As a farm equipment dealer, Zach Hetterick has had no direct involvement with acquiring another dealer. But from his unique perspective while he was a service manager, product manager and territory sales manager for Case IH, he has plenty of experience observing how acquisitions were handled.
Today he is CEO of Archbold Equipment Co., a 6-store Case IH dealer group headquartered in northwestern Ohio. He had previously been the dealership’s territory rep prior to 2011 when he moved to Racine with Case IH. In late 2014 he was approached to head up the dealership starting in 2015. So far, Archbold hasn’t expanded during Hetterick’s tenure, but after being involved in several dealer acquisitions during his time with Case IH, he knows what he would and wouldn’t do after a deal is done.
The first thing the new owners must do, according Hetterick, is get a solid handle on what the customers in that specific sales territory are “really” thinking.
The second is to absolutely make sure all dealership employees are singing from the same hymnal. Any uncertainty or confusion internally is reflected in employee’s interaction with customers.
Above all, he adds, dealers need to treat the acquisition as if it’s a big deal — because it is.
It is a ‘Big’ Deal
Hetterick says one of the more common mistakes he has seen dealers make after acquiring another dealer is playing the acquisition down as if nothing important really happened. “They don’t necessarily try to hide it, but they play it down because they don’t want to upset the customers or they’re afraid employees may leave. So they try to roll the deal out slowly and subtlety.
“I think that’s a mistake. You don’t have to be brash about it, but you need to acknowledge to everyone involved that a major change is definitely taking place. Employees and customers need to know that the next time they come through the door that the dealership has a new owner.”
This fact must be made perfectly clear, he says.
Hetterick believes that treating the transition from one dealer-principal to another, as a non-event is risky for customers, employees and ultimately for the business itself. “This is a bad way to go about it because the acquiring dealer doesn’t establish a bridge between the new ownership and the people who need to know, most importantly, the employees and customers.”
This type of nonchalant approach is made worse when there’s no transition of management, he says. “If we bought a dealership and left everybody in place, including the old owner to manage the place, there’s no reason for the employees to acknowledge that any real change has taken place and they’ll continue doing what they’ve always done.” In other words, if the new ownership doesn’t treat it as an important event, they shouldn’t expect employees to look at it as a major change. And it tends to lead to confusion and uninformed speculation.
Understand Your Market
Another mistake Hetterick has seen dealers make when acquiring another dealership is not reading the local market correctly. For example, he says, it’s imperative to have a thorough understanding of the demographics and how they vary in different areas. “There are big differences in the people and farming practices in the different areas where Archbold Equipment has a presence. In one area, it’s heavily German-Catholic with smaller farms and farmers’ markets. In our Indiana market, you’ll find quite a few Amish and Mennonite farmers. In another area it is straight out big production ag.”
Trying to make the newly acquired store fit the same mold as another successful location without taking into account differences in the customer base is a common mistake Hetterick has seen dealers make.
He says on several occasions he’s observed an acquiring dealer misinterpret the acquired dealer’s position in their specific market.
“I’ve watched dealerships that are clearly dominant buy an underperforming dealership and not understand that there was a healing process that needed to take place. They didn’t dig down deep enough to know that the dealership they acquired may have had a history of bad service, poor parts delivery, or that its customers were generally underserved.”
Hetterick says in cases like these, the acquiring dealer needs to figure this out immediately and address it. The consequences could include months, if not years, of poor sales and continuing underperformance. He says it’s difficult to get any traction in a territory when you’re working in an environment where the lingering sentiment about the previous ownership is less than positive.
Focus on ‘Focus Groups’
To thoroughly understand the local market, get first-hand perspectives and a realistic reading on customer perceptions, Hetterick strongly recommends holding customer focus groups. He believes this type of a setting provides new ownership with a real opportunity for face-to-face interaction with the acquired dealership’s customers and potential customers.
Initial meetings should be with those identified as key customers, but followed up with all customers the dealership plans to pursue.
“I would meet with current customers and those doing business with my competitors. I would want to really understand how they feel toward the dealership we purchased and how they feel toward my dealership. From my experience, all farmers have opinions about dealers in their area.”
Hetterick believes in the right setting, customers will open up and express themselves about what they like or don’t like about dealers and the products they carry, or their previous experience with dealers.
“If they’ve had a bad experience in the past, or if they have a poor perception of the dealership or some products, past or present, hopefully you can keep things from getting worse.
“But a focus group meeting done well, can accomplish two things,” he says. “It not only educates you about the customer, their perceptions and preferences, it also allows you to build a relationship with those customers. It’s a subtle or softer way of starting a relationship because when you make a sales call, you’re pursuing them. But when you do a focus group, it’s a more comfortable way of introducing yourself. You let them know that you’re looking to serve the market better, so you want to understand their needs.”
Hetterick says that a new dealer can often get customers to buy into what they’re trying to do by making them part of the process. You’re letting them know you’re taking the time to speak with them because they’re important, he says.
Reaching Key Contacts
According to Hetterick, one of the keys to an effective focus group is identifying the three or four customers who are influential and whose opinion is generally reflective of other farmers in the area. “There always seems to be a few of those types of customers who others respect and listen to, and who know what’s really going on.
