Harty Press made a smart acquisition but bungled the people side of the merger and is still paying for the mistake.
Old-line printer Harty Press made a strategically smart acquisition, positioning itself to compete in what had become a high-tech marketplace. But it bungled the people side of the merger -- and is still paying for the mistake
Harty Press operates out of a complex of one-story cinder-block buildings at the corner of James and River Streets in the industrial underbelly of New Haven. Walk down River Street and you pass aging brick factories with gritty names -- National Pipe and Bending, New Haven Grinding -- fenced off from the street by chain link and razor wire. At the end of the block stands an abandoned furniture warehouse, its concrete loading bays crumbling, its every window blown out.
Amid the chaos of the neighborhood, Harty Press, a commercial printer of everything from local advertising to slick annual reports, has stood steadfast since its founding, in 1911. Inside the plant the air is ripe with the smell of ink and alive with the hum of presses. Harty's CEO is George R. Platt, age 40, who grew up in the company, first working there summers, and then moving in full-time after college to work alongside his father, George E. Platt. Two younger brothers, Kevin, now 36, and Michael, 33, followed, learning the trade from the ground up.
George Platt the elder started his own business, George E. Platt Co., in 1958 and took over Harty Press in 1972. He died in 1983, and when his eldest son, George, inherited the mantle, Harty was an unexciting business with 20 employees and $1 million in sales. The new CEO had grander visions. "I was always looking to grow the business," he recalls. "I read the trade press a lot. I was always thinking, 'If we're at $1 million in sales, then how do we get to $2 million?' " Platt tapped into the liberal lending climate of the 1980s, at times leveraging the business as high as $9 in debt for every $1 on the balance sheet. He tempered the risk by beefing up quality and customer service. He sniffed out higher-margin niche markets.
Last year Harty, which now employs more than 100 people, saw sales exceed $12 million, with a gross profit of 25% and pretax margins of more than 5%. Those are impressive numbers in a business in which, as Platt puts it, "if you can make 8% pretax, you're God." Printing requires a heavy capital investment, which devours margins. Moreover, Harty ground out its results in a punishing New England economy, an economy that was especially brutal in recession-racked Connecticut, where declining defense spending has taken a heavy toll.
And yet Harty as a hardy perennial is also part illusion. This is a company that has taken some knocks. Although it remains a profitable and growing business, its performance in the past three years has been fitful. Sales hit $10 million in 1990 but then were flat in 1991; the company laid off 15% of its work force. Revenues then rose to $12.3 million in 1992 before plateauing again last year.
Harty's shifting fortunes are due in large part to a single defining event, a major strategic acquisition it made in July 1991. Platt knew he had to make it to keep his company ahead of the curve and ultimately ensure its future growth. But that acquisition was made as if numbers mattered a lot and people hardly at all. And Harty Press, since then thrown into turmoil, has yet to fully recover.
When people think of growing pains in business, they typically think of internal growth, and they typically accept dislocation as a product of that growth. Conversely, when people think of growth by acquisition, they assume the merger will be relatively automatic and painless. Harry Dulak, a job scheduler at Harty, notes, "Anytime you read about a merger or acquisition in the newspaper, people say, 'Wow, these two companies are going to create a dynasty.' But the human aspect can be a real killer when you take two cultures and try to put them together."
Harty's acquisition -- as necessary as it was -- didn't kill the company, but it sure wounded it. Not only did the event rouse a culture clash between Harty and the company it acquired, Pre-Press Graphics Inc., but it also brought tensions among the Harty management team to the surface. It sowed confusion and called into question managers' motives and their intentions toward employees.
When George Platt bought Pre-Press Graphics, he never dreamed he'd pay so steep a price.
Harty Press's acquisition from hell had its beginnings back in the late 1980s, when George Platt began to consider the rapid technological changes overtaking his industry. Printing was moving quickly from the world of film, type, and light to the computer-driven, digitized world of the desktop. Platt recalls, "I kept reading about the oncoming digital world. I knew we had to do something when more and more clients started walking in the door with disks in their hands." Platt knew that if he didn't move, the business would pass him by, and Harty would founder.
In late 1990 Platt hired a specialist to computerize Harty's prepress function (the preliminary phase of the printing process in which copy gets converted to film). But Platt soon learned that building digital desktop capability from scratch for a company Harty's size would cost as much as $1 million -- and still be problematic. "The learning curve on this would be steep. I wanted to land on my feet." He decided it would be less risky to acquire the capability than to grow it.
