You know that you’ve got a complex subject when a canvassing of experts stirs up an array of answers to identical questions, even from professionals in the same organization.
Integrating acquired dealerships into a larger entity is one of those topics, it seems. As Floyd Jerkins, Strategic Advisor, Spader Business Management put it, integrating acquired businesses “is not a process you can learn overnight. It’s one of those things you’ve gotta get your knuckles busted a few times to learn how to do it.”
But experience alone doesn’t make it easy. Even those who’ve done it a couple of times still get surprised as there are so many changing variables.
Planning ahead of time and assembling a bench will increase odds for success with an integration, but as Machinery Advisors Consortium’s George Russell says, “One of the things about acquisitions is they never happen exactly when you want them to. You’ll almost always have some stress because an opportunity presents itself before you think you’re ready. That’s where flexibility in management comes in.”
One thing was clear from the interviews with the professional consultants we approached for this report, which also included John Spader (president) and Dr. Michael O’Connor (executive vice president) of Spader Business Management. On nearly every challenge identified in an integration, they could point to something that should have been learned well in advance of any signing. Nevertheless, this special report starts at Day 1.
Jerkins summarizes the acquisition process into 3 areas: the financial integration, the people integration and the operational integration. The financial integration is the easiest, he says. The next two, which involve the personnel competencies and getting full adherence to all the changes, are the hard parts. The people issues always are.
Poor Grades: Dealers’ Acquisition Acumen
Dr. Michael O’Connor agrees that integration of an acquired business is a process that needs careful planning, attention and follow-through. While M&A in previous decades once had a success rate as high as 50-80%, the success rate of M&A today falls in the 10-30% range. A successful deal is measured on whether the parties would choose to do it again 5 years later.
Despite more challenges today, he says the trend can be reversed by putting attention on people behavior, the environment and processes/routines. “About 80% of all problems are solved by these three root causes,” says O’Connor.
“One of the things about acquisitions is they never happen exactly when you want them to...”
In addition to low M&A success rates overall, the farm equipment industry faces additional hurdles, says O’Connor, who grades the acquisition acumen among farm equipment dealers as a 3 on a 10-point scale. “Most of the industry’s leaders had farming backgrounds or grew up in the business. Most didn’t study business and management, nor go to work for companies where they’d been exposed to the systems, models, processes, robust assessments, ongoing action plans and business planning.”
And as in many things in life, even those who’ve done it once or twice, tend to repeat the mistakes of the past. One of the things O’Connor says is necessary is to have someone who will challenge the dealer with questions. And he finds that often needs to come from outside of the company to be effective. “Most don’t have those resources inside the company because of an agenda or career issues — the idea of not wanting to tell the emperor that he’s naked.”
Jerkins agrees. “The smart dealers ask and learn from each other. This is much easier today than when the consolidation wave first got going. Now, the dealers have all kinds of resources to talk to those who’ve gone through it before. No one would make a big change in their tax approach without talking to a CPA, so why do an acquisition without talking to fellow dealer?”
And while the industry has changed a lot from 25 years ago when multi-stores were a rarity, he says the experience level with what’s still a fairly new phenomenon means there’s no clear model, or one right way of doing it. For today’s dealer, the same hours of homework and due diligence on a deal could likely be matched by connecting with peers.
Inspect & Validate Processes
While proper due diligence reveals all the numbers, inventory and financial position, John Spader says a key pain dealers feel is getting caught off guard with processes. “You can go into it thinking that a dealer is strong with their processes, but find out later it wasn’t strong. Another outcome is that a dealer can be ‘sold’ on the high performance of people when they would not measure up vs. your own.”
“The service manager kept 75% of the job in his head ... When it’s all in someone’s head, you can’t replicate it if he is no longer there...”
As an example of how results and processes don’t line up, Spader recalls an acquired store’s service department that registered such great-looking numbers that the acquirer was excited to duplicate it throughout the entire organization. “The acquiring dealer couldn’t wait to get in and see what that service manager was doing. What they found out was that the service manager kept 75% of the job in his head. The process can’t be the person. When it’s all in someone’s head, you can’t replicate it if that person is no longer there.”
