Formal representation only gets you so far as a dealmaker, says Don Nystrom. When you build your own network of M&A experts, you can find the deals that are off the beaten path and full of opportunity.
“If you want to get into dealmaking, you need to understand that relationship building is a long-term process,” says Nystrom, president and CEO of Dynamic Aerospace and Defense. “You have to identify what works for your organization, what makes you successful and stick with that.”
His company is an aggregation of nine transactions, mostly in the U.S., but also in the U.K. and Singapore. Nystrom has cultivated a unique group of experts to get these deals done, people who understand precisely what Nystrom and his team want to do.
“If you’re just chasing deals through formal representatives, you’re only seeing the tip of the iceberg and you’re not going to get good value,” he says.
Nystrom explains how he found a company that wasn’t even on the market — and turned it into a great acquisition.
Grind out a deal
The last transaction we did was in Northern England, a company I found through the first boss I ever had when I lived in England back in the early ’90s. I kept in touch with the finance director I worked for before law school. He happened to know somebody in the industry. He knew what kind of deals we were interested in and he told me to give these folks a call and see if they were available. The company, Hydram Engineering, fit the size and culture we were interested in. So we called the owners and they weren’t contemplating a sale at all.
We spent a lot of time getting to know each other, way beyond the numbers and the nuts and bolts of the transactions. In the smaller midcap deals like we get involved with, people have a much more personal view on how the company should carry forward, even if it’s not with them. It’s taking the time to explain your corporate culture and how you value what they have created. Explain why you want to acquire their company and what you’re going to do with it.
Sharing the strategic vision with the sellers has always been an important part of our success. So the owner of the company flew over to the States and literally sat with each member of my management teams. I left the room and let him interview all the management teams without me there so he could really understand the type of culture we were trying to encourage. At the end of him interviewing us, he agreed to sell us the company. What made it successful was the former owner wanted to make sure that we cared about culture, about their employee base and about growing this part of their family legacy.
Make sure it’s a fit
We only invest in manufacturing companies, so it’s important to walk the floor and look at cleanliness and body language. Do employees look you in the eye? Are they smiling? Is it well-lit? Is the equipment in good shape? That gives you a sense of the culture they have in the company and the confidence the employees have. We say all the time, ‘Any fool can buy a piece of equipment. It’s all about the people.’
It’s fairly easy to walk the shop floor, see the product and understand the complexity and the value-add potential. Is it nichey or is it a commodity? We avoid commodity. We want nichier manufacturing that is harder to move. The key is what’s the investment in the shop floor and in the people? You can tell if they are investing in the people on the shop floor and see if there is energy to work with.
The company in England is a perfect example of finding an opportunity to add value. They have a strong EBITDA and a strong management team. But they had never been part of an acquisition opportunity. While they had been successful at their size, they had no visibility on how to grow and go to the next level. The value we brought was growth through acquisition, not just organic growth. How to expand outside the UK to broader Europe and even to the States. The upside for us was we were able to take their success and help them globalize. Growth for them was buying a new piece of equipment that gave them more capacity. Now growth for them is how do we acquire another company that we tuck under our umbrella to accelerate us even faster?
The Last Word
If your core business isn’t stable enough to withstand the distraction that an acquisition can present, you put the whole organization at risk. Do you have systems and processes in place that are stable and consistent enough that you can share with other businesses and bring them inside? Do you have management bandwidth so that as surprises occur, and they always occur, you can take your existing team and augment the team that you’ve acquired? Is your organization stable enough to pull some key players out of what they are doing to stabilize a surprise that hits? At the end of the day, you’re building a larger organization. But you can’t build it on sand. You can’t build it without a foundation.