Everyone does due diligence before buying a company. It’s a no-brainer. It’s step No. 1.
Yet it was completely ignored in one multimillion-dollar deal that turnaround artist Kevin Vasquez got stuck sorting out for an employer years ago. The results could — perhaps should — have been disastrous.
“It was a deal cut 30 miles off North Carolina in a fishing boat,” says Vasquez of the merger agreement between Fermenta Animal Health and Tech America. “The president and CEO of the business called me into his office one morning and said, ‘We just bought a company and now you need to go out and look at it.’ It was a company that was losing $8 million on $35 million in sales. The cultures didn’t align. The businesses didn’t align.
“I saw where they had, honest to God, 500 years worth of finished goods inventoried given the level of sales that they had on some products. That acquisition darn near took down both companies.”
Somehow Vasquez and the other senior executives at Fermenta managed to make it work.
“We spent two years losing money pulling that one together,” he says. “It was almost to the point that the whole thing went bankrupt. But we pulled it out and we got it back on track.”
It’s an experience Vasquez has never forgotten.
Vasquez, now president and CEO of Butler Animal Health Supply, a recently merged $850 million company based in Dublin, learned a lot from his former employer’s mistake. Perhaps that’s why this merger appears to be going so well.
Employee turnover within the company’s sales force, for example, is actually down since the July 1 merger of The Butler Co. with Burns Veterinary Supply Inc.
“Our turnover in the field, which is very key because it’s a relationship-driven business, has been less than 3 percent since the merger,” Vasquez says, noting that turnover previously lingered around 4 percent to 5 percent.
In addition, the full integration of the two companies into a single, unified business is far ahead of schedule.
“Our integration plan, when we put it together — it outlined an 18-month plan,” Vasquez says. “We’re going to have this integration done in nine. We could have it done in less than nine months.”
Then there’s the chasm the merger created between Butler and its competitors in the veterinary product distribution industry.
“If you look at the two combined businesses of Butler and Burns, we have a 29 percent share of the companion animal business in the United States,” he says. “The nearest competitor has a 13 percent share.”
It’s an impressive story. Here’s what Vasquez did to make it reality.
Show me the money
Butler wasn’t actively looking be acquired or take on a partner when opportunity knocked in mid-2004. But strong growth in the market, paired with the company’s No. 1 position in the industry, simply created a climate in which Butler suddenly became a hot commodity. Heritage Partners, the private equity firm that owned it, quickly hired a broker to float a prospectus.
“Within a very short period of time, there were 37 companies that had a strong interest in acquiring Butler,” Vasquez says.
So Vasquez and now-retired Butler Chairman Howard Deputy, along with CFO Leo McNeil, began narrowing the field — first to 13, then to six. Their initial litmus test? Capital.
“We had to go through the painstaking process of evaluating which ones fit the best, based upon what they felt the enterprise value was of the company, what their ability was to really pull off a deal from a capital investment standpoint, getting the funding and what have you,” he says.
The message was clear: You can’t pay, you don’t play.
“As we looked, this possibility came up where we could join forces with the fourth largest companion animal veterinary company in the United States,” Vasquez says.
That company was Texas-based Burns.
While the prospect of merging with another top-tier company was extremely appealing, Vasquez was careful to cover his bets.
“You don’t eliminate everybody except for one [candidate] because you never know what’s going to happen,” says Vasquez. “You never know who’s going to back away from the table. You never know what small, minute issue might cause a collapse of the whole process.”
So keeping a handful of other suitors at bay, Vasquez and his entourage penciled in their front-runner and started to dig deeper.
Mission, vision and culture
Despite Burns’ stellar balance sheet, there was still plenty of investigating to do to make sure the match was as promising as it appeared on the surface. Dissecting the mission, vision and culture at Burns became the next priority.
“Every decision we’ve ever made that has made this company No. 1 in the industry always pointed directly to our mission and our vision,” Vasquez says. “When we looked at our mission and studied it one more time, and when we looked at Burns Veterinary Supply, we saw where their mission and their vision — although it wasn’t verbatim what ours is — it really did start to line up. Then we dug into it further to look at the cultural fit.”
Vasquez did this by looking at Burns’ approach to the marketplace, which focused largely on value instead of price. The success of that strategy was evident in the company’s profit and loss statement.
“If you dug down and looked into the ratios — return on assets, return on net sales — and the margins, the companies pretty much mirrored each other in those percentages on those key ratios,” says Vasquez. “What that told us is that our philosophy in the marketplace of being value added and solutions-driven … was very much aligned with theirs.
“We have competitors who have a low pricing strategy, and that’s what they do. But that’s not our culture. Our culture is value-added … and we’re very successful at that. And Burns did the same thing. We saw right away that we think a lot alike.”