Through industry contacts, Platt met Don Prohaski in February 1991. Prohaski had founded Pre-Press Graphics, based in nearby Branford, Conn., back in 1979, and he had been one of the first people in the state to aggressively use advanced desktop technology, principally high-end Macintosh computers. To Platt, Pre-Press seemed an inviting target. It had already done much of the costly research-and-development work Platt knew he would have to undertake. Moreover, because Prohaski was spending a lot of time, energy, and money on technology development, his business had begun to plateau at around $1.5 million in sales. He was looking for a buyer. Harty Press bought Pre-Press Graphics in July 1991 for $500,000 and the assumption of up to $100,000 in liabilities. The deal looked good to Platt -- Prohaski acted as the banker, taking back a note at market rates. Prohaski stayed on with the merged company, and he was offered a cut of future profits.
As Platt ran through the numbers, he believed he could grow Pre-Press's sales to $4 million or $5 million in three years. He knew that Harty could double Pre-Press's volume to $3 million by routing existing business through Pre-Press's high-tech operation. But more important, Platt saw synergy in the deal. He believed he could add another $1.5 million to Pre-Press's sales by offering its clients a wider array of services via Harty. In fact, Platt has done that.
Another advantage to the acquisition was projected cost reduction. Harty previously had farmed out some $250,000 worth of color-scanning work a year. With Pre-Press's capability, that work could stay inside at a lower cost. Platt hoped to grow his gross margin from around 24% to about 27%, through vertical integration and by gaining access to more-profitable segments of the printing market.
That was a sound strategy -- and a crucial move. New and ever-cheaper technology was broadening the market but was also increasing competitive pressures. As Platt puts it: "The good news was that there was twice as much work out there. The bad news was that it was worth half as much." Also, large customers, Harty's bread and butter, were becoming desktop publishers themselves and doing work in-house. Platt saw his customer base slowly eroding -- and with it, his margins. After the acquisition, Harty's gross margin rose to more than 27%. But that figure has since slipped back below 25%. The company has been running in place, revealing Platt to be prescient in making the acquisition yet still very much at the market's mercy. He says, "If we had not made the acquisition, we would have gone backward."
On the face of it, it is hard to imagine two more disparate cultures than those of Harty Press and Pre-Press Graphics. Harty hunkers down by the grimy banks of New Haven's Quinnipiac River. Pre-Press sits 12 miles away, out in the bustling suburban world of office parks and fast-food joints. Harty workers -- many of them with 10 or 20 years of service to the company -- wear smudged aprons, have ink under their fingernails, and carry union cards. At Pre-Press, people in running shoes and jeans sit transfixed before the glow of computer screens. Harty is noisy, dank, and hurried. Pre-Press is cool, dark, and measured.
Don Prohaski ran his company with the sort of precision its ambience implies. He arrived each morning at 7:30. Lunch was half an hour, period, and employees were forbidden from making personal phone calls. Ask around among his employees and it's hard to find anyone who really seems to like Prohaski. What they feel toward him is more like grudging respect.
In contrast, George Platt has a low-key style that sets people at ease and earns their fealty. Cruising the distance between New Haven and Branford in his late-model Cadillac, he is given to popping in a James Taylor or John Coltrane tape, content, it seems, with life. "Don's an autocrat. He wants to push all the buttons," says Platt flatly, more than implying that that is not the "Harty way." Platt says Harty has "a loose style," which he dubs "autonomous management." At Harty, Platt instilled a sense that what mattered were quality and deadlines, not how long people knocked off for lunch. That, Platt believed, enabled each worker to do his or her best, and equally important, it freed the management from "being a slave to the day-to-day."* * *
In 1991 the three-year-old recession in Connecticut and in the printing industry finally caught up with Harty Press. The timing couldn't have been worse. Its business tailed off just as the company was making the Pre-Press acquisition, in July. Sales were off by 30%, and the company faced a further cash drain in order to meet the higher operating expenses of the merged company.
What's more, the Platts discovered they had made a basic miscalculation, which turned the screws even tighter. Once they got inside the new company, they found that much of Pre-Press's touted technological prowess -- what they were buying the company for, after all -- was still in an R&D phase and not ready for full production. That left a sour taste and led to some revisionist thinking.
"There was a better acquisition candidate, but we weren't able to make a deal with them," George Platt says. "I probably wanted to do this deal too badly." He adds that he feels he threw Prohaski too sturdy a safety net by promising him a cut of the merged company's profits rather than tying some of his compensation to his individual performance. "We took his downside risk away."
To recoup for their miscalculations and ratchet down costs as quickly as possible, George and Michael Platt (Harty's general manager) decided to complete the merger as fast as they could from an operations standpoint. That meant moving the 12-person prepress department in New Haven up to Branford, a task that had been assigned to two long-term Harty employees, Bob Lukaszek and Ric Raffone. The two supervisors set about planning the move, but one day in mid-August Michael Platt summarily decided he wanted it to take place in five days.
