This summer we have seen huge shifts in the casket company landscape. Down south Aurora purchased Delta, then Matthews/York purchased Milso and just last week Batesville signed a definitive agreement to purchase Yorktown. Mergers and acquisitions, M&A, as they label it on Wall Street. Tens of millions (often enough billions) of dollars moved around from pocket to pocket all in the chase for "synergies" and "economies of scale" and "strategic integration", to name just three of the magic phrases bandied about by the M&A experts of the world. There’s only one problem. M&A rarely works. Just read this quote.
"When asked to name just one big merger that lived up to expectations, Leon Cooperman, former co-chairman of Goldman Sachs’ Investment Policy Committee, answered.
‘I’m sure that there are success stories out there, but at this moment I draw a blank.’"
[From Tom Peters’ publication Project 05 p. 124, available for free from TomPeters.com or click the following link: Download Project05.pdf ]
In other words, don’t confuse activity (even sophisticated financial maneuvers organized by MBAs) with real business growth and development. Too often these projects boil down to internal or external politics at the top of organizations as opposed to grass-roots, meaningful business enhancements. Aurora ’s acquisition of Clarksburg, for instance, may fall into that category.
The same issues apply to funeral homes. Compared with the millions spent to acquire a casket distributor, most funeral home mergers look very small. Yet everything here is relative. When a 150 call business buys a 75 call business, the parent grew 50% overnight! Anyway you slice it, sustaining that new business and growing it into the future will require lots of time and energy and heart and MONEY. For instance, the costs of transition will add up. Things such as advertising and PR in the new marketplace, clearing out of incompatible staff (even though they have a "following" in the community), getting staff working together, covering for lost productivity because people are now traveling between buildings (that one gets forgotten most of the time by the way), all cost real money and who's going to pay for all of that? (Here's a hint, it ain't going to be the former owner, that's for sure!).
Business purchases do work. Just ask Warren Buffet and the shareholders of Berkshire-Hathaway. It can be done, though even Warren Buffet makes BIG MISTAKES once in a while. Also keep in mind that Buffet rejects 100s or even 1000s of investment and purchase "opportunities’ before he chooses to make a move. He never panics (remember all the criticism he got for leaving the dot coms alone). He knows what it takes to make money and he sticks with those basics over and over again.
Funeral home owners usually know what it takes to make money as well. They also know when to get out, when the best money making is over. So as the pressure to make a big move creeps up on you—because "everyone else" has jumped back into the game—take a deep breath, go on a long walk, look at it all again. Make sure a purchase really does fit and make sure you will get compensated for the personal and business risks involved. Sellers cannot get all the credit and all the future cash-flow. They want out for some reason or another and the sale should be a bonus on top of the money they have already socked away over the years. The sale should not be their one and only retirement settlement. If the business is their only nest egg, look again and carefully, there’s a problem you should know about in that business.
Don’t be afraid to lose a bidding war by the way. Over pay now and you will regret that over and over again as you find yourself short of resources to make the moves, changes and upgrades necessary to stay competitive and financially strong in the future. Just ask the folks who work for the publicly traded funeral companies. If the price runs up, let it go. Instead, swoop into the neighborhood after the sale and gather in the business they lose as a result of the transition. In that scenario, you grow stronger with very little risk or expense. Nothing wrong with that.
Never buy out of fear. If you sense anxiety about a business deal, back off, give it a rest and look again. Let your business instincts work. There’s probably a good reason (even if you can’t put your finger on it right away) to wait, no matter how fantastic the deal looks on paper. We don’t live on paper after all and neither do businesses. They have to function in a complicated real world and no amount of wishful or magical thinking will fix that.
Be prepared. The M&A specialists will rise again. They have all those amazing casket company stories to tell! Just remember, "buyer beware." Always take that warning into account when evaluating mergers and then build a great business, one quality decision at a time.
BT
Insightful post re: M & A
Posted by: pbray | October 09, 2005 at 04:25 PM