In the early 1990s, J. David Smith felt as if he had fallen into a deep, dark hole and couldn’t find any way to climb out and save himself from the frustration of trying to break free.
While earlier in his career he had been busy simply learning the fabricated steel and aluminum trade, 15 years into it, he began to see larger opportunities that his company could capitalize on, but the
company was a subsidiary of a larger parent that didn’t see the opportunities as a major part of its business. The more time that elapsed, the more the frustration festered inside him.
“We knew we had tremendous opportunities to grow,” Smith says. “We knew there was this whole pot full of acquisition opportunities out there, and we knew, given more capital than we were with our
previous parent company, we could do the organic expansion that we wanted to. We were just hamstrung in many ways with the parent company not looking at our business as one that was core to their
business.”
Tired of the constant bumps and frustrations, Smith and the subsidiary’s management team led a buyout of the company in 1996, breaking away to form Euramax International Inc., a supplier of fabricated steel and aluminum products to industries in North America and Western Europe.
Free from the shackles, this chairman, president and CEO set to growing Euramax. Immediately coming off of the buyout, he completed a couple of acquisitions, which boosted the company’s revenue by $150 million in his first year-and-a-half.
From there, Euramax has completed one to two acquisitions a year for the last decade, but Smith and his team don’t wake up, stretch and randomly decide which company to buy.
“We try to stay focused and have clarity in the businesses we buy,” Smith says. “We’re not looking to get in a lot of disparate-type businesses.”
Many times, they will approach smaller businesses that aren’t on the market to gauge their interest in becoming part of the Euramax family. Smith stays away from businesses that are on the auction
block, seeking instead those in the company’s key markets and geography, and those that are operating with the raw materials that Euramax is comfortable with. He also prefers not to buy companies in
turnaround situations. Then, if a company meets his standards, he’ll move forward.
“We do a physical on the business and look at the assets to see that they’re not tired or worn-out manufacturing operations — just generally gauge the vibrancy of the company before we make an offer,”
Smith says.
To gauge if a business is healthy, he typically goes back three years and looks at its growth history and product development, as well as how it has grown over that time period.
“Look very closely,” he says. “Do very extensive diligence into anything they’re looking to buy. Get in-depth into the culture of the business. Get to know the key people of the business. Get a good understanding of how they’ve operated and grown the business over the past three or four years — their customer base and supplier base.
“Make sure their HR function is clean. Particularly look at the environmental side of the business, and look at their safety and workers’ comp record and do very thorough diligence and certainly look to
pay a fair price for a healthy business, but not overpay. So many times, people have made mistakes by overpaying for acquisitions, later to get into trouble because of them.”
To ensure a company doesn’t overpay when acquiring a new business, Smith says the management team has to weigh several factors to determine whether the price is right.
“You have to do the synergy analysis of what we think we’re going to garner and then get a good sense as to what the market multiple is on the earnings that the target company is generating,” Smith says.
He works with his financial partners to evaluate potential companies and determine whether a company will be a smart investment. Beyond that, he examines the company’s management team.
“Certainly in a lot of acquisitions, the people aren’t all there exactly the way we want them to be, but if we can find a few to go forward, that certainly draws our attention, and we’re much more willing
to pay a bit more if we think we’ll pick up some good people in the acquisition,” Smith says.
Smith defines good people as those who are driven, dedicated and have integrity, as well as high amounts of energy. He’s not looking to put people out of their jobs, and he’s upfront in communicating that to the
people in the companies he’s acquiring.
Communicating changes
During the evaluation process, Smith and his team hold meetings to communicate what would happen with the acquisition and to answer questions and address concerns. He also conducts individual
meetings for those not comfortable voicing their concerns in a group setting.
And that communication continues once the deal is done.
“It comes back to communication, letting them know they’re important to us,” Smith says. “We bought this for a reason. Part of the rationale was we wanted these folks to be a part of us. We need them
to be comfortable joining our team and make them feel, as quickly as possible, like they’re part of the Euramax team.”
