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After the Deal Closes… What Comes Next?

By Bridget McCrea

When large, public companies acquire or merge with other entities, the highs and lows of the experience are often well documented by the media, in annual corporate reports, and via other communication mechanisms. But what happens after the dust settles on the typical merger involving two smaller, independent firms that don’t have to report their every move to anxious shareholders? tED magazine set out to learn exactly what goes down six to 12 months after the papers are signed, the technology systems synced, and the employees merged into a single force.

To get the answers to our questions, we spoke with one of the more prolific NAED members on the M&A front – Shealy Electrical Wholesalers of West Columbia, S.C. About 15 years ago, the company implemented a corporate acquisition strategy that would find the independent distributor purchasing five companies and adding those entities to its portfolio. The acquisitions would take Shealy Electrical from being a 3-location company that covered about 50 percent of its home state, to an 8-location company that covers all of South Carolina plus a portion of its neighboring states.

Looking for Targets
According to David White, president, the company’s most recent acquisition was announced in August 2014 and involved Nova Lighting, a specialty lighting company with locations in Charlotte, N.C., Columbia S.C., and Greenville, S.C. According to White, the deal took place after Shealy Electrical went through its typical “acquisition strategy” of identifying a good target and reaching out to its ownership and/or management team to discuss the possibilities.

“We’re always trying to figure out who might make a good acquisition target,” says White, “and a good fit for our team and for our organization as a whole.” Early in the deal-making process, White says Shealy Electrical focuses on forming relationships with the individuals who are working for and/or heading up the target company. “At some point,” says White, “we’re hoping that the conversation comes up about our company potentially acquiring their business.”

When that milestone is reached, Shealy Electrical writes up a letter of intent regarding the potential purchase. That letter usually includes an outline of the potential deal structure and non-disclosure agreements that keeps the deal itself and the related details “a secret,” says White. Once the wheels start turning on the deal itself, White and his team do the necessary due diligence (on their target’s financials, workforce, customers, product lines, etc.) to figure out “if everything looks right.”

 “Then they either sign a definitive purchase agreement or provide a term sheet that says, ‘this is what the purchase agreement would look like,'” says White. “Next, we work through everything and negotiate the deal. After a more thorough due diligence process, we’ll bring in some key employees and tell them about the deal and/or announce it publicly (in some cases the latter happens after the deal actually closes).”
 
And that’s when the real fun starts. Admitting that “no two deals are ever the same,” White says that in some cases the integration of the new company into Shealy Electrical happens faster than in other situations. “Sometimes we’ll go through a sort of ‘gradual transition,’ allowing the company to operate as it has in the past for maybe six to 12 months, or whatever makes sense,” White explains, noting that the decision is often based on just how similar the target business is to Shealy Electrical. Other factors include the sophistication level of the acquisition’s IT infrastructure (i.e., its Enterprise Resource Planning [ERP] system).

“There are a lot of different considerations to factor in when you’re integrating the company into your firm,” says White, noting that Shealy Electrical’s stance has always been “full integration” with the firms that it acquires. “Once we acquire a company, our goal is to fully integrate that firm into ours. The only variable is the actual timing of the integration process itself.”
 
Telling the World About It
For its most recent deal, the distributor purchased a smaller firm and took about four months integrating that company into its own business operations. On the people side, for example, Shealy Electrical works to identify certain individuals and then integrate them into its own business model. In some cases, it will integrate an entire department at once, but not the entire company. This “folding” of the new employees into the distributor’s workflow and culture isn’t always easy. And while White says retaining 100 percent of the target company’s workforce would be “ideal,” it’s not always possible.

“There’s usually redundancy in roles and responsibilities across the two companies and sometimes you just don’t need both [individuals],” says White, whose team tries to pick the “better of the two options,” even if the final choice was not previously a Shealy Electrical employee. “If the company we acquire has a more talented person in a certain role, it could impact someone at our company.”

So what happens when someone is displaced from his or her position as a result of the deal? White says the company works to find him or her another position within the organization or to “create a smooth transition for the person out of our organization and into another company.” 

Customers and suppliers also come into the picture, says White, and generally need to be educated on why the deal makes sense and how it will impact their own businesses (if at all). “You definitely have to educate the market on what’s in it for them and why you’re doing it,” says White. Nova Lighting, for example, handled installation as well as product sales, but Shealy Electrical leaves the installation process up to its reputable contractor base. “Our contractors wondered if we were going to be going into competition with them by purchasing Nova,” says White. “We had to tell them that we had no intentions of installing.”

Under the Umbrella
In looking back at the five successful acquisitions he’s been involved with – and the future deals that lie on the horizon – White says distributors should realize that there will always be challenges to overcome and lessons to learn in the process. “There are always unique circumstances or situations to encounter and deal with,” says White. “There’s always an opportunity for a Monday morning quarterback to review and go back and say, ‘I would have done this differently.’ That’s just a natural offshoot of bringing two different companies under a single umbrella.”

McCrea is a Florida-based writer who covers business, industrial, and educational topics for a variety of magazines and journals. You can reach her at bridgetmc@earthlink.net or visit her website at www.expertghostwriter.net.

 

 

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