From the pages of In Business magazine.
Perhaps the two most common business growth strategies are organic and inorganic growth.
Organic growth is the growth a company achieves by increasing output and enhancing sales internally. This does not include profits or growth attributable to mergers and acquisitions but rather an increase in sales and expansion through the company’s own resources.
In contrast, inorganic growth arises from mergers or takeovers rather than an increase in the company’s own business activity. Firms that choose to grow inorganically can gain access to new markets through successful mergers and acquisitions, often making inorganic growth a faster way for a company to expand compared to organic growth.
However, while faster, inorganic growth through mergers and acquisitions can be much more complicated and challenging. Think of it like a marriage — two separate parties coming together to form one joint unit. Each brings a unique history and core values. Each has its share of baggage, too. In order to survive and thrive, marriages take work. Two very different personalities can be torn apart if there’s not sufficient buy-in to make the union work.
The same can be said of companies that come together through merger or acquisition. It’s a tricky process that requires all parties to be willing to make some compromises and change for the better long after they’ve said, “I do.”
IB spoke to leaders from three local firms that have all grown through mergers or acquisitions in recent years — Monona Bank, Naviant, and the Gordon Flesch Co. Some differences obviously exist among all three in their respective M&A stories, but one commonality can’t be denied — communication is key.
Merging cultures
When Monona State Bank began its merger with Middleton Community Bank several years ago, one thing was readily apparent, notes Monona Bank President and CEO Paul Hoffmann.
“We were fortunate to have two very similar company cultures,” says Hoffmann. “Our staff realized this at the first ‘mixer’ we hosted to introduce our two bank staffs to each other. We had many associates at the two banks who had worked together, either at one of these banks or another one in the area. There was a lot of mutual respect from the start.”
According to Hoffmann, since leaders from both banks had known each other well before they merged, they had many common goals way before they even signed a deal — things like retaining all of the two bank’s experienced staff, keeping all locations open, and creating a new and better bank by building off the strengths of each bank to create new efficiencies and better product offerings.
As well as it went, Hoffmann admits there were some growing pains in the merger. “Even with all our preplanning and the buy-in and excitement we gained during the initial process, when [associates] are sitting at their new desk and starting their new job, it is stressful, and stress comes out in many ways. Mergers create learning curves — it takes time for associates to learn who is doing what, where they sit, how to interact with them, etc. Throw in new managers, new or revised policies and procedures to follow, a new system for time off and health plans — again, change causes stress.”
Hoffmann notes there was stress on clients from the two banks, as well. New faces, new products and/or changes to their current products, new locations and phone numbers, completely new and more robust online banking and remote banking tools to learn — all of those things were an adjustment for clients. Plus, people loved Middleton Community Bank, he explains, and did not want it to change.
“Fortunately, as we merged the banks, we made changes that we believe improved the banking experience for both sets of clients and we were careful to communicate all changes, as well the rationale for the changes we were making, to everyone,” notes Hoffmann. “If we heard one thing from clients during our merger it was, ‘Don’t mess up MY bank, I like it just the way it is.’ We tried to honor that with everything we did — no change just for change sake, only if the change was an improvement for our clients, associates, or shareholders.”
One unexpected gain from the merger? Prior to merging, as two smaller banks, a lot of associates had to wear many hats. After, as roles were redefined, many associates could focus on one main thing that they were more passionate about.
“As we merged our banks, we had the opportunity to look at all our internal processes and pick the best of both and create new ‘super’ processes,” Hoffmann explains. “This allowed us to become more efficient. We found we had more experience and opinions to draw from as we were looking at the best way to run our ‘new’ bank, with less need to stick to the way ‘we always did things.’
“To lessen anxiety and stress, you really need to communicate constantly and as early as you can,” adds Hoffmann. “This makes the merger so much easier, fosters associate buy-in, makes it easier for employees to bring up issues they find before they are huge problems, and will make it easier in the event you hit a rough patch if your employees believe you are keeping them in the loop along the way. If you are honest with all news, good and bad, employees will be more receptive.”
Talent acquisitions
Four years ago, Verona-based Naviant prioritized a strategy of growing into new geographies via organic growth or acquisition. Over the years, Naviant had successfully grown its business in the upper Midwest, says President and CEO Michael Carr, and there was strong belief that what made it successful in the upper Midwest would make it successful in other markets.
In late 2017, Naviant acquired the software division of Akron, Ohio-based CASNET, giving the enterprise content management firm an influx of new talent to the east. That success led Naviant to look for an opportunity to expand west; in January, Naviant signed an agreement to acquire DoxTek, a business process automation provider based in Orem, Utah.