Jerkins agrees that processes is one of those things that’s tough to understand fully before the deal — you can only learn so much behind the due diligence firewall. Dealers will find that there’s often a disconnect between the data and the operations, and understanding the full functionality of who does what,” he says. “Go in with your eyes wide open.”
The First Communications
Consultants agree that the initial announcement is key and that there’s never a second chance to make a good first impression.
Sharing the vision and the culture, the rules and the goals in that initial meeting sets a tone and will convey that change is coming. “If the acquired staff doesn’t have a good appreciation of that, their tendency will be to keep going the way they’ve done it,” says Russell. “You won’t get the benefits of the acquisition as fast if you allow them to run the same. Moving fast can bring dramatic results.”
Russell says the initial talk needs to go beyond the general “how we do business here” to include the details. “Things like how we handle customer complaints, working hours, benefit packages, how we process warranties, rules about whether or not a technician can take that truck home at night.
“There are all kinds of things related to how dealers run their business differently, so if those aren’t communicated well, you’ll have a lot of friction in the system. It’s important to get those expectations set fast. And no one likes change because change is hard, but setting those expectations, having a vision for the new organization, and communicating it at a very detailed level will help the acquired organization make that change as quickly as possible.”
O’Connor urges dealers to pay attention to both the rational and emotional issues from the onset. “When there’s an acquisition, there will be feelings of winners and losers. The acquiring dealer needs to be gracious with the message and make it clear that it’s an ‘all-win’ deal; not a ‘lose’ for anyone.”
Dr. Michael O'Conner
“You can have the best processes in the world, but if you have the worst people, it won’t work. On the other hand, if you have the best people, they’ll fix the processes...”
He says the town hall meeting explains the purpose of a company that is stronger and how all will be better off than they’d otherwise be while setting the expectation for a timely, effective integration. He also advises giving employees a chance to ask questions and to go to someone in a non-threatening position, like an HR director or assistant manager. “Give them hope about the new company, and then deliver on it.”
Russell adds that because people always expect the worst, the sooner you can get them comfortable with the changes and how things will be different the better. And on the subject of making a first impression, he says, “Think of that small dealership that doesn’t have an employee handbook. Now, in the very first meeting you’ve shared a nice professional binder citing the mission statement of the company, pictures of staff and a website with employee access so new employees can review everything online. That can leave an amazing impression.”
Communication Plans for Customers
Russell says the communications must account for the customer conversations that will take place moments after the staff meeting. It’s imperative that employees know what to say to the customers, he says.
“That’s why this early communication about the vision of the company and what the additional capability of a larger organization brings is so vital, so employees can speak with confidence to their customers about what is happening. The worst thing is for them to say ‘Well I don’t know, they haven’t talked to me yet and I don’t know if I’ve got a job, and I’ve heard they don’t pay as well.’” He’s seen it happen.
Russell adds the new owners will want a plan to get out and meet with customers as quickly as possible, particularly the A-level customers.
Keeping the Previous Owners
On the subject of keeping the previous owners around (such as in a sales manager role), O’Connor says it can be very positive if the individual has a good reputation, takes responsibility, and is a team player who is all-win. “On the other hand, if he’s got a lousy reputation with the employees, he’ll be a liability.”
Appoint an Integration Manager
Consultant Michael O’Connor stresses that an acquisition should have an “integration manager” to run point on a process that could take 3 months to a year.
Previous owners are often retained to help with the transition of the customers, says Russell. Telling the customers they’re still there sends the right signals that it was a positive transition.
Spader strongly advises dealers to have a contingency plan in such arrangements. Both parties can see the upside, he says, but often neither sees the downside nor foresees the emotion involved when the previous owner’s “baby” starts to get changed. He advises dealers to consider in advance should things not work out, and to have a plan in place in advance for a mutual exit if neither party is happy after a period of time, such as 60 days.
Business Information Systems
Getting all operations on one common system is something every acquisition desires in order to simplify parts ordering, warranty processing and service work orders that demonstrate to the customer that this is a new entity. While planning for the computer system integration starts long before the deal is final, Spader says the business information system is another area where surprises are frequent.
Whenever there’s a change to a new system, he says, there’s a whole new learning curve for the acquired dealership personnel. “You want to get all stores on it as soon as you can. If you’re not getting good financials out of the current software, then you need to do it quickly. But you also have to know whether the people are ready to absorb that kind of change. There’s a time to do it and a time not to.”
