Merger & Acquisition

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‘Tis the season for integrating newly acquired, merged businesses

Story by Sean Fitzgerald, New North B2B publisher

 

The end of the calendar year is often fraught with merger and acquisition activity as businesses scramble to complete transactions before Dec. 31.

 Finding the right company to buy or the right partner to marry should be pursued with the same courting as any long lasting, successful marriage between two people. Reasons vary for bringing together two or more companies – whether through acquisition or through a merger of equals – including displacing a competitor from the market, gaining geographical footprint, acquiring new technologies or buying the ability to sell complementary products or services, said Scott Bushkie, a 16-year veteran business broker and owner of Cornerstone Business Services in Green Bay.

While Bushkie and his team work with both buyers and sellers, the vast majority of the more than 200 business deals he estimates brokering have been for business owners looking to divest themselves of their company and liquidate what oftentimes is their greatest asset. Sellers are plenty at the present time, creating a climate in which buyers can often leverage to their advantage.

“Businesses looking to grow by buying a smaller company should be in pretty good shape because there’s a lot of Baby Boomers (business owners) out there looking to retire,” Bushkie said.

Such transactions are often highly emotional for the sellers, who incorporate much of their personal wealth and associate much of their career definition into the business, Bushkie indicated, particularly in cases in which the selling entrepreneur started the company.

“Many business owners’ identities are tied into the company, and they’re concerned about how to break from that identity,” he said.

And while such transactions are often an exciting time for the buyer, seller and the parties coming together as equals, the process of the buyout or merger is hardly finished once the ink dries on all necessary legal documents.

“That’s not the time to relax,” said Bushkie, who noted the integration strategy in the next six months following any merger or acquisition is crucial for the success of the corporate union.

As follows, we profile a handful of recently completed business marriages from northeast Wisconsin, each which came in different shapes, sizes and flavors from one another. The leadership from each company shares the steps they took to prepare for the merger or acquisition, as well as their plans moving forward as a larger and stronger organization.

A “collaborative merger”

Mergers often occur quietly among few top-level executives until a final decision is made and the news is sprung upon employees and ultimately to customers.

But nearly the opposite occurred with the unique merger between Oshkosh-based CitizensFirst, Neenah-based Lakeview and Brillion-based Best Advantage credit unions during 2014. The merger process was front-end loaded with due diligence, information and communication among 17 various cross-functional employee teams who evaluated every aspect of financial institution matrimony from loans and deposits to benefits, wellness and culture.

An estimated more than 1,300 hours of those meetings and various communications occurred during the latter part of 2013 before the intent to merge was formally announced in January 2014, said CitizensFirst President and CEO Kevin Ralofsky. While not the traditional sort of due diligence performed up front – such tasks are usually relegated as post-merger integration activities – the hours of meetings and collaboration beforehand allowed employees from all three organizations to break down every process to analyze, design and structure effective policies and practices for a combined financial institution.

“We wanted to make sure we were checking off all the boxes before getting our organizations together,” Ralofsky said, indicating it wasn’t necessarily the easiest path to pursue, but it helped engender trust among all three organizations. “The way we did it was truly harder than forcing a square peg into a round hole.”

Having essentially rewritten the employee handbook by borrowing the best practices from each of the three credit unions, the merger – which ultimately was finalized last May – was a merger in the truest sense of the term. The new board of directors is a combination of the boards from each three separate credit unions; all branch offices remained open; and nearly all employees were able to maintain their jobs if they were on board with the combined credit union’s newly defined values.

“This isn’t an end game. It’s the building blocks for what’s to come,” Ralofsky said during a mid-January interview with B2B. A few days later, the credit union announced another similar collaborative merger, this time with La Crosse-based Community Credit Union.

Once the merger with Community Credit Union is officially consummated in the next few months, the single credit union will sport combined assets of more than $710 million, 14 branch offices, and nearly 240 employees across the entire organization. With an increasingly complex regulatory environment and a consistent demand to upgrade multi-million dollar technology, it’s become more challenging than ever before to remain small in the financial services industry and continue to effectively service customers.

Moving forward, the merged credit union adopted what it calls “patch values” that incorporate the Seven Cooperative Principles laid out by Rochdale Society in 1844 and acknowledged by cooperatives worldwide. It’s completely overhauled the manner in which it conducts staff learning and development, and Ralofsky said the credit union hires new employees differently than ever before, now boasting one interview for every 10 job applicants.