While people can choose not become part of Euramax, Smith says that most do not. But when the owners simply want to sell their business and move on, Smith moves someone within Euramax to run
the new addition. With a team and people in place, the next crucial step is integration.
“If we can’t get them integrated and we can’t make this a crescive situation in a year, then we’ve failed, and financially, if you let it drag too far beyond that point in time, you lose the opportunity to create the
synergies that we were hoping for for the acquisition,” Smith says. “Speed is of the utmost importance in assimilating acquired companies, both for the comfort of the people in the business and for our comfort
and peace of mind as managers of the organization.
“We want to get in there, get it done, energize everybody, start to get the earnings we anticipated, start to get the synergies that we anticipated, and not have to look in the rearview mirror a lot for what
might be happening with this business as we get deeper in its ownership. We want it all out there, and we want everybody to be comfortable as soon as we can.”
Making people comfortable starts with throwing them out of their comfort zones. Smith immediately communicates the changes in store for people and then does exactly what he said he would.
“If you don’t make the moves that need to be made early, they become much more difficult to make later,” Smith says. “People get set in their ways. They think things aren’t going to change, as are required
by our style. It gets more difficult for us to affect the things that we should be doing early in our ownership.
“If they think the acquisition occurs and everything is going to be exactly as it was, and that drags on for two years, and then you go in and you start doing things totally differently, it creates unrest and,
in some cases, distrust. It’s better to do it early and tell them exactly why we’re doing it, and then get everybody on board with it. Then those that don’t choose to follow the path that we’re taking, they can
make their decision to move on if they’re not going to follow the team.”
Communicating the vision
To keep people aligned with the team and help fuel growth, employees must know what the company is doing and why. To make sure they understand, Smith gets his people out talking to the ranks below
them, and those people then pass information on to those below them.
He also talks to employees on the manufacturing floor when he travels to those locations and can tell by those conversations how much they’ve been told.
He also asks how they’re feeling about company activity and if they understand where their particular operating company fits into the grand scheme of the organization.
“We’re not office-bound here in Atlanta,” Smith says. “Not much is happening here. We need to get out and mingle with the people in our organization. We go out and test the waters, and we have meetings with the various levels of people.”
Hiring people comfortable with this style of management helps employees in the lower ranks feel comfortable speaking to them and ensures that management gets an accurate picture of employee satisfaction.
“If people are happy and fulfilled by what they’re doing, they’re certainly going to give that extra effort that you need in today’s economy to be more competitive and productive and efficient and really
give our company a better chance for success,” Smith says. “It’s a very competitive world out there … and our people have to feel comfortable to give us the edge that we need to continue to be successful.”
Part of making them comfortable is compensating them fairly and rewarding them with bonus opportunities and benefit plans that are at or above market average. And a strong management team and workers who are happy and entrepreneurial help fuel the organic growth that aids acquisitions.
Euramax constantly looks for ways to further sell to existing customers, which means listening to them and trying to learn what they’re anxious to have. It also means evaluating and re-evaluating the
market.
“Where is it that we’re not strong?” Smith says. “Where is it that our competition is having success, and why are they having success, and can we compete with them and move into that geography or that
product or that market? It’s a matter of tending to our knitting and doing the very basic things in business that are required to keep growing the business.”
Smith’s dedication to growing the company organically, combined with the push for sensible acquisitions, has allowed Euramax to grow from the $400 million company it was in 1996 to the $1.3 billion
company it is now.
And as he continues to move the business forward, Smith stays cognizant of the struggles but doesn’t let them get him or his team down or cause them to lose their focus.
“You just have to hang in and persevere, and you have to have a good team around you to help you persevere,” he says. “You’re going to have some difficult times, so you have to be willing to persevere
and have the toughness to battle through those times and recognize that there are many many more good times than there are those difficult times.
“Keep that in mind, and take the long view and keep trying to move forward for the duration of one’s career.”
HOW TO REACH: Euramax International Inc., (770) 449-7066 or www.euramax.com