One of John Kahl’s most valuable lessons when making an acquisition came about when his own company was bought back in the late 1990s.
“This was an international company that had utilized a very smart idea to identify the E6 income statement or the E7 balance sheet or that line 17 was advertising so there was no misinterpretation from country to country and language to language when they were speaking about a particular area of the business,” says Kahl, CEO at ShurTech Brands. “Nobody bothered to tell uswhat those (terms) meant.”
The experience reinforced for Kahl the importance of helping new employees, whether hired or acquired, get acclimated to their new home. He’s an active listener who applies the lessons he learns as a dealmaker to help ShurTech’s hometown of Avon maintain its status as the Duck Tape capital of the world.
Smart Business Dealmakers spoke with Kahl about the importance of listening and the effort it takes to zero in on the right company to acquire.
Listen to the seller
I think one of the things that’s been most important in the deals we’ve done is trying to understand what the seller wants. What do they want out of the deal? I bought a company in 2004 and we were not the first-place finisher. But one of the really important aspects that the owner wanted was a deal to close and then he could be on his way. He didn’t want any transition. He was an older gentleman that had been at it for 30 or 35 years and just wanted to be done.
We didn’t win that bid initially, but when the initial bidder wanted him to stay on for a year, he called us back. We came into the program and we ended up closing that deal because we listened to what he wanted. I kid you not, we signed the deal in Toronto, we transferred the money and we looked out the window, and he had a U-Haul attached to the back of his car and he and his wife were on their way to Florida. Deal done, haven’t heard from him since.
You have to kiss a lot of frogs
So deals that don’t work out? My take is more of them don’t work out than do work out. You have to kiss an awful lot of frogs to find the prince in order to get something done. More often than not, it’s not having an understanding of what one another are trying to get out of the deal. Of course, sometimes you lose out on price or you might be a direct competitor and they don’t want to deal with you, first and foremost.
But my take on failed deals tends to be either too slow of a response time, not a very good fit after you’ve had your initial look at the business from a management presentation or an information memorandum or the other available materials. We always learn more about a business as we dig in than maybe we saw on the surface. And my view is as you get to know the people, particularly if you’re intending to keep everybody, the cultural fit becomes so important in trying to determine whether you’re going to have a successful deal or not. Just as we’re evaluating the seller, I’m sure the seller is evaluating us as a buyer to determine is this where I want to be or is this where I want my company to be for its long-term health and its legacy.
Look at the upside potential
When we evaluate a business, we look at it from a couple of different perspectives. Is it a growth business with upside potential? You hear people refer to that as an offense synergy, that we’re going to get a lot of opportunity on the front end of the business for growth to pay for the acquisition. Or that it has a brighter future than maybe its past. The other side of it is more of a defensive synergy that you hear people talk about. That’s where the business may not have as much upside potential in its revenue line, but there is a considerable amount of possible consolidation that can occur on the backside of the business in integration that would allow for consolidation.
Everyone makes their presentation with their offensive and defensive synergies. I still believe at the end, you have to assess, is this a good cultural fit? Not just looking at whether it is accretive to the earnings of your business. But do you believe you’re going to be able to put these pieces of the puzzle together and have them function at a high level, particularly if you’ve got a business that doesn’t have as much upside potential in the revenue line. The last thing I’d want to do is acquire a company with limited upside potential that would be disruptive to the culture of our organization into the future.
What does this mean?
We were acquired back in 1998 by a big German multinational company. I was asked one time to present to the management team our experience of being the acquired company. The title of my presentation was Journey of Discovery. We bring new employees into our company and we have orientation programs for them, but we don’t always think the same way when we bring a new company in. We bolt them into the organization or we put them into a division and then off we go working on systems integrations or other activities that are deemed necessary. We sometimes forget about the people and the jargon or lingo of a business.
For instance, in the late 90s when we were acquired, I went into the organization and they were using terms like E6 and E7 and line 17 and line 16. This was an international company that had utilized a very smart idea to identify the E6 income statement or the E7 balance sheet or line 17 was advertising so there was no misinterpretation from country to country and language to language when they were speaking about a particular area of the business.
Nobody bothered to tell us what those meant. It took us the better part of a year to learn, understand and appreciate the acronyms of the business. So one of our key learnings when we bring a company into our organization is to try to get them up to speed on our lingo and our jargon as fast as possible, including a simple deal of giving them a laminated sheet with all of our three-letter acronyms and what it means so they can come up to speed faster.