When National Interstate Corp. bought Vanliner Insurance Co. in 2010, Tony Mercurio was sure the deal would be good for both companies. But he underestimated how much work it would take. Dealmaking fuels the business world. The ability of leaders to make informed decisions on which company to buy, which to sell, which deal to make and which one to walk away from can go a long way toward determining their level of success. Mercurio shared with Smart Business Dealmakers his thoughts on how to avoid falling victim to the ticking clock when making a deal and why becoming a regular dealmaker could be deadly to your business.
What was challenging in the Vanliner purchase?
We purchased Vanliner, a $150 million market leader in the moving and storage insurance industry, and I was responsible for the operations due diligence. Later, I became CEO and relocated my family to Vanliner’s St. Louis headquarters. The deal was a hit and Vanliner continues to be a leading business for National Interstate. The first year was very rough, however. Looking back, a major mistake was only bringing two managers with me to help transition the business, spread the culture, embrace the employees we had just acquired and make the tough decisions that needed to be made. We had 180 new employees on day one and while we had a lot of support from the home office in Ohio, we made the battle tougher by not bringing more leadership with us.
What are the critical elements that can make or break a business deal?
- Culture alignment. The deal can make all the financial sense in the world. But if there is not an effort made to merge the cultures into one cohesive unit, the deal will never be maximized. The time we spent interviewing employees before the deal was final to purchase Vanliner was critical. We met with every single employee on staff once the deal was announced, but before it was final. That gave us a great sense for the culture and earned us respect with our eventual associates.
- Opportunity vs. strategy. An organization may have a chance to take out a key competitor by acquiring more of the same and that’s good. Great, however, is when you add an adjacent business, creating a new market leader opportunity.
- Racing a ticking clock. A deal may have an expiration date and due diligence can be rushed. In concept, the deal makes sense. But lots of hidden skeletons emerge once you are on the other side. It may still be OK, but without proper due diligence, it will be hard to make it great.
- Being stretched too thin. All too often, companies try to make an acquisition even though their house isn’t in order. Organic growth is typically more profitable (if not as fast) as acquisition growth. You can’t do a good job buying a company if you aren’t taking care of your own core businesses.
What happens when you try to make too many deals?
Making acquisitions a part of your long-term business strategy is a good idea. Making it an annual objective could be deadly. Most deals are not good and you have to be willing to kiss a lot of frogs to find that prince. Too many companies take an optimistic view on the potential ROI and force a deal versus practicing patience. Spend time considering the alternatives. Can you build a business and perhaps acquire talent to do it versus taking on all the work that comes with an acquisition?
What are some important details to know before you sell your business?
Investors often promise autonomy. They promise that once you get to the other side of the deal, you will still be able to lead the business the way you did before the deal. After all, they are buying/investing in you, your team, your vision and your product. All too often this changes within 24 months after the deal is completed. Too many business owners know the stories and ultimately end up re-entering and competing with the company they sold to not long ago. If you are not ready to be done running the business your way, be careful when you choose to monetize your sweat equity.
How to reach: National Interstate Corp., www.natl.com