With a recent annual rate of growth of 8 percent a year, Ralofsky believes other credit unions will proactively approach the collaboratively merged credit union – which is announcing a name change later in February – with a desire to get on board, just as did Community Credit Union.

“We’re always looking to grow into new markets,” he said. “We’re hanging out our shingle to let others know we’re (growing and combining resources) in a different way.”

The traditional acquisition

Ashwaubenon-based Heyrman Printing wasn’t new to the practice of buying another printer when it acquired DC Printing in Sturgeon Bay this past December. In the latter part of 2013, the company purchased Green Bay Blue, a neighboring company just a few blocks down Holmgren Way from its facility, said Andy Heyrman, a fourth generation co-owner of the printing company along with his father.

Mergers and acquisitions are common in the printing industry, where smaller outfits are hard pressed to survive for the long term without acquiring someone else or being acquired. Heyrman said he took advice from a printing industry mentor that’s offered him bigger picture perspective since he stepped into an ownership role a little over a year ago.

“When you look at doing an acquisition (in the printing industry), it’s a sales play, it’s a technology play, and it’s an equipment play,” Heyrman said.

Heyrman Printing captured all three when it bought out the two owners of DC Printing late in 2014, expanding their footprint into the Door County market, where the tourism industry drives printing for everything from restaurant menus and lodging brochures to outdoor banners and specialty publications. The two previous owners remain on board as employees, which aligns with Heyrman’s strategy for integrating companies following the acquisition.

“We try not to change much, knowing that each company has its own way of doing things and its own culture,” Heyrman said, noting that they took a year to integrate Green Bay Blue operations fully into their own. Now with a total of three facilities, the company needs to balance its human resource practices across different cultures to ensure customer transactions with the printer remain seamless.

With a number of printers in the marketplace preparing to sell in the next few years, Heyrman didn’t necessarily indicate his firm is in an acquisition mode, but if the right set of circumstances presented themselves, Heyrman said the 84-year-old company started by his great-grandfather could examine further growth.

“We’re always open to talking, and if the right opportunity comes along, we’ll certainly consider it,” Heyrman said.

Employees taking over

Sometimes, the owner of the business wants to divest themselves of the asset, and the ideal buyers are those on the payroll. That’s particularly the case when the owner isn’t involved in the day-to-day operations of the business.

This past October, Primadata President Mike Mapes heard from the company’s owners in Nashville that they planned to divest themselves of the Ashwaubenon-based variable data printing and mailing firm after they received an offer to sell the remainder of their company to a manufacturer of plastic gift, credit and debit cards. That buyer wasn’t interested in including the Primadata operations in its acquisition. Primadata’s owners approached Mapes about the possibility of putting together an equity group to take over the company, adding that they intended to divest themselves of it one way or another.

“We knew at some point in the next two years they were going to sell us to another printer or merge us with someone else,” said Mapes, who served as the chief operating officer at the time.

Mapes knew his team wanted to keep the company intact. It experienced strong double-digit sales increases from the previous year, as well as a substantial increase in profitability.

“We had a strong rebuilding of our reputation among our past customers” Mapes said of Primadata’s recent success. And those aspects of the business were poised to grow further. Mapes teamed up with Steve Hurning, the company’s chief financial officer, and production manager Justin Barber, who’d been with Primadata for seven years.

Mapes admits the three partners had little due diligence to scrutinize. The team already ran the 20-employee business on their own for the past two years, and were familiar with the clients, the equipment and the company’s debt service and financial position.

The bit of diligence they did conduct was to work with an attorney to draft a partnership agreement among the three co-workers and to set up a buy-sell agreement with the sellers. Fortunately for the benefit of the entire transaction, the sellers were willing to finance the deal for five years at terms all parties found fair.

“We put this together much quicker that way. It would have taken much more time if we had to seek other means of financing,” Mapes said. “They wanted to put us in a position to be as successful as possible. They want us to be able to repay the note, and they want us to be sustainable for the long term.”

Ultimately, the acquisition – which consummated in December – was about as ideal of a process as could be transacted. Mapes attributed the successful transaction to the high level of comfort and substantial trust among the three buying partners and the seller. Looking ahead into the first few months of new ownership, Mapes emphasized effort will be placed on communicating to employees, customers and vendors that not much will change from the manner in which business has been conducted in the past.