Lessons Learned

Successful acquisitions require thorough planning, dedication from both buyerand seller, and resource commitment beyond the closing.

By William J. Kroll

Acquisition is an important growth vehicle. Some industry sources cite that more than half of all attempted acquisitions end up falling apart. Good common business sense and some guidelines can help improve the odds.

Large Deals Can Be Rewarding
We have learned not to shy away from large deals. These investments, when considered as part of a long-term strategy, may provide the needed foundation for future growth and opportunity, ultimately generating strong returns overall. You are going to invest time and resources into any acquisition, so first consider the strategic priority of your efforts.

You also need to be mindful of lost strategic opportunities and potential effects of not winning a deal. Aggressive valuations can be overcome if the opportunity provides for long-term growth and expansion.

Picking the Right Partner
It’s important to “know” your potential partner in order to assure common goals. This is critical, and you must consider the ongoing relationships after the merger or acquisition is complete.

In the case of a recent acquisition, Matheson Tri-Gas had been sharing a production facility with Five Star Gas & Gear of Los Nietos, California, for over four years before we considered acquiring the company. Both parties understood the others’ business, and there was mutual trust gained over those four years.

Not every acquisition has the benefit of four years of partnership beforehand. So there are a few things you need to consider in picking the right company.

1. Make sure the potential partner’s focus and capabilities are aligned with yours relative to long-term strategy and business needs.
2. Make sure that their business principles and values are similar to yours.
3. So-called “culture clash” may sound unimportant from a business standpoint, but avoiding it is critical to employee satisfaction – on both sides of the acquisition.
4. Know all the business negatives about the potential partner. If everything they are telling you is good, then that’s a signal that they might be hiding something.
5. Make sure that you have the leadership and talent in place to continue to improve the acquired business as part of your organization. These key leaders may be part of the acquired entity, or they may be part of your existing organization. Or a blend of both. People are the business, and having the right people helps to ensure the strategic success of the deal.

Cash is King
After you think you have a good candidate, you must determine the value of the business you are looking to acquire. You need to understand how a deal will impact future business performance by evaluating financial contributions from expanding key products, access to new markets, synergies, etc.

The candidate should have a proven history to help validate expected future performance; however, the past and future could be very different, so do your homework and try to determine anything that might impact current trends and affect future business performance. Using an independent appraiser could be very useful in establishing the value of a business.

And remember, CASH IS KING. Be sure to consider the cash you might need for follow-on investments.

Good People Make a Good Business
You should try to retain key talent during and after the merger or acquisition. The people who created a business that is worth acquiring are themselves worth retaining. If you listen and communicate frequently and share the overall vision for future opportunity, you should be able to keep the good people. Employment contracts and reward systems such as retention bonuses, MBOs, etc., can provide assurances and build trust.

Remember that an acquisition needs to succeed twice. In the immediate term, the transition of ownership needs to succeed. In the longer term, the business objectives need to be met. The success of a deal lies largely with the people. A blending of short- and long-term rewards tied to business performance is usually effective.

Communication and Rumor Control
During the negotiations, CEOs should communicate with stakeholders to minimize rumor. Build trust by communicating both the positives and negatives of the deal. You need to make sure that stakeholders understand their responsibilities as well as the possible consequences of spreading confidential information.

You should also attempt to minimize the uncertainty for employees so they don’t speculate. Be as honest and open as possible. Try to communicate and openly reinforce the company’s intentions to reduce the surprise factor that makes people gossip.

Pay Attention to Details
An acquisition can take a long time, and there are many details that need to be addressed. We have learned that it’s important to have a dedicated person overseeing the process. It can be an outside advisor or a trusted member of your management team. There are often overlooked details such as incompatible tax structures or third-party contracts, such as property leases or vendor agreements that can cause real problems at the last minute. These issues are best dealt with as early in the process as possible, and identifying them will need focus. The payoff can be great savings of time and money—and an orderly closing—at the end.

Success
Recent deals over the past three years have allowed Matheson Tri-Gas (MTG) the opportunity for visions beyond $1B, with a national footprint. Of course, our key acquisition focus is to remain in sync with our strategic objectives. The three main keys to our success are our 1) focus on management retention, 2) the customers and employees, and 3) continuing to use the local brand identity where it’s appropriate.

Two recent MTG acquisitions are worth a fast review as cases in point.

Linweld of Lincoln, Nebraska (with branches in seven states), and Five Star Gas & Gear (with five locations in Southern California), are both prominent suppliers of packaged industrial gases and supplies in their respective regions. Linweld was family owned for over 60 years, and Five Star had a 12-year track record.

Both Linweld and Five Star sought to solidify their competitive advantage while also expanding their product depth. MTG sought to broaden its presence by reaching into the Midwest with Linweld, and into Southern California with Five Star.

In the case of Linweld, both parties had a long history of commerce in geographically adjacent territories. They were no strangers to each other.

In the case of Five Star, as noted earlier in this article, both parties had a four-year history during which they shared production resources. The trust and business compatibility that were already in place became the basis for productive negotiation of terms for acquisition.

MTG recognized the fact that both Linweld and Five Star were important regional suppliers, and that re-branding either company as Matheson Tri-Gas would benefit neither MTG nor the customer base. We also recognized that people at all levels of both organizations had assumed a lot of pride about the companies they had helped build. Why throw that away?

At MTG, we went out of our way to ensure the continuity of the management teams at both locations. Greg Vasek is still president and COO at Linweld, and Kirk Merica was CEO of Five Star, and now serves as regional vice president for MTG. We also came away with the loyalty and commitment of two qualified teams of great people.

As a result, there was no interruption of Linweld’s or Five Star’s business momentum. At the same time, the pools of talent, and the businesses themselves, are poised for growth in the business of specialty gas and equipment as part of MTG.

The benefit to MTG is obvious: immediate access to an important segment in important geographical regions, with clear possibilities for future growth. By embracing the culture and personality of the businesses we acquired, we won the short term success of the transition, and we are better poised for growth in the future.

Strategically positioned, for us at MTG, acquisition has been an important pathway for profitable growth. Doing the process right is better for all.