Managing and Motivating Employees During a Divestiture
The history of mergers and acquisitions in the chemical industry is a long one, replete with examples of acquisitions that were wildly successful, others that were complete and utter failures, and everything in between. When it comes to buying wisely, there is no need to reinvent the wheel. A look at the past shows that many successful acquisitions take on similar characteristics. In the article that follows, we will take a look at 3 recipes for success that have withstood the test of time. Buying a corporate “orphan”. The recipe for a good deal here goes something like this: • Contact a large company, either public or private. There may have been news and/or rumors of a possible divestiture. Even better, when there isn’t any news or any rumors of a possible divestiture, proactively approach the large company in a discreet manner, seeking to make a specific acquisition (thus avoiding a competitive “auction”). • The smaller the business to be acquired is in relation to the whole the better. This makes the price less important to the seller. In some cases, when a large company wants to sell, the price is almost irrelevant. • Better still is when the business to be acquired is not given a lot of attention by the corporate parent. Employees are not motivated, sales are not pursued aggressively, technical innovation is spurned, large amounts of unnecessary corporate overhead are layered on to the P&L, Generally, the business is floundering in the midst of a much larger organization. • During due diligence, drill down deep beyond the book and the formal management presentations. Seek out key management in one-on-one conversations and find out what they really think and what they could do if they were not part of such a large company. • Buy the business and release the shackles that hindered performance. Motivate employees in a way that the large corporate parent cannot. • Performance improves dramatically.
The Roller-Coaster (buying at the trough). The timing of an acquisition can be everything. The recipe for many a good deal in the chemical industry is based on this simple concept. While it is easier said than done, buying at a trough in the cycle of a particular business, or at a point where overall market multiples are low, can be a very effective acquisition strategy. • Many businesses in the chemical industry are cyclical. The petrochemical segment is a good example. Today, petrochemicals are riding high, but history tells us that this will not last. When the bloom fades, when overcapacity rules the day, when margins are squeezed to almost nothing, this may be the time to buy, on the assumption that history will repeat itself and the business will cycle back up in the not too distant future. • In addition to looking at cyclical chemical businesses, a successful buyer may also look at pricing in the mergers and acquisitions market. This too is cyclical. A few years ago, prices were much lower than they are today. Several years ago prices were much higher. By timing an acquisition at or near a market bottom, a buyer may have put together, in one fell swoop, almost all of the ingredients needed for a successful deal. The Mad Scientist (buying from a founder who is strong technically but weak in sales). While the “Mad Scientist” is perhaps an unfair caricature, a recipe for many successful acquisitions in the chemical industry is based on some variation of this theme: • Many chemical businesses that start from scratch are founded by owners who are strong technically. These persons are expert at developing and designing specialty chemicals that serve a market need that had been previously unserved. • While strong technically, many of these founders are weak when it comes to selling. In fact, they will often be the first to admit this. Thus, while the business has a solid foundation technically, it is not doing all it can do because of weak selling efforts. A buyer who can find such companies, acquire them, and complement the owner’s weakness with a strength in sales will often see a marked improvement in the business. The Corollary: (What makes for a good divestiture?) Each of these recipes for a good acquisition from the buyer’s perspective can be turned around into a recipe for a good divestiture from the seller’s perspective. I.e., (1) if you are a large company, don’t allow the creation of “orphans” within the organization, (2) if you want to sell, try to do it when your business is peaking or when multiples are high, and (3) if you are an owner that has developed a company from a solid technical foundation, invest in good sales and marketing people, and improve the business even more. |
