genuinely liked what I saw from Dave, his people and the company. I got some of our operating people involved and said to them, “If it’s a good fit and we can negotiate a full, fair price, we’ll do it, and if it’s not a good fit, let’s be straightforward with him.”
A team then evaluated the business and how it would fit within RPM. It found that Prime Resins’ products could fill a gap within our product portfolio. At the same time, we felt we could accelerate Prime Resins’ growth through shared technologies and connections with other RPM operating companies. Six months later, we closed the deal.
What are the most important dealmaking tips you would offer other business owners?
My father taught me to not seek the lowest price possible, but to offer a fair price — the highest price RPM could afford. If that amount isn’t acceptable to the seller, then we walk away from the deal. It can be difficult to stick to your guns, especially when you are competitive and want to win every transaction.
But you can’t be clouded by emotion. This approach has enabled us to win many deals over the years and has saved us from some potentially bad ones as well.
Having a sense of urgency is another lesson I picked up from my father. When a potential deal needs your attention, you must move quickly and seize the opportunity before it is gone. Often, being first to the table can be a competitive advantage. We maintain this urgency through due diligence and after closing so that we can quickly integrate acquired businesses into RPM and start accelerating their growth.
Lastly, while there are synergies and cost reduction opportunities in many of our acquisitions, we maintain a focus on growth — how a company can grow as part of RPM or how a product line helps an RPM company grow. It is this focus on growth, not cost, that is the driver of our successful acquisition program. ●
More M&A expertise: Fifth Third Bank’s Joe DiRocco shares his insights on today’s M&A market in Smart Business Dealmakers.
