Whether you’re a group of investors acquiring a business that you’re going to operate yourselves or your company looking to acquire another company, integration is critical. Matot, a fourth-generation dumbwaiter manufacturer, complete a strategic acquisition several years ago. Jim Piper, its President, sits down with Domenic Rinaldi to talk about the integration of the acquired company – what went right, what could have been done better, and some best practices to consider when planning for your own acquisition. Tune in to today’s show to learn all about their success story.

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Listen to the podcast here:

Jim Piper: Building The Integration Plan

Matot is a fourth-generation dumbwaiter manufacturer. The President, Jim Piper, is a former guest on the show. Our firm Sun Acquisitions help them complete a strategic acquisition several years ago. By all measures, Matot’s acquisition is a tremendous success story. Moving the target company into their facility, integrating employees to create one company, they retained the entire employee base and they’ve grown the target company revenues year over year. In this episode, Jim joins us again to talk about the integration of the acquired company. What went right? What could have been done better and some best practices to consider when planning for your own acquisition? Read this episode and I promise you’ll be better prepared for the critical task of integration.

If you want to avoid common deal pitfalls or the risk of losing substantial dollars, you need to know how ready you are for a transaction. Because I believe proper preparation is so critical to your deal success, I have decided to open enrollment in my coaching group for applicants who are interested in improving their knowledge and skills on how to buy or sell a business. I am limiting enrollment. Contact us as soon as possible if you’re interested. You can do that by sending an email to [email protected] and request info on our coaching opportunity. Being prepared is critical to ensuring that you maximize returns and minimize risks. Thank you for being here and hope you enjoy the episode.

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Jim, welcome back.

Domenic, it’s good to see you again.

Thanks for coming back. I didn’t look, but you were interview number 2 or 3 on the show.

How many are we at now?

It will probably be close to 75. Thank you for being a part of the journey. For folks that didn’t read your episode, we helped Matot acquire business strategic acquisition. I wanted to bring you back to talk about integration because you did such a nice job of integrating a company into your facility. It would be great for people to know that story. If you wouldn’t mind though before we get into that, can you give people a background on Matot and how you and the executives of Matot decided that an acquisition was the right thing to do?

Matot is a company with a very interesting history. We’re a manufacturer of commercial dumbwaiters and we’ve been in this business for more than 130 years now. The company was started in 1888. It has always been Chicago-based, fourth-generation ownership, and two sisters own the company. We’re a woman-owned business. A few years back, we looked at some strategic planning and growth goals and tried to make some decisions as to whether or not organic growth was where we should put our emphasis or if we should make a larger leap and look at acquisitions. We looked within the industry sector in which we typically play, which is the elevator industry first. We also looked for compatible businesses that could leverage our skillsets as a custom engineered sheet metal manufacturing company.

Within the industry, we looked upstream and downstream and we couldn’t identify a good fit at the time. We approached you to help us with that initial search for an acquisition target. Through a variety of different industries and owner meetings and product types, we settled on our ultimate acquisition, which was an industrial damper company. It had nothing at all to do with the dumbwaiter world in which we play now. It’s very compatible in terms of it was also a custom-engineered metal fabricated product. It leveraged both the same type of engineering skillsets that we had in-house, but also, and probably more importantly, leveraged our skillset on our manufacturing floor where we had excess capacity at the time.

When you went out to do this acquisition, you knew that you most likely wanted to merge something into your existing operation. You had the capacity on the floor. You were targeting businesses that would be easy to fold into your existing operation.

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We had identified probably 25% of our floor space could be freed up, depending on the type of product we’re going to add. We have a 40,000 square foot facility and in the ideal case, we were hoping to find a product that would utilize the majority of the same equipment and techniques that we use on the shop floor.

It’s such a great example. When we have people come to us and they’re interested in making acquisitions, I’d say the preponderance of the time they’re coming in, they’re looking to acquire competitors maybe and we try to expand that thinking and the net to think about, “Are there strategic acquisitions that you can be making that isn’t your core business, but it’s additive or it’s the similar process?” You could easily fit that into what you were doing because you had the core skillset, even though it’s a completely different industry. It’s a great example of being strategic about an acquisition.

