The Comfort Zone Strober operates Charlotte, N.C.–based Contractor Yards as a stand-alone division, and Phillips says the transition went smoother than expected because Contractor Yards’ 1,100 employees were “comfortable” with Strober’s pro-oriented business model, which is much closer to Contractors Yards’ than the Lowe’s retail focus.
But convincing families who have owned yards for generations to sell their business can be a teeth-pulling exercise. Buyers that establish a comfort zone early with reluctant sellers have a much better chance at grabbing the brass ring. Case in point: Two distributors—Avenel, N.J.–based Bradco Supply Corp. and Allied Building Products, in East Rutherford, N.J.—both bid against ABC Supply for B&F, but lost out, says Klomp, because one insisted on opening on Saturdays, and the other wanted to lease, instead of own, B&F’s 45,000-square-foot warehouse. “The owners were in no rush to sell, and could hold out for the best deal for our employees,” he explains.
With 256 branches in 43 states as of late July, ABC provided purchasing flexibility that B&F could have only dreamed of before. And the Florida operation leases everything from its new parent, so its cash-flow burdens are relieved. “If we need a new truck, we don’t have to come up with the $100,000 ourselves,” says Klomp.
Developing trust doesn’t happen overnight, though. Companies circle each other for years, and can spend months getting acquainted and hashing out details. “You can never overvalue the time you have for due diligence,” says Hord. “The numbers tell you a lot, but there’s more to learn on the ground, talking to [employees] and finding out what makes the company click.” Stock eyed Bellevue for three years, and negotiated with its owners for nine months. “We had no interest in selling, but they brought so much to put on the table, we had to listen,” says Don Lucarelli, who at 52 stayed on as president of this operation, along with his daughter, son, and the two daughters of his brother Joe, who retired. “Stock could take us to the next level, which we weren’t prepared to do alone.” Lucarelli adds that Bellevue’s 370 employees now have more career opportunities and benefits, including a stock ownership plan, “that we could never offer them.”
Similarly, the owners of Bailey Lumber and Frierson Building Supply in Mississippi also talked on and off for years before Bailey acquired Frierson in September 2003. “Our philosophies of doing business were almost identical,” says Richard Kostel, Gulfport, Miss.–based Bailey’s CFO. And those similarities allowed both companies to make decisions to improve the entire operation that were driven by business and not ego.
Frierson’s 18-acre complex in Jackson, Miss., includes a yard, a cabinet distribution center, a millwork plant, and a truss plant. It has a strong following among local pros, but annual sales—$25 million in 2003—and profits had slipped in recent years. So Bailey, which operates seven other yards in the state, installed its own computer system the day it took ownership, and closed Frierson’s door shop. Bailey also closed its own distribution center, and now relies heavily on Frierson’s outside sales force, many of whom have 20-plus years’ experience. “We’re extremely pleased with the direction [the Frierson location is] headed,” says Kostel.
Parting Words No acquisition is ever perfect, and as companies learn about each other familiarity can breed contempt, which appears to be what stopped BFS from acquiring Davidson Industries.
O’Meara wouldn’t comment on the record about why his company walked away from that deal. But Al Vander Meer, Davidson’s general manager, says that negotiations soured because of what he calls a “growing mistrust” between the parties during BFS’ due diligence period. Davidson, he says, had tabled two other buyout offers once it learned that BFS was interested. Then the full-body search began. “They brought in Pricewaterhouse for several weeks, and their legal team kept asking about lawsuits we didn’t have. It was almost as if they were looking for reasons to pull out.”
When asked if Davidson had incurred financial or market-share setbacks that would have caused BFS to back off, Vander Meer responded that his company “has been putting together a very good year [in 2004]; better than the previous few.” But this experience left a bad taste in Davidson’s mouth, and will probably impact any future discussions it has with prospective suitors. “We know now what not to do,” says Vander Meer. “We’re going to be more inquisitive about the next company and say, ‘We have to know more about you.’”
As merger deals get harder to come by and sometimes more expensive to consummate, buyers and sellers won’t be rushing through the courtship process lightly or hastily before tying the acquisition knot. For a business marriage to work, both parties must walk on common ground where corporate culture and business philosophy are rooted in order to understand and appreciate the true value that each partner brings to any union. —John Caulfield is a contributing editor to PROSALES.