The presence of a CRM and computer system isn’t enough, as there may be surprises as to how thoroughly the tools are used. Spader is aware of dealers who took the word of the acquiree on the CRM and sales documentation only to learn that processes were followed on only one-third of all customers, and territory assignments that had more exceptions than norms.
Russell says the different business systems can create headaches for the parts managers until one system is in use. But he adds it’s still good to put the parts manager into each other’s store to understand how the new system will be different and what type of changes are going to be needed.
Can’t Leave Them Alone
Jerkins says that one of the biggest problems he’s seen is in post-acquisition management is allowing the operations to run as they did previously. “When that’s allowed to happen, there’ll be all kinds of time spent arguing over little things and the reasons for coming together will be forgotten.” He’s seen instances where holding on to the past have virtually killed available synergies.
In explaining the struggle with cultures, O’Connor says acquirers often insist things be done their way with little regard for what way is best. “That’s looking at it from the position of power instead of performance,” he says. “The customer cares only about performance. You’ve got to recognize it’s not about the ‘who’ but ‘what’ works best.”
In fact, O’Connor says there are situations when an acquired store deserves to be allowed to run its own way. An example is the aftermarket business. In larger store operations, sales sometimes reigns supreme, and thus service and parts margins are subpar. In the cycle we’re in now, farmers aren’t buying, they’re repairing and that smaller operation may have a more robust service or parts department. “Those dealers who thought they could sell their way out of anything have taken a hit on their egos,” he says, stressing that the larger dealer may learn some new best practices from the freshly acquired store.
6-Point Plan for First 100 Days
Farm Equipment asked consultant Floyd Jerkins what specific advice he’d give a dealer on what to do in his first 100 days after inking a deal. To Jerkins, it’s about stabilization, integrating controls and processes, and addressing financial shortcomings.
Instead of managing by power or personality, he stresses a values-based approach. O’Connor advises firms to find the 3-4 key values that are truly necessary for success, and what key actions deliver them. “That, simply put, is what becomes everyone’s job.”
Pace of Implementing Change
The topic of how fast or slow to enact change in an acquired dealership is a question for the ages.
O’Connor puts it in perspective. “You’ve gotta make the correct changes quickly. Make a change fast that’s incorrect, and those can sometimes be fatal errors.”
Jerkins used the analogy of the ripples in a pond that follow a thrown rock. He says a series of small rocks thrown into the water over a few months can end up causing fear in employees and customers. “When big changes are needed, it’s often better to throw the big rock into the water and let the big reverberation happen.”
In doing so, he says, you’ve got to assume that some customers won’t be happy. “But remember the ones who will be most upset are usually the ones who got everything they wanted, and the dealership may not have been making any money on them anyway.”
Avoid Getting Spread Too Thin
If the idea about having the resources to manage the newer, larger organization wasn’t addressed leading up to closing day, it will certainly cause insomnia the night after.
Consultant George Russell says it’s important to realize when you don’t have the resources or bench strength to do an acquisition the way you might have preferred.
An owner of a 5-store group, with good systems in place, can be present at each of the dealerships and make it work. “But that’s about the breakpoint of how much control one entrepreneur can have. Moving from 5 to 7 stores means more time away from the home stores — especially right away — and he’ll need to depend on other people to fill in. He’s going to need to learn to delegate and also how to manage remotely. The day after the deal, that owner won’t be present as much at the existing stores, and it’s going to affect them,” Russell says.
“And that’s when different organizational models need to be looked at. If the owner is doing the integration job personally, someone else will need to do the sales management. Maybe someone will need to be managing parts for the entire complex. That’s where you start thinking about that.”
Consultant Michael O’Connor restates another source of insomnia that acquiring dealers soon face. “The smaller stores can go on for a lifetime. The larger ones need stability and growth. But as stores are added, the business can rise and fall equally fast. The bigger you are, the bigger the reward and the risk. Mismanagement gets multiplied in larger businesses.”
Spader says the acquirer needs to be in full control, but different cultures have their own way of handling that. “You can be highly directive if you need to, and in severely underperforming stores, much higher direction will be needed.”