For us, it’s had a lot of added benefits because it’s diversified our revenue stream. The dumbwaiter side of the business, which is still responsible for 2/3s of our business, is a very commercial product. It’s going into new buildings, it’s going into new construction. It’s going into restaurants, hotels, hospitals, airports. The business that we acquired is a heavy industrial product. The sales channels are different. The way it goes to market is very different. It’s sold to independent industrial sales reps. Since we’ve acquired it and even now through the pandemic period, it’s certainly helped level load our revenue streams and our production modeling over the course of time. I don’t think that necessarily would have been a case if we had identified something strictly within our industry.

Diversification is a great thing, especially when they’ve been in the industry for 130 years.

It took us a while to diversify, but now we’re there. It’s working.

Let’s dive into integration a bit. It’s a topic I’ve been talking a lot about lately because it’s such an important one, whether you’re a group of investors acquiring a business that you’re going to operate yourselves or your company looking to acquire another company. Integration is so critical. I think you guys did such a nice job of planning it and then executing it. I know it didn’t go completely as you would plan, but because you had a plan, you were able to modify it on the dime. When did you first start to build the integration plan and what did that look like? We then can get into the actual implementation of it.

Once we had identified that we were fairly certain we were going to close this deal, it was probably a good 30 days out that we started to finalize and add detail to an integration plan. Once we knew the product, we had a feel for the company size, the number of employees, and the manufacturing processes. I would guess about 30 days out, we started to add detail. A lot of it comes down to capacities and capabilities. We look down the line items of things that need to be accomplished in any M&A transaction, from the early stages of identifying targets to evaluating acquisitions, to doing due diligence all the way through integration. It’s merging the capacities that you have on hand. That’s typically the personnel with the capabilities that they have. It’s this matrix of skillsets to identify who’s going to be responsible for what levels of detail. Do we have the right team members in place? Do they have the tools and skills to get the jobs done?

Once we mapped out what I’ll call our internal HR skillset, we went through a very logical and not unheard of plan of what the integration was going to look like from the financial aspect of it to the legal side of it, to the HR. My background is strengthened and passion is on the operational side of the business. With our engineering team, with our production team, we had a pre-formal announcement. We began to map out literally week to week the actions we were going to take as a company to integrate production into our systems.

This is an ideal case on paper. It never works out 100% to plan, but it helps to flush out all of the detailed questions all the way down to literally the nuts, bolts and washers of the operation. Now, we have two companies, two different physical locations that, for example, require the same raw materials. How is that transaction going to occur once it’s under one umbrella? Looking back upon it, about 30 days out, once we knew we were 95% of the way to close and getting a deal done, and it was just legalese at the time, we started to add a lot of detail to our integration plans.

Jim, did you find that you had all of the proper resources internally, or did you have to bring in any external resources to help?

 

We handled it like any other traditional M&A transaction. We leaned heavily upon banks, lenders and legal and yourself for contractual assistance. There’s no way we could’ve gotten a deal done without that team in the background supporting us. Operationally, we were fortunate enough to have the skills in-house to get the manufacturing part of the integration up and running and eventually transitioned without any external help.

Had anybody gone through a merger or an acquisition before on the team that you had assembled for integration?

Not at this scale, no. It was the first time to do such a formal transaction. They had done a very small acquisition of a competitor in the mid-‘90s with another dumbwaiter company. There are two main players. They’re like a Coke and Pepsi in Chicago. That company was merged into Matot in the mid-‘90s and the gentleman that owned and ran that company became an employee of Matot. Beyond that, they’d never accomplished a strategic acquisition like the one we just did.

I’m curious, looking back now, integration is hard. It’s not just the manufacturing processes. It’s HR. It’s all the financial components. It touches every aspect of marketing and sales. Did the integration team have the capability to handle the integration on top of their day jobs or did you find that there were some stressors in keeping the integration on top of their day jobs?

At the moment, it seemed like we could handle it, but looking back upon it, we certainly overwhelmed our team. I’ll say that and specifically to one of the points you mentioned, sales was one where it was extremely taxing. One day our sales team is selling and has a great depth of knowledge of one entire product and way to go to market with our main product line, the dumbwaiter line. The next day we’re also asking them to sell this brand new thing that they’ve never heard of. That was probably the most time-consuming part of the transition for our team was with bringing the sales team up to speed about this new product.

We greatly underestimated the twenty years of experience that the prior owner had selling the product. He was, I would say, raised in the business. He was not only the owner, but he was the primary salesperson and the customer relationships with our rep groups that were deep. Bridging that gap between his knowledge base, his experience, and building that with our sales team, in addition to them doing their day to day was extremely taxing. It was likely someplace where if we had to do it again, it may have made sense to hire almost someone new in our sales organization to handle solely and learn this new product line.

