In the world of mergers and acquisitions (M&A), the traits that make up an ideal acquisition can vary greatly from one perspective to the next. The variables are plentiful: sales volume, geography, OEM lines carried, product/service offerings, customer base, staff tenure, reputation in the marketplace—the list is endless. The ability for a prospective acquisition to mesh nicely based on those variables makes it attractive to some, but not a good fit for others.
As part of this month’s State of the Industry focus on M&A, we asked our panel—which includes several of the industry’s biggest players in the transaction theater—to offer some insight as to the traits they seek—beyond merely the financial parameters—when sitting across the table from a seller.
When a dealer establishes a track record for acquisitions, it is able to delve deeper into the factors that can ultimately pave the way for smoother integrations and long-term success. For RJ Young, the appreciation for organizational culture and value alignment takes on more significance, notes AJ Baggott, president of RJ Young in Nashville, Tennessee.
According to Baggott, these factors can supersede the numbers. “We have walked away from many of the companies that meet the financial metrics we were looking for, but lack the organizational culture and values that align with what we have at RJ Young,” Baggott said.
While acquiring larger dealers in the $25 million and higher range can make for a highly profitable venture, dealers such as UBEO Business Services of Austin, Texas, are looking for candidates whose customer rosters can greatly benefit from the full and diverse menu of solutions it can offer. While CEO Jim Sheffield loves the huge deals that can really “move the needle,” finding a client list that can be fully capitalized upon is tantalizing.
“For the smaller ones, we can bring our power to the table,” Sheffield said. “We probably have the premier product line in the industry, with the big four [OEM] players. So we can bring a lot of things that, almost from day one, their reps can be trained on that will allow the [acquired company] to grow pretty aggressively.”
Flex Technology Group (FTG) of Mesa, Arizona, has garnered a reputation for seeking out only the larger, highest-performing dealerships across the nation, but that distinction comes with somewhat of an asterisk. According to Dan Ruhl, partner with Oval Partners (the private-equity arm behind FTG), both hub/platform acquisitions—firms that record $15 million or more—and sale/tuck-in deals open the door to a wide variety of deals.
“We’re looking for market leaders where the business owners clearly want to stay on as part of the transaction—that’s our primary focus and represents a majority of the deals that we complete,” Ruhl said. “But we also entertain deals for $5 million and above, where the owner is looking for more of a sales transaction. They’re then folded into one of the businesses we already have in that geography.”
Aside from a seller meeting Gordon Flesch Company’s financial metrics for a possible deal, the manufacturer and geographical alignment are critical factors, notes Patrick Flesch, president and CEO of the Madison, Wisconsin-based dealer. The need to align via corporate culture cannot be overstated.
“We need to make sure that both parties have a similar approach to how we structure our business,” Flesch said. “Is there a strong internal culture with talented employees and happy customers? If so, that’s a huge plus.”
