Best Practices: Acquiring New Companies
CEO Michael Rothman has built Kenny Industrial Services LLC, a Chicago-based cleaning, painting, and maintenance company, through a series of acquisitions that have emphasized stragetic rather than purely financial goals. Here are the best practices he follows in the acquisition process.
Rothman always pays for his company's acquisitions using some combination of cash and a seller's note. Although Kenny does have private stock, Rothman says it's too hard to value and too illiquid. Buying a company with stock "is gambling, and I prefer not to gamble.
"The secret is to buy companies you have a high degree of confidence in," says Rothman, who is definitely not in the turnaround business. Whatever business he buys, he wants to grow -- with a clear target. That figure typically is a 12% increase in revenues in the first year, rising to more than 20% by the third year.
Kenny invests in corporate management along the way but adopts the best practices of the acquired companies. One of the benefits of consolidation is that Kenny can now afford to hire top-notch administrative talent, such as managers in information technology and human resources. At the same time it aims to spread the best practices of the acquired businesses companywide. After Kenny bought Canisco, it adopted the newcomer's program for projecting and tracking costs on jobs, because that system was more sophisticated than anything Kenny's managers had seen.
Rothman doesn't pit former adversaries against one another. Kenny often ends up buying companies that previously fought tooth and nail over contracts. Ensuring who gets what job is a responsibility of management. If there is any doubt, Kenny will pay bonuses, if warranted, to both branches, rather than risk residual resentment.
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