He adds that the rate of change should be related to performance. “If it’s a severely underperforming store, you’ll want to flip results up immediately.” And when the acquirer has a proven, strong culture, processes and people management, the sooner they can get stuff in the better it is for everyone.
Conversely, if the acquired store has a good market share and was a high net performer, be careful about what you go changing, Spader says. “You don’t want to chase off the high-performing staff.”
To integrate cultures, Russell says a best practice is to have someone from Dealer A go to work in Dealer B for a couple of weeks and vice-versa. “Then, you begin to transfer knowledge about the culture at a working level, and begin to understand the differences in cultures that exist. Simply moving people is always the best practice to do that.”
Many dealers say that failing to immediately force their processes and protocols on the acquired dealership was one of their post-integration regrets. O’Connor provides additional food for thought. “You can have the best processes in the world, but if you have the worst people, it won’t work,” he says. “On the other hand, if you have the best people in the world, they’ll fix the processes.”
Employees’ New Day
Consultants stated that ag is unlike other industries when it comes to the delicate matter of employees. It’s more typical than not to state that all staff is being retained.
“When big changes are needed, it’s often better to throw the big rock into the water and let the big reverberation happen...”
Spader works with a dealer in an industry outside of ag that he says, “literally walks in the front door, takes every process and paper and tosses it out.” They make a presentation, outline the culture and big changes coming and are very upfront about the fact that their processes will be followed from here on out. “They say, ‘There’s no hard feelings if you don’t want to do it our way,’ and offer them a severance package.”
In this case, Spader recalls that he’s witnessed where the change of just one person at the top has doubled the volume within a store.
Farm equipment dealer acquisitions are different in that way and tend not to go through a re-interviewing and re-hiring process, but that’s not to say personnel won’t be changed out. “The sooner that you can identify the people who are not comfortable in the new organization, either because they don’t like being part of a larger organization or they’ve got a bad attitude, the better,” says Russell. He adds that prior ownership can be protective of employees and can’t always be relied upon to be objective about skills and capabilities.
O’Connor cautions that wholesale change isn’t always required, even in poor performing dealerships. “Often there’s a number two or three who is good but was forced to do things by prior ownership.”
Find the Low-Hanging Fruit
A top priority, says Russell, is the financial and back-office activities, like accounts payable, accounts receivable, warranty processing and financials. The sooner that is centralized, he says, the more time top management can spend at the new store on the new processes and other essential tasks. Everything that can be moved off the owner’s mind is more “found mental time” to devote to the activities that will make the most difference in the business.
After the financial and business systems, the parts area is where Russell says a dealer can start seeing immediate bottom-line synergies. Parts inventory is an example. Instead of keeping slow-moving parts at multiple stores; one part can be held at one location and moved when needed at another. The same applies to things like special tools, he says.
Another area of opportunity is the technician who has a special skillset. “Maybe Dealer B has a technician that is really good at working on balers while Dealer A doesn’t, but all of sudden has a baler to be fixed. That assessment of talent in the service department is important, because that’s where the true leverage is; it’s the capability of the people.”
Russell tells dealers not to miss the chance to leverage the chaos that the acquisition will bring. A byproduct of the acquisition process is the chance to assess people’s capabilities when it matters most — during stress and periods of change. Russell says you get to see your own staff’s capability and whether you can delegate to them and have them run with it, as well as the capabilities of the team in the acquired dealership. “It’s a good time to challenge your people and ask them to watch an area, or spend a couple weeks in a different location. This is a great time to assess peoples’ true capabilities.”
Spader advises dealers to manage their own expectations, saying they often think they can turn things around a lot faster than is realistic. He recalls a 3-store dealership that was disappointed at how slow things were progressing. “They’d forgotten that it had taken 10 years to get those earlier stores high-performing.”
Acquisition allows a dealership a game-changing opportunity. O’Connor says there’s great opportunity to gain in people, to work together, and find capacity for communications and integration management (because the entrepreneur can no longer do it all himself in this business). He describes a clear trait shared among those taking it all to the next level and who optimize what the acquisition presented to them.
“How will you monitor if you’re getting better productivity and morale? These things are the drivers of stability, growth and satisfaction. Most dealers aren’t motivated to focus on it and that’s why they’re average or mediocre. Those who do these things are outperforming the others. And then you’ll see the banks and OEMs eager to work with the high performers.”
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