Just like the Ohio acquisition, the Utah acquisition started with building relationships with the owners of the eventually acquired company, explains Carr. “We became friends and shared business successes and challenges with each other. We got to know, understand, and appreciate each other’s business. By the time we started to talk about a merger or acquisition, we had already built a foundation of trust and had a true understanding of the cultures of each of our respective companies.”
One of Naviant’s key objectives from the acquisitions was to add talent to its team. Carr expresses pride that all of the Ohio employees that were hired after the acquisition are still with Naviant today. Furthermore, Naviant has seen significant growth in the Ohio market and its staff in Ohio has doubled, requiring the company to expand its office space.
In terms of management structure, Carr says the reorganization has been minimal. “We have managers and executives who continue in leadership roles and other team members continue in similar roles. We also promoted certain staff into team leaders to help facilitate more collaboration between existing and new staff and support additional team members.”
Carr acknowledges the biggest challenge during both acquisitions relates to adapting to and welcoming change. “Since we are using the Naviant systems, our new team members have been challenged with new processes to learn. Oftentimes, these processes are more involved and complex because they are joining a larger, more complex company. On the flip side, the existing Naviant team members have been faced with the idea that our processes are not perfect and can be improved.
“On the customer side, we are facing the expected challenges of contract assignments, new contract negotiations, and more,” Carr continues. “There are nuances to how we provide sales, delivery, and support which are not always appreciated by new customers, but overall our new clients are being supported by a larger team with more capabilities.”
To help facilitate a faster acceptance by the acquired client base, within a few weeks of each acquisition Naviant provided many touch points — new client webinar, executive visits, personal interactions, etc. — with its new client base to provide an immediate sense of calm for those clients that they’re in good hands, says Carr.
While the Ohio acquisition went smoothly and the Utah transaction is continuing apace, Carr cautions against how easy it is to get caught up in the excitement of a deal, noting a bad deal could at best be a major distraction and at worst bankrupt the company. “You need to have a great understanding of what you are buying and how it will integrate into a combined organization. Do not skimp on the official due diligence process. You really need to understand your risk and make sure you have taken every step to mitigate that risk.”
Giving dilligence its due
The past nine months have been a busy for the Gordon Flesch Co., as the Madison-based office technology provider has acquired three companies as part of a rapid growth phase.
In September 2019, Gordon Flesch announced the acquisition of Advanced Systems Inc., an independent dealer in the office-technology industry with offices in Iowa, Minnesota, and South Dakota, in a deal that creates the Midwest’s largest independent office equipment dealer.
Gordon Flesch followed that up with a November announcement that it was acquiring Indiana Business Equipment, a Canon dealer located in Terre Haute, Indiana. That transaction solidifies Gordon Flesch’s position as the nation’s largest independent Canon dealer.
In February, Gordon Flesch agreed to acquire Information Technology Professionals (ITP), a managed service provider with about 40 employees spread between locations in Madison, Appleton, and the Milwaukee area. This acquisition makes GFC one of the largest technology companies in the state.
In order to grow that quickly, GFC President Patrick Flesch says there has to be a cultural fit. “We were focused on finding sellers who weren’t interested in simply taking private equity money or getting the best number, but who truly cared about how their employees and customers were going to be treated post-sale.”
Every one of these deals was a little bit different and all three started off differently, explains Flesch. “We did some research and put together a list of what companies looked good to us on paper. Then we decided who would be best to make the first touch. This typically consists of an introductory phone call just to figure out if there was potential interest in taking the discussion further.”
From there, Flesch says the deals took between three to nine months to complete. “Then the real work begins once the ink is dry.”
Flesch proudly notes that in all three deals, apart from those employees who self-selected to leave, not one person was eliminated. “We made it very clear in all of our negotiations that we will treat the employees that come on board with respect and fairness. It is so difficult to find and keep strong talent these days that we saw these acquisitions as way to boost our talent level. Buildings are a more difficult component and we are still working through what to do with various properties and buildings that came along in the sale.”
Flesch says he definitely learned some things along the way through the three acquisitions. “I would say one thing that stood out was that our idea was to initially go in and say to all of the new employees, ‘It’s business as usual for the time being.’ In reality, people just want to know if they are going to have a job or not. It might have been better if we could have set realistic timelines on day one to let people know when their future would be clear.”
According to Flesch, GFC did not conduct a formal survey with employees at any point to gauge their feelings, fears, or reactions to the acquisitions, but leaders from all companies were in constant communication post-sale so that they had a pulse on the people and how they felt about things. “We also were physically present at these companies’ facilities quite a bit. So, to be able to shake a hand and introduce yourself and let these folks know that you are real people, I think that went a long way.
“We don’t look at acquisitions as transactional; we like these to be long-term plays that present upside for both parties.”
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