Acquiring a company

Q:   A large upholstery manufacturer wants to acquire a successful smaller company that manufactures a seating product expected to be profitable long-term. What steps should the larger manufacturer take to ensure maximum benefits for both companies?

A: Businesses are people. People work for a business, and customers are people. People in a business relate internally and externally. A company can have the most automated technology, machinery and computer operating systems. As you are aware, these assets are useless unless you have good people, focused on the success of the company, operating the systems, machinery and technology; and good people, focused on the success of the company, providing a human contact for customers.

There are two reasons to buy a company. The first is to obtain: (A.) profitable sales not available through your standard marketing channels; (B.) technology and techniques you don't have; (C.) management talent.

A negative example is when a company, not in the furniture business, buys an upholstery and casegoods manufacturer to have a total solution under one roof. This idea is attempted every 10 years or so. I recall Congoleum Corp., then Mohasco, then Masco.

After all, "Furniture is a simple industry. With good operations and marketing, any company can make a fortune in this business." right? All investors coming from outside find it's not the same as selling flooring, faucets or rugs to a female consumer. Most leave the furniture industry a lot poorer and a lot wiser. I suspect this will continue given the present buyouts and takeovers. I'm watching with interest as the Chinese open retail furniture stores. I'd like to be a "fly on the wall" to see them get their education.

There are some very positive synergies in acquisitions such as Rick Coffey's company being acquired by McCreary Modern. This combined two good companies into one great company, with superior experienced management in both manufacturing and sales.

Eliminate competition

The second reason to buy a company is to close it down and remove a competitor from the market. The problem is that the bar of entry into the furniture business is fairly low. Closing a plant creates a void that can be rapidly filled by the people who formerly worked there. This means you will have a brief window to consolidate the customer base and fill the void.

Either reason for buying doesn't negate the fact it is most important to do your "due diligence," paying particular attention to the people involved. You can review numbers, sales, customer base, EPA problems, legal issues, etc. However, the bottom line is that you are buying people. You are buying their attitude; their knowledge; their contacts and relationships to their friends, vendors and customers; their "tribal knowledge" (the unwritten knowledge of how to do something) and the synergism created by working together.

Now, it has been my experience that if you want to buy a company and close it, you need to make certain you are able to pick up the units of production in your present manufacturing structure. To do this, if you are porting products over, you will need to ensure good, accurate specifications. You also need to continue the employment of the sales people, even if there is overlap, and the customer service people. This action has the best potential of obtaining value for your cost of the company. Few customers know, or care, where a product is made if they receive good quality and service as promised.

If, on the other hand, you are buying to operate, then you have a multitude of people issues to overcome. Most arise from your present employees. As acquirers, they can exude the attitude of "We're better, badder, more intelligent and we're the acquirer and you aren't." The reaction to this attitude by the acquired is, "We'll let you prove it while we're job hunting on your nickel."

Communicate intentions

I recommend you over-communicate your intentions and plans for the acquired business, as well as your present business.

Next, while continuing to communicate, you should swap key managers for a period of time so each can understand the hows and whys of the operation policies and procedures of the other.

After a time, the key managers need to come together to start the procedure of joining the two disparate cultures into one new culture. One key area is the level of pay and benefits for similar jobs in both companies. The faster these can be brought in line with one another, the less you will have the "Us vs. Them" situation in the company.

Understand that it is not prudent to cut wages in the acquired company unless you want to end up purchasing an empty sack.

The toughest area to overcome is information systems, where joint identification of products, parts and inventory naming will consume a huge amount of effort, time and money.

Sometimes, it is best to just leave disparate systems in place and consolidate the financials. As time goes on, you can develop and implement a complete plan to take the best of each company, reduce redundancies in people, equipment, sales reps, etc.

The bottom line: it's all about people, their attitudes, how they're managed and how much they care about the organization they work for.


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About the author
George Koeninger

George Koeninger wrote a regular column for FDM and also Upholstery Design and Manufacturing magazines. He offered his experience and opinions on manufacturing management and product engineering.