You had the benefit of the previous owner who stuck around for a while. He was there for 3 to 6 months. You had the benefit of a pretty orderly transition.

We did. In fact, we kept them as a consultant for nearly two years almost as a full-time employee for the first year and as a 25% owner for the second year. We did have him around for an extended period of time, which was extremely beneficial and fortunate in our case because I know that’s not always the scenario.

Did he continue to do the sales until you could calm things down on the sales side?

Yes. He helped immediately with that transition. He was still taking sales calls, still responding to sales emails as he was training both our production operational team, but also our sales team.

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Fast forward to now, are your salespeople all selling both the Matot product and the dampers. Do they have everything in their toolkit?

They do. All of our internal sales team can sell both products. They tend to specialize. We shift the burden from one to the other, but overall, both teams can quote both products. The only difference with the new product line is we did hire a full-time outside sales manager for the new industrial product line because that’s sold through independent sales reps. They require different handholding and management techniques, but internally, yes, we train everybody on every product. Engineering goes the same way too. Our engineers can build and design both products and our production team can manufacture both products.

Let’s spend a minute talking about the people. You kept all but 1 or 2 of the employees from the damper business moved into Matot and moved into the facility. How did that go? In retrospect, looking back at it, were there things you would have done differently? Talk about the people integration and culture a little bit as well.

This is definitely an area where we would have done things a little different the next time and I’ll touch upon that. Going into the deal, it was very important to Matot that we offer every employee at the new facility, at the new company a job. We were very upfront about that going in. We had decided that as the executive management team, that was our goal. We wanted to retain everybody. On day one, we made that offer. “You’re now a Matot employee. We need you. We know nothing about this business. We’re going to need your help. Welcome to the team.”

At the home office, we also were very transparent about the work that we were doing. Once we knew the deal was going to happen with our home team, we said, “Matot is growing strategically. We just bought a company. Congratulations. We’ve grown our revenue by a third, but there are going to be some changes.” We mapped out the integration plan to our home team so that everyone here again from office to production staff is very aware of the changes that were going to happen, how people were going to be taxed and pulled in different directions for a period of time. Overall, we explained clearly why this was good for the company as a whole.

The mistake we made looking back upon the announcement to the company that we acquired was if you can imagine this, the day of, we had planned thoroughly about the words we were going to say. We had brought food in but the employees at the acquired company had no idea that this was going to happen. They were pulled into a small break room with the owner and myself and our executive management team were there. You can imagine the nerves that were on edge when something like that happens. The error we made was not working with the owner as to how best to message what had just happened.

Through no fault of his own, rather than perhaps taking an approach that said, “I want to thank everybody for the decades of service that you’ve given to me and my company. I’ve decided to make some personal changes in my life. One of those is I’ve decided to sell the company. Let me introduce you to the new owners and explain how this whole process was going to work.” In reality, the words that came out of his mouth were, “We’ve just been acquired,” and let the pin drop. It made it seem as if we were some nefarious group that had come in under the cover of darkness to acquire this company almost against his best wishes and interests for the company. With that tone, we immediately had grown men crying who thought that their jobs were going to be lost, that was falling. It was a shock to the system and the way that the presentation went down.

Our messaging amongst our team was very clear and we had agreed that we knew what we were going to do and say when we went in the door, but we did not anticipate at all the messaging that came out of the owner’s mouth. There was a lot of picking up the pieces after those words were said, which again seems very simple in hindsight, but at the moment, it was detrimental to the entire morale of the team that we had hoped to maintain employment with. There were a lot of questions about employment and then get down to the nitty-gritty about insurance, bonuses, vacation and holiday pay. All those questions fired at us. We were able to soothe a lot of that. Partnering with the acquired company ownership or management team ahead of time to discuss the messaging is something that we certainly would have liked to have spent more time looking at.

It’s such an important point. Most acquirers will come in or the previous owner will come in and they’re thinking about what’s happened for them or what’s about to happen. It’s so important to put yourself in the chair of the employees that are sitting there, who now have their world is getting turned upside down. I did an interview with Dr. Klint Kendrick. He’s an HR M&A expert. One of the things he said and the best practice that he delivers to people is to start with the fact that they have jobs. If they do in fact, have jobs, let them know they have jobs and that they’re going to be valued members of the team. You can get to everything else but start with them and work your way back. You’ve got their attention. You’ve taken the burden off their shoulders.

