Time and experience have taught Michael D. Siegal that some business deals just aren’t worth doing.
“When you’re a younger manager as opposed to a more mature or more seasoned manager, you’re willing to almost do anything because you have this superman mentality that you cannot fail at anything that you do,” says Siegal, chairman and CEO at Olympic Steel Inc. “That’s not to diminish the fact that a poor performer can be turned around. I just think we have found from our experience that it takes too much time.”
Siegal entered the steel industry at Olympic in 1974 and today, the Bedford Heights-based company is a $1.3 billion business that operates more than 30 facilities as a leading metals service center. M&A has been a big part of the growth.
In this edition of Dealmakers Live, Siegal talks about how he approaches an acquisition target and the role culture plays in informing his decision-making process. What follows is a transcript of the above video, edited for readability.
Be a chameleon
The question is essentially how do you start the transaction? The reality is we have found that it is more often than not the need of the seller to have a cash event. Whether it’s the death of the founder and they don’t have a proper succession, or some other reason why they need the cash event for their growth. And so you have to be a chameleon, to a great degree, to answer your question. You don’t know who the seller is, necessarily. Each one is different. Each one has their own drivers. So you, as the buyer, really have to adapt your personality to have that person want you to be the buyer.
Most sellers have an affinity to the business and the people who worked there for that period of time that allowed them to be successful. You really have to adapt yourself individually to that person’s need and desire. But we have a strong culture of values. So almost universally, we have a value structure that will appeal to you, the seller, and we start talking about like-kind values. You’re trying to get comfortable. It’s like dating. You have to date first before you get married and you have to be very comfortable that there is a like-kind value system to make it successful.
Assess the target’s culture
The money always takes care of itself. Obviously, the money has to make sense. What’s the multiple of the earning stream over time? But you’re really kind of looking at the people, the management first. But you’re also looking for the workforce. A lot of times, as you walk through somebody’s location, you get a sense for whether people are happy or not. The money is obviously the most important factor. But it really gets down to trying to feel whether or not instinctively, whether the people in the office or in the plant are feeling good and smiling when they come in the door. Or are people looking at their shoelaces?
You get the sense that things are either well from a management perspective or not based upon the people who work there. So you’re really trying to get that sense from the other people, other than the managers or the owners.
The superman mentality
And I think when you’re a younger manager as opposed to a more mature or more seasoned manager, you’re willing to almost do anything because you have this superman mentality that you cannot fail at anything that you do. We bought distressed companies on the premise that we can fix it because we’re really good at what we do, not recognizing that their culture was so abusive that it would or did take years to turn that company around. What you find is it’s just not worth your time and effort to take something that is failing as opposed to something that is succeeding.
It’s the same philosophy in education which is do you work with the A students or do you work with the D students? What is your most likely chance of success? [That’s] not to diminish the fact that a poor performer can be turned around. I just think we have found from our experience that it takes too much time.
Time not well spent
The challenge of M&A is that it’s always the ones you don’t get. The ones you regret are the ones you spent a lot of time on. There are two different scenarios. There is the auction process. You know the auction process has its rules. You come in and there’s a first-round bid. You make a first-round bid because you want to get into the second round and do more due diligence. Then you can very quickly assess whether you want to continue on that path or not, whether you’re the most likely guy to have the highest bid. We actually don’t like doing that because we don’t ever want to be the highest bid.
But the ones that stick with you are the ones that you really kind of wanted to do, but for some reason didn’t happen and you regret the amount of time it took to get to not being successful. Those are the ones where you learn, I can’t waste my time to do things that don’t lead to success because my time is too valuable. Many of these things, other than the auction process that has a timetable on it. This may take years in terms of getting somebody to the point where they are actually saying yes. Many times they say yes and then back out. So you are constantly regretting the fact that maybe I could have spent my time someplace else.
Special note: In the decades that Siegal has spent guiding Olympic Steel, he’s learned a lot about the steel industry and the Cleveland economy. In this bonus video, Siegal shares his thoughts on both topics and spells out his keys to continuing to grow the economy in Northeast Ohio.