“If you can figure out who some of the key customers are, it can really help get you pointed in the right direction and set the stage for other focus groups,” says Hetterick.
He suggests that the focus groups should be kept relatively small, probably 3-5 customers. “You don’t want them to too big, like 10 customers, because then people become non-vocal. With 3-5 customers it allows you to thoroughly assess the market and get a good idea of where customer perceptions are.”
In terms of timing, Hetterick says, the sooner the better, or as quickly as possible once the news is out. “You can’t do it before because of confidentiality, so once the announcement’s made, I would reach out to those customers that same day or the following day. Or I would have our employees reach out to those customers and say, ‘As you heard, we’ve been acquired and the new owners feel it’s very important to meet you. They’d like to set up a meeting sometime this week.’
“By reaching out to them simultaneously with the acquisition announcement, it allows you to control the message vs. the message controlling you,” says Hetterick. “If you wait 2 or 3 weeks and begin making changes, then those customers have already begun to make up their mind about the new ownership. It will be things like, ‘Well, they raised the parts price.’ Or ‘Their labor rate went from $95 to $100 an hour.’ Then you’ll be the one answering their questions instead of asking the questions.”
Open-Ended & Direct
Hetterick also suggests that only managers or key people from the new owner’s other stores be included in focus group sessions because at least part of the discussion will focus on customers’ experience with the dealership prior to the acquisition. He says it can be difficult for the customers to open up if the old owners and managers are in the room.
In addition to letting customers get some things off their chests, by the end of the meetings, the new owners should walk away knowing what these customers are looking for them to do in the future. “You should have a checklist of 3, 4 or 5 things that you need to get into motion as the next steps. You don’t want the customer to think that their comments were falling on deaf ears,” says Hetterick.
Examples of pertinent questions that need to be asked during a focus group should include:
- What concerns do you as customers have with the change in ownership or a possible new direction with the new ownership? Can you please give us some detail?
- Are there services that XYZ dealership offered that were a difference maker in your decision to do business with them?
- Is the acquisition going to affect any of your purchasing decisions in the immediate future?
- What positive changes are you expecting from the acquisition such as larger service resources, more parts availability, and additional human resources?
- Are there roadblocks to doing business with XYZ dealership that could be overcome to either gain more of your business or any of your business? Please explain.
- Are there unforeseen challenges in the marketplace that we need to be made aware of or to overcome to be successful?
- If you could change one thing about XYZ dealership what would that be?
- Could we do a follow up in 6 months and 12 months to see how the transition is going and get constructive criticism from your experiences?
- Hetterick stresses that holding the second and third focus group follow-ups is critical because you’re actually demonstrating to these key customers that the dealership is serious about meeting their expectations. The most important question to be asked at the follow-up conference is “Are we doing what we said we would do?” and “Have the changes we’ve made so far improved your perception of our dealership?”
While the acquiring dealer obviously needs to communicate with and offer assurances to the customers of the dealership they’re buying, that same level of attention needs to be given to its newly acquired workforce. And, it should be on the same timetable as that of the customers.
If establishing trust with the employees at the acquired dealership is important, the new ownership needs to take the time to explain why the transition is taking place, says Hetterick. Keep it simple. “Unless there’s some sort of default situation, there shouldn’t be a lot of secrets about the change.
“Normally in this market it’s going to be one of three reasons. It’s going to be succession, where somebody’s retiring with no one to replace him or her. Or it’s the current ownership doesn’t have the resources for necessary expansion. Or it’s a decision to merge with another nearby dealership. None of these are negatives unless you leave the door open to speculation by trying to be secretive,” he says.
This should be followed up by explaining what the change means to the customer from the employee’s perspective. According to Hetterick, examples include, more access to more parts inventory, additional service capability, more availability of wholegoods inventory, more emphasis on precision farming capability. “You want all your employees telling your customers the same positive message about why the change happened. Controlling the message is very important and your employees need to understand that.”
While new ownership may worry that employees may view an acquisition negatively, Hetterick says that’s not always the case. “I was involved in an acquisition where the employees were excited for the change because they felt they were falling behind because the owner was near retirement and kind of neglecting things. In that case, they were ready to rush him out the door.”
Best & Worst Moves
In summarizing his experience, Hetterick says the biggest mistakes he’s seen dealers make immediately after announcing an acquisition is the lack of communication to customers and employees. Often it also involves moving too slowly on things that need attention and not letting the people who need to know what’s taking place or when things will take place.
“I think abrupt moves work better in cases like this. You need to get the changes over with quickly vs. trying to transition over longer periods of time. Every acquisition should have an ‘integration plan’ that outlines what changes will be made and timelines when they’ll take place,” he says. “In some instances, customers were getting statements from both the old and new dealership for a year after the sale.”
Another serious shortcoming is leaving underperforming employees in place. “I’ve seen cases where the lack of changes in staffing really impacted customers’ perception of the dealership.”
One of the best moves he’s observed dealers make after announcing they’ve purchased another is to establish a ‘buddy system.’ “Rather than have top managers assigned to their respective departments at the acquired dealership, they team up an accounting person from their organization to work with the accounting people at the new store. It’s like a mentorship program where they link employees to other employees and they start to get to know one another. The new employees know who to call with their questions and begin to feel part of the bigger organization vs. leaving them out there to fend for themselves.”