It’s imperative to maintain what we call the employee infrastructure. You need to maintain that morale. You’ve got to maintain that employee buy-in. In this case, again, because it was a very new industry for us, we didn’t want to lose anybody that panicked and skipped town because there was a tremendous amount of “secrets” that the employees had for building the best quality product that the company had been known for. Had we had a flight of employees, we would have been up the creek trying to try to get things up to running. We were able to pick up the pieces. We were able to bring everybody around. We were able to layout. We had incentive plans to maintain employees. We were eventually going to relocate employees because we consolidated operations 45 minutes away from their facility. Through a different variety of measures and incentives, we were able to maintain employment for almost all of the employees that were in the acquired company.

 

Did they know that on day one, Jim? Did they know that eventually the operations would get merged or did you start with, “We need to get to know each other,” and then that decision was made and communicated later?

We let them know out of the gate. It was an honest statement that we didn’t know exactly what the timing was going to be and whether or not we were going to consolidate. However, we did leave it as an option. This is where our pivot happened because when we looked at our detailed plan, we thought it would take us at least a year before we consolidated operations under one roof. We let them know that like, “There’s a possibility that one day you’ll be working here in a new facility. We don’t know when that’s going to happen. We think it might take a year if it happens.” However, operationally, we found it extremely inefficient to have both of these facilities running at the same time. We didn’t have enough people infrastructure to spread them geographically.

We weren’t as familiar with things like Zoom at the time to make it happen. It was a lot of driving. It was a lot of windshield time. When it came to combining even IT systems and ERP systems, it was very difficult to maintain the two systems. Rather than stick it out for a year, four months in, we consolidated operations. At that point, again, we were very transparent about our intentions and motivations for doing so. It was at that point that we had individual meetings with each employee to discuss their future with the company. Every employee was offered a job. The production team was offered the exact same job that they had. There were some clerical jobs where we wanted to maintain the team members, perhaps not in the exact capacity that they were working. Those are the 1 or 2 scenarios where it didn’t work out. For the most part, we were able to maintain every key employee that we needed to keep.

Jim, how did the physical integration, moving people in your facility work, just the physical components of it, and culturally, how did you merge these two different workforces? How did you make sure that it all came together so that there weren’t clashes or were they separate enough that you didn’t have to worry about that?

There were several things we did. Early on, we brought all the employees from the damper company to the dumbwaiter company via bus for a luncheon to meet us, to spend time for days with our home team. We did the same with our home team employees. We took them to the facility of the damper company and let them sit and shadow and meet and spend time with the new team. That helped start to build relationships, to put faces with names, to build rapport, to learn a little bit about the product mix. When it came to the physical move, it was kudos and hats off to my engineering manager at the time who had a vision for how to integrate this into our production facility and to see down the path of what was going to be required in terms of infrastructure, free up space in our current facility.

It took us maybe four days to move all of the physical goods that we were going to keep from the damper company to the dumbwaiter company and a tremendous amount of planning. Eventually, it’s just flatbeds and rigging companies and moving equipment. Once they were on site and once they were working here full-time, we emphasize again and again that all of our employees are Matot employees. That was done through luncheons and through swag. Everybody got shirts, hats and water bottles, but everything was geared around one company, not two separate divisions under one roof. We’ve continued to build that. I can’t say that out of the gate that it was the easiest and smoothest transition. That’d be a lie to say there wasn’t suspicion and that there are different ways of doing business. There are different ways of manufacturing products. I presented the obstacles that we had to overcome. Same with anything, we maintain the message that we’re one company.

Ultimately, product lines rely upon many different employees building products for both. A lot of the raw materials get fed through the same work cells. We worked on cross-training of our employees so they can build both product lines and eventually over time, there’s a symbiosis of skillsets and knowledge that ultimately led to the team that we have. Eventually, some employees from both sides of the business have left since then, not as a direct result of the transition. We’ve been able to replace people now and maintain operations for both product lines because of this cross-training nature of all employees, one company motto and it’s led us to a fair amount of success so far.

If you had to ramp up on one side of the business, you have employees on the other side that could come over and help with that.

It happens every week. We transition employees from one work cell department to the other fairly easily.

Are there other things that happened in the integration that you think would be very helpful for other people to hear and understand?