It also didn’t hurt that Vasquez and Burns President Kim Allen had known each other for 18 years — six as competitors and 12 as channel partners. He was very comfortable with her and how she ran her company.
“Are there going to be personality differences? Are there going to be stresses and strains? Are there going to be different things that both companies are going to have to get used to from a systems standpoint? Sure,” Vasquez says. “But we saw very clearly from the personalities we knew and the relationships we had, coupled with their financial performance and their approach to the market, that our cultures were aligned. It was a pretty unique situation.”
Integration and communication
On April 18, 2004, Butler and Burns publicly announced their intention to merge. Yet becoming a unified company — as solid in practice as on paper — would still take months of work.
“No matter how beautiful an integration or a merger seems to be on the surface and how aligned the cultures seem to be, there are always issues,” Vasquez says. “There are always problems. And you have to try to decide early on in the game how big those differences might be.”
Fortunately for Butler Animal Health Supply, those differences seemed to be fairly small.
“We’ve had some challenges on the systems side,” Vasquez says, noting the inside sales reps probably bore the brunt of the storm.
“We were operating off two different systems and we may have moved too quickly in some areas [to integrate them] because it really stressed people out,” he says.
To help alleviate those problems, Butler recently hired a director of national telesales.
“There are so many little things,” Vasquez says of integrating two companies successfully. “As you put out five fires, there are three more right behind it.”
The key to keeping the fires from blazing out of control, he says, is information.
“You communicate and you communicate and then you communicate more,” he says.
For Vasquez, that meant making dozens of trips throughout the country when the merger was first announced to meet face-to-face with employees in town meeting formats. It has also meant publishing a monthly employee newsletter to give updates on the integration process, not only about what’s working but about what could work better.
“We don’t hold anything back from employees,” he says. “If it’s been a challenge, it’s been a challenge. They know it more than anybody else does.”
Vasquez also adheres to an open-door policy to encourage feedback from all levels on the integration process and he meets with team leaders monthly to assess the company’s progress toward complete unification.
“They have to report exactly what’s been accomplished, what was in the plan, what were the challenges, what were the successes, what’s the plan going forward,” he says.
“When you’re going through a merger process, an integration process, it is so complex and so involved that it hits every element of the business. If you don’t stay on top of it, if you don’t stay close to the employees and close to the clients and close to the business, it can come unraveled.”
Making tough decisions
Vasquez doesn’t mince words about what can destroy a corporate merger.
“One is the culture clash. Two is system integration. And No. 3 is a lack of expediency in decision-making,” he says.
The third one is the one that many CEOs struggle with most.
“There are certain decisions that have to be made quickly,” Vasquez says. “They have to be communicated and everybody has to understand. When you can make those types of decisions, it eases the pain. It creates a more sound mind and body amongst the employees.”
Vasquez says Butler’s executive team had to make hundreds of decisions prior to the announcement of the merger.
“So when people said, ‘Well, what’s going to happen next?’ we were able to lay out, at the very top level, what was going to happen,” he says.
Those decisions included:
- Who is going to run the company?
- Who’s going to be the top-line management team?
- Where is the headquarters going to be located?
- Who’s going to oversee the integration process?
“In my experience — I’ve been in the executive level for 19 years — people generally look for two things,” Vasquez says. “They look for hope and they look for leadership. If you can provide them with hope and leadership and, through that, establish confidence in the leadership, then you can move mountains.”
Employees also need to know: What is good about this? Why did we do this? What benefit does it provide, not just to clients and suppliers but also to employees?
“When you lay it out, then they can sit back and say, ‘Hey, this thing is great. This thing has potential,’” Vasquez says.
“If you create the hope and the leadership, they will, by and large, work hard to make sure this happens. They’ll take ownership of it in their own mind. This is their company, and they’re going to do whatever they can to pull it off. [But] until they believe in the process and in the company and in what they’re doing, it’s not going to happen.”
What’s next?
Although the Butler-Burns merger is only six months old, Vasquez is very optimistic about its long-term success.
“This merger was about growth,” he says. “It was about maintaining that share in the marketplace, that strength of position. It was about bringing the best of the best together and eliminating some of the inefficiencies that both of us had. And to grow at a faster pace than the two were growing separately. That’s taking place.”
And with full integration ahead of schedule, Vasquez is banking on next year being even more exciting for the company.
“That’s when we can focus in on growing the business again,” he says. “Now we’re focused on nothing but integration. Then we’re off and running. And there will be other decisions to make at the end of 2006, which will be: Do we acquire more? Or, if we have a good year in ’06, which I think we will, do we go public?
“It’s going to be an interesting year.”
HOW TO REACH: Butler Animal Health Supply, (614) 761-9095 or www.AccessButler.com
