What It Takes To Have A Successful Buy Or Profitable Sale

A conversation with an expert

Steve Byers grew up in a family-owned gases and welding business that was acquired in 1994 by Praxair Distribution, Inc. He stayed on and worked in several positions over the years, most recently as vice president of acquisitions responsible for business development and maintaining relationships with independent distributors. During this time, he helped acquire more than 30 independent companies. In 2012, Byers joined WestAir Gases & Equipment in San Diego, California, where he serves as general manager.

WGT: What makes a company appealing for acquisition?

Steve Byers: At the end of the day, it’s all about people. Good people usually run a solid business.  This is a reflection of how the company is run and the way it is perceived in the marketplace. You can see it on the inside as well as from the curb. It can be seen in their showroom, their trucks, their advertisements, their employees, their culture. It’s transparent. You can always tell first-in-class. These qualities usually equate to strong financial performance, therefore a very attractive business.  That being said, it’s always better to be in a bigger, growing market, which adds to the total evaluation.

What are some negatives that can be cleaned up in advance of a merger or acquisition?

Make sure your house is in order. Take the time to present and prepare your business. This should be done months, if not years in advance.  Make sure your accounting is up to speed. Make sure you can get financials in a reasonable amount of time. And you must be able to tell the story of your business. Have a commentary that goes along with what you present.

From the perspective of the acquirer, what is the biggest thing that can derail an acquisition?
Environmental issues with real estate can propose a problem. And if issues arise, this is something that can certainly derail any pending transaction.  You can’t get around this.  Most other issues can be negotiated.

Do you advocate telling employees the business is for sale?

Telling employees you are selling is a delicate situation. We all know the good ones can find employment elsewhere. And if all your employees leave, you now have significant issues to contend with.  Some of the most successful integrations and acquisitions I was involved with were those where employees did not know it was going to happen.

Merging two corporate cultures is a challenge. What can you do to blend the cultures?

It makes all the difference when the acquiring leadership is engaged with the employees and makes them feel part of the process. On day one of the new ownership, employees typically sit back and ask, “What’s next?” They think the acquiring company has a master plan, and to some degree, they do. But often, the plan is solely for the economics. The acquiring company should point out to the employees: “We bought your business; we bought your expertise. Continue to do what you do.”

Employees should speak up about how they bring value to the business, and what exactly they bring to the table. They might also speak up if they see something that completely goes against what they did before. They owe it to themselves and to the company, which is paying for their knowledge and expertise. My rule to employees is: Tell them once, tell them twice, sometimes a third time, but after that just be quiet. If it’s something you can’t live with, then go and do something else. When my family’s company was acquired, we thought there was a wizard behind the curtain with a grand plan. I was in my early 20’s at the time, and I just kept doing what I did, until they told me no, and they rarely told me no.

What happens with the former owner?

Younger sellers or those from a small company often must decide whether or not to stay on with the business. If they choose to stay, they must have the right mindset. They must understand that there is a difference between signing the front of the check, versus signing just the back of that check. A now former owner has to be OK signing just the back of the check.

When a large corporation acquires a small independent, the culture for that small company can change dramatically. What should the acquiring company do to make it work?

Every business is all about people, and this is especially true in our industry, as relationships are central to our business. People work for independents because they like the business, especially the people side of the business. These employees will go through fire for their owners. The challenge is how to transfer that loyalty to the new owner. But you can’t transfer it. All the new owner can do is earn it. You roll up your sleeves and get out there with the team.

What about an independent acquiring another independent?

When an independent buys another independent, it’s sometimes tougher because there can be “ego” on both sides. The acquiring company may have to adjust its plans a bit. I can think of several examples, one in recent memory where some of the key employees of the acquired company left after the acquisition took place. Leadership jumped right in and got to work, including staffing the day-to-day activities. That company is now stronger than it ever was because leadership adjusted and moved forward.

How long does it take for two companies to get in sync after a merger?
Smaller companies, those with revenue around $3 million or less, roll in immediately, almost overnight. This typically happens because the acquiring company already has a good relationship with the business. When it’s a larger company being acquired, it can take 12 to 18 months, sometimes longer.

There continues to be a lot of M&A activity in the industry, particularly by large, well-funded, publicly traded companies that can easily purchase a small business.

True, and many independents wonder why they are not being approached by other small independents that want to sell. They wonder why the sale is going to the larger regional and national companies. Remember, there is a trust factor involved when talking about net worth, and independents regard other independents as peers. The conversation about selling your company does not occur readily. That’s where companies like Praxair, Matheson and Airgas have an advantage. They are not seen as a peer to the smaller, independent companies. Plus, most independents don’t have the stomach for the kinds of multiples the big guys are paying.

From my corporate career, I know the majors see the independents as their toughest competitor. They know that independents are typically closer to the customer, and they are agile. They can make decisions on the fly and quickly get things done, which keeps them in front of their customers. They know that customers appreciate this, and it worries them. On the other hand, the independent’s biggest vulnerability is national or multi-location accounts. Many customers now want one source, and independents don’t have the infrastructure to compete.

What does it take for an independent to be successful in the acquisition game?

To be successful in the acquisition game, an independent distributor must bring something to the table other than cash. A perfect scenario for the independent wanting to acquire is to find a business where a partner wants to retire, but the partners don’t have the cash to fund the buyout.  Or the experience. This can lead to am ownership change.

How does an owner get his or her company ready to sell? What can be done to prepare?

It’s not uncommon to see business owners in denial…they wake up one morning and say, “It’s time to sell.” Ideally you need to know three to five years in advance that you are going to sell your business.  This gives you ample time to prepare and position your financials.  Make sure your P&L and balance sheet are strong.  Focus on continuous improvement initiatives. These lead to more bottom-line dollars, therefore more money in your pocket when the transaction is complete. Remember, cash is king and the more earnings your business has, the more it will sell for. If you’re thinking of selling your business, do it for the right reason. Not only is it your baby—you raised it, you built it—it is now most likely the most sizeable piece of your wealth portfolio. Think long and hard and make sure you give the process the time it deserves.