Every time you read things or meet another person in the industry, you're picking up another little tidbit of knowledge. Click To Tweet

One of the best things that happened to us in the integration and actually just going through the entire M&A process was that it forced us as a legacy company to update many of our tried and true processes and systems in ways that we wouldn’t have been motivated to do so before. I can give you a simple example of an ERP system, which I know makes people roll their eyes when they think about implementing one. We had a system that was designed to manufacture one product. It had zero flexibility in terms of going to market differently dealing with reps and commissions and even our engineering systems were built for one system. It didn’t have any flexibility and through the process of having to integrate an entirely different and new product line, it forced an upgrade of much of our infrastructure. Both personnel-wise, we were hiring, I would say, and this gives us the option now to recruit better because of our product mix and marketplace mix. It’s a better story to tell.

We’ve got a growth story. Now we’ve had a success story through acquisition. We want to do this again. We’re going to continue to do this type of growth. That’s helped with recruiting come to front, but also a lot of the base legacy historical systems that were in place from IT and ERP and finance. Those systems were all pulled and upgraded over perhaps that first year to now we’re a modern company. We feel that we can do a continuous process of acquisitions. We’re not afraid anymore to do new things. It’s given us a different perspective and outlook on who we are and the risk rewards that we can take now because we’re not stuck down this one single product line mindset. Looking back on it, that forced change overall has been extremely beneficial.

It’s an unintended benefit to your core business.

We’re a much better company overall, not just because we grew revenue, but we’re a much better company because we’ve done acquisitions.

Jim, you’ve been very gracious with your time and the information. Let me ask you an umbrella question. If you were to give people advice out there, your top three things to do when you’re looking at making an acquisition, what are the top three things that you would advise? If it’s 4 or 5, that’s fine, but what are the top things you would recommend that somebody does when they’re looking to make an acquisition?

It’s important to have back of the house help in place long before you begin your search. By that, your accounting, legal, business broker, or consultant, having the areas of expertise need to be well-established long before you begin this process. Those are relationships that I hadn’t spent much time prior to the acquisition. I’m very glad that I have those relationships now. They were key to getting the job done, but building and strengthening relationships have been extremely helpful both to the business, but also personally. Back of the housework, back to my first statement, ensuring that you have the capacity and capabilities in-house to get the work done. Identifying the key personnel in your own organization and perhaps looking ahead to acquire a company or merge a company, what key personnel is going to be part of the integration plan. How detailed of a plan can you put together knowing what you have to work with?

To your point, you may need a consultant for some part of the process if the industry is that unfamiliar to you. The third is, and again, it’s very cliché, but it’s transparency when it comes to communication. Internally, we kept things tight and under wraps as we were working through this because we weren’t too sure exactly what was going to happen if the deal was going to get done. We were looking at multiple deals. Once it was done, it was open and any employee could ask any question about our motivations, our intentions, and how we expected things to go down. Those would be the three biggest things that they have to keep in mind.

 

I’ve gotten to know you and I know that from a communications perspective, you’re transparent. You’re not going to hold anything back. That’s such a key component of making sure that you retain those employees and win their hearts and minds. I know this transaction has worked out very well for Matot and you were a big piece in driving that success. Kudos to you and the organization.

Thank you. The other thing is you just can’t stop learning. There are so many different facets to this type of transaction. There are shows like this and different books and people that you meet that are in the industry. Every time you read things something like this or you meet another person in the industry, you’re picking up another little tidbit of knowledge. For me, for someone that hadn’t done much of this work in the past, just the networking and asking questions, even post-acquisition, has been extremely helpful.

I think you said it best, assemble the right team. I’ve been doing this for a couple of decades and I don’t come across much that I haven’t seen before, but every now and then I’ll come across something. If you do 1 or 2 transactions, there’s so much to know about getting an M&A transaction done. We say this all the time. Get an M&A attorney, get an M&A accountant, get an M&A advisor, get the right team in place. You’ll be well-served. You’ll save yourself a ton of money and heartache if you don’t and hopefully, you meet your return on investment objectives much faster. Jim, thanks so much. I appreciate it. Continued success to you and Matot and I’ll look forward to hearing about the next acquisition.

Thanks again, Domenic. It’s been a pleasure.

Take care.

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I hope you enjoyed this episode. If you enjoy our content, please remember to subscribe and review our show. I look forward to seeing you again in the next episode. Until then, please remember that scaling, acquiring, or selling a business takes time, preparation, and the proper knowledge.

Important Links:

• Matot
• Jim Piper – Previous episode
• [email protected]

About Jim Piper