Getting the Mix Right

It’s a matter of discussion at every concrete industry meeting. Wherever producers gather, rumors about consolidation seem to capture everyone’s attention.

As a principal in a consulting firm specializing in bringing buyers and sellers together, I’ve studied the effects of acquisitions on both our sellers and buyers. For us, it’s important to try to understand the challenges posed by an integration from the acquirer’s point of view.

“How the largest players approach consolidation and integration.”

The key to any firm’s success is repeat business. And since we come into contact with most of the large firms eyeing expansion, we wondered how the large players in the industry approached the integration aspect of consolidating.

I recently interviewed senior executives with various public, multi-national companies, or “multi-nationals.” I sought out executives who are responsible for their companies’ business or strategic development. I also spoke to senior executives or owners of some of the largest, privately held ready-mixed producers throughout the country, or “large privates.”

All discussions took place with the understanding that I would not name my sources, so I was able to learn some useful information that could be published without compromising trade secrets or proprietary methods used in strategic planning

I was a little surprised that at least among the multi-nationals, most business and strategic development departments approach integration almost identically.

But this was not necessarily the case with some of the large privates. In many instances, managers of these firms had a more entrepreneurial bent toward growth. They approach integration differently. The large privates’ managers often don’t place the same priority on certain aspects of the integration process as do the multi-nationals.

Why consolidate, why buy?
Why are the markets consolidating? In short, sellers are motivated by succession issues, estate planning, diverse interests on the part of family members and/or partners, and a concentration of their net worth in the business.

But a seller’s motivations also may be coupled with a underlying concern about what the future holds for independent producers. The challenge of assuring a steady supply of raw material in future years is a common concern. Then there’s the concern about being able to compete in an industry where the multi-nationals and large privates keep getting bigger.

Why do the buyers buy? What motivates the multi-nationals and large privates to continue to consolidate?

Multi-nationals are simply under pressure by investors to grow. Shareholders expect they will grow their companies, lower operating costs through economies of scale, and shave line-item costs through synergies, all of which will ultimately lead to improved returns. “Companies like ours have plenty of money and will be under continued pressure to keep growing,” said one executive. I heard the same from everyone I spoke to at the multi-nationals.

All of these major players are currently active in the consolidation market, but all of them say the same thing to me: Sellers are exerting more pressure to sell than buyers are pressing to buy. We think this is because the sellers have greater clarity for the future of their businesses and are taking advantage of the current market.

Most acquisitions throughout American industry have been unsuccessful, and many have been outright disasters. But why do we rarely hear these disaster stories in the ready-mixed concrete industry? The public multi-nationals have made hundreds of acquisitions over the last 20 to 30 years. And almost all of these players have enjoyed steady, solid revenue and earnings growth. Maybe a couple of minor acquisitions in recent years were not considered successful by the acquirers.

How do they do it?
Here is what most of the multi-nationals share in common in implementing their integration strategies:

  • An overall integration plan that will maximize the value-creating potential of the acquisition.
  • A structured, highly detailed, and closely managed integration process which is led by strategic development, information technology, operations, and human resources professionals who are driven by measurable objectives.
  • A human resource approach that assesses human talent, addresses cultural and managerial process differences, provides appropriate ongoing communications, and works hard to bring the acquired employees “on board” as quickly as possible.
  • A highly developed strategy for dealing with market and customer integration issues, to assure that they are not at risk of losing any significant portion of the customer or revenue base.

With very few exceptions, the multinationals view integration as a rigorous, formal process. At the end, the combination of operations is usually well received by the people remaining in the seller’s organization.

But no matter how hard they try, “we never quite get the people part right,” one executive confided. “No one likes to see people unhappy, and as hard as we try, a handful will always find that working for us may just be different, not less fulfilling.  Somehow, we can’t always get that across.”

In contrast, we found that some of the large privates, many of which are operated by their entrepreneurial founders or family members, often approach the integration process less formally.

The distinction between the two approaches is that the large privates tend to operate in fairly confined geographic areas. Their approach to integration is more one of “bolting-on” a plant or plants to its existing operations, rather than the multi-nationals’ approach of attempting to assimilate the entire acquired company within its own culture.

The bolt-on approach of many of the large privates is more entrepreneurial in nature, and the geographical concentration allows them to make bolder moves with regards to the integration process. The concerns that a multi-national might have as a new entrant into a large private’s market are not necessarily shared by the large privates from the standpoint of employee and customer retention, brand equity, or management continuity.

Here are a some tips from some of the smartest and most senior strategic planning minds in our industry, no matter what side of the transaction you are on:

  • Get the people part right. The larger the integration, the harder it can be on the people.  If you are the acquirer, make sure your people understand how the other side feels.
  • Make sure the sellers are part of the integration. It’s human nature to want to feel like a part of something, particularly when it’s new.
  • Develop a feeling of shared learning on both sides. Instead of saying “This is the way we have always done it,” managers should adopt a style like, “we have a bridge here—how do we cross it together?”
  • Maintain excellent communications at all levels: customers, employees, vendors, and any other stakeholders. This can be difficult some times because employees in smaller firms may not have been exposed large corporate communications.
  • Never underestimate customer reaction to change from a small producer to a large producer. Business is still a personal relationship business.
  • Be careful of promises or personal opinions during the negotiations. If you make certain comments or promises during due diligence, be sure that you execute them after closing, otherwise they will come back to bite you.
  • If you make significant changes, make them quickly. Implement people, procedures, processes, and reporting as soon as possible.
  • Share and review the integration plan and process formally, as often as monthly, to assure that your goals are being met.
  • Be as thorough as possible in your planning on the front end, so you are sure hat every step you take is with the utmost clarity.

Successful integration will continue to be studied and refined as the consolidation wave continues. This industry has a long track record of successfully integrating companies, with one of the best track records in terms of success in American.  Let’s hope this trend continues.

Pierre Villere is President and Managing Partner of Allen-Villere Partners. Contact Pierre Villere at pvillere@allenvillere.com or telephone 985-727-4310.

© 2006 Hanley Wood, LLC. All Rights Reserved. Republication or dissemination of “Getting the Mix Right” (The Concrete Producer, March 2006) is expressly prohibited without the written permission of Hanley Wood, LLC. Unauthorized use is prohibited. Allen-Villere is publishing “Getting the Mix Right” under license from Hanley Wood, LLC.

By | 2017-10-02T14:22:45+00:00 March 23rd, 2006|