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Growth Through Acquisition

By Bridget McCrea

It’s been about 15 years since Bill DeLoache started looking closely at how his family-owned company could expand its reach across the state of South Carolina. As the third-generation owner of West Columbia, S.C.-based Shealy Electrical Wholesalers, DeLoache had just bought out his brother’s share of the business and recruited David White, current president. “He looked me and said, ‘Dave, we’re either going to grow this business or we’re going to get out of it’,” recalls White.

And with that, Shealy Electrical 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.

White says the push to “cover” the entire state of South Carolina was largely driven by customer demands and needs. “Contractors we were working with were expanding their territories and they wanted us to come with them,” says White. “Our industrial footprint started to grow until we got to the point where we said, ‘Okay, we’re going to be the absolute best distributor that we possibly can be in South Carolina.”

When Shealy Electrical achieved that goal, the company began looking outside of state lines for new acquisition and expansion opportunities. “We were at a stage where we felt like we had pretty good market share and pretty good coverage of South Carolina, so we decided that North Carolina would be the next good target,” says White, whose firm had a number of contractor-clients that were working in both North and South Carolina. “A lot of the agents and manufacturers align the two states, so it made very good sense at the time for us to move from South Carolina into North Carolina.”

No Secret to Success
It’s taken a few tries for the team at Shealy Electrical to get its acquisition process down to a science. “There’s no secret to success. We have learned in the past, however, that the old adage of ‘you get what you pay for’ applies to buying an electrical distributor business as well,” White explains. “When we’ve purchased fixer uppers, while they eventually became successful locations for our company, it takes a lot of work and creates significant distraction in the process. And in the end the best we can do is make them as good as we are.”

Ultimately, White says that when the distributor has acquired “good companies,” the two entities have wound up learning from each other. “We both became better – resulting in a stronger overall organization,” says White, whose company tends to focus on geographically contiguous acquisition targets. “We are now placing a big emphasis on culture – business systems are easy to integrate; vastly different cultures, not so much.”

And speaking of corporate cultures, the fact is that blending different ones tends to be one of the biggest challenges of any acquisition. White confirms this point, and says that Shealy has honed its approach over the last 15 years. “The ‘blending’ process can be difficult; the cultural aspect is probably the hardest piece of it,” says White. “You have to have a really good company vision, and you have to spend a lot of time – and repeat yourself over and over again every chance you get – telling everyone about your cultural expectations and vision, and then convincing them to buy into it.”

Through that repetition and perseverance, the corporate culture can be conveyed properly and eventually sinks in. “It kind of becomes contagious after a while,” says White. “It’s about getting everyone on the same page, and it definitely takes time and a big dose of patience.”

Challenges aside, White says one of the biggest benefits of the acquisition process is the fact that the combined company winds up with a solid team of individuals that brings to the table a varied mix of knowledge, experience, and skill sets. “This gives you the opportunity to take the best ideas and the most qualified people and put them into direct roles that really suit them well,” says White. “As a result, the organization as a whole becomes stronger and more effective. We’ve definitely seen this happen with the last couple of acquisitions we’ve been involved with.”

Solid Advice
With companies assessing their growth strategies and possibly acquiring other companies to help boost market share, gain access to new customers, and expand geographically, 2015 just may be the year that more NAED members get on the acquisition bandwagon. To those firms that lack experience in this area, White says:  “Don’t be intimidated by the process.” While mergers and acquisitions may sound like strategies reserved for larger entities, the fact is that companies of any size – and across all industries – can benefit from this growth strategy.

“Start small by developing relationships with other distributors in neighboring markets, or even in your own market,” says White, whose own firm plans to continue with its acquisition strategy this year and in the future. “As you learn more about them, and as they learn more about you, you may discover synergies and potential relationships that could lend themselves to acquisitions or mergers. If it makes good sense for both companies, then start exploring the options.”

 

Ready to Take the Leap?

In Buying Existing Businesses, the U.S. Small Business Administration says that once you have found a business that you would like to buy, it is important to conduct a thorough, objective investigation. Here’s a list of “must haves” that the SBA advises all companies to review and/or use before signing on the dotted line:

  • Letter of Intent:  The letter of intent should spell out the proposed price, the terms of the purchase and the conditions for the sale of the business.
  • Confidentiality Agreement:  A confidentiality agreement indicates that you will not use the information about the seller’s business for any purpose other than making the decision to buy it.
  • Contracts and Leases:  If the business has a current lease for the location, be aware that you may have to work with the landlord to assume any existing lease on the business premises or negotiate a new lease.
  • Financial Statements:  Examine the financial statements from the business for at least the past three to five years. Also make sure that an audit letter accompanies the statements from a reputable CPA firm. You should not accept a simple financial review by the business itself.
  • Tax Returns:  Review the business’s tax returns from the past three to five years. This will help you determine the profitability of the business as well as any outstanding tax liability.
  • Important Documents:  Numerous documents should be checked during your investigation. Examples include property documents, customer lists, sales records, advertising materials, employee and manager information, and contracts.
  • Professional Help:  A qualified attorney should be enlisted to help review the legal and organizational documents of the business you are planning to purchase. Also, an accountant can help with a thorough evaluation of the financial condition of the business.

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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