Raffone protested. Things weren't in place up at Branford. Besides, the appointed moving day, Saturday, August 19, was his 40th birthday, and he had planned an all-day party at his house. He also pointed out to Michael that a hurricane was forecast to blow through Connecticut that day. Michael, however, had made up his mind.
Raffone recalls the day, with trees coming down around them, as "a rush, a mess" that led to "a horror show for months after." The move created chaos at Pre-Press, whose systems and procedures did not dovetail with Harty's. Meanwhile, Harty's 12 strippers (industry jargon for prepress people who assemble film to ready it for printing) were jammed into the same room with their 8 counterparts at Pre-Press. Neither group had been given enough notice of the impending move. The strippers had barely had time to comprehend the merger itself, completed just four weeks earlier.
Rich Foley, who had been a stripper with Pre-Press for eight years, was on vacation during the move. When he returned, he recalls, "I no longer had a place to work. There was a stranger at my light table. All my stuff was packed in a box over in the corner. Suddenly, I was a floater."
The operational disarray signaled a more profound cultural clash between the conventional world of print and the digital world that prevailed at Pre-Press. The tension boiled down to one issue: sharing information.
Harty had bought Pre-Press specifically for its knowledge of desktop publishing. And yet, curiously, it was that knowledge that gave the acquired company an edge over the acquirers. Pre-Press employees who knew how to operate a high-end Macintosh computer saw a sudden influx of Harty workers who lacked those skills. They became protective of their jobs for fear they might lose them. They were reluctant to share information. Says Kevin Platt, vice-president, "They did not want us to learn what they knew."
At the same time, the Harty workers with conventional skills, seeing the digital future, worried about their jobs. They wondered if the merger signaled that they were about to become obsolete in a craft they had cultivated for years.
That tension has abated since the merger, but it has hardly disappeared. "Sharing information is still a problem," says Bob Lukaszek, now the head of the stripping department. "I see quite a few egos across the room in the digital department."
The situation at Pre-Press resembles a game of musical chairs. There are currently about eight chairs, each in front of a Macintosh, the technology of the future. But for each chair that is filled there are three people -- many of them workers with conventional skills who want to learn on the computer -- circling around it. Whenever one of the seats opens up, there is a scramble and confusion over who will get to fill it.
The management, meanwhile, has hardly been aggressive in allaying anxiety on the job-security front. It announced training courses for the Macintosh. That lasted for all of one session. Some months later "familiarization training" on the Macintosh was announced. No one knew what that meant, and no one ever did figure it out, because it never happened. Many employees, disgusted, subsequently bought their own computers and started teaching themselves. Asked if ample jobs in the new technology will be available down the road to accommodate existing employees, Michael Platt is less than encouraging. "There will be opportunities -- but not enough to go around."
The rift between the cultures of craft and information was only the most prominent of the fissures opened by the merger. Basic differences in style and perspective soon became evident. "Harty Press has always been a family-type place. You could fool around," says Jon Northway, who has been a stripper at Harty for six years. "The people here at Pre-Press are professionals. They're more disciplined, and I respect that."
But Ric Raffone counters, "We do great work, and Pre-Press's work stunk. They were a supplier to us before the acquisition, and we had stopped using them. The quality of their work was not up to our standards."
It didn't help that no one seemed to be in charge in Branford.
Lukaszek had been sent up to Pre-Press to work out the transition along with Raffone, but that had been the extent of his charge. "I came over without a job description. Roles were not defined," he says. Lukaszek got into an immediate hassle with Pre-Press's former owner, Don Prohaski. On one of the first days after the merger, Lukaszek said he was going down to New Haven to check on a job, a move that a week earlier would have amounted to walking into the next room. Lukaszek was then asked by a Pre-Press employee if he had "checked with Don."
Lukaszek, who had 12 years of service with Harty, wasn't in the habit of checking with anyone to get his job done. Autonomous management, not autocracy, was the style at Harty. When he and Prohaski sat down to iron things out, Lukaszek recalls, "I told him they were supposed to blend to our surroundings." That was not Prohaski's impression. He had been told that he was still in charge at Pre-Press and was reluctant to give Lukaszek the leeway the stripping supervisor felt he needed to do his job. (Prohaski has since moved into a sales position.)
Gail Utitus, a stripper who went up to Branford, says that working under Prohaski's iron hand was unsettling. "We went from being a democracy to a dictatorship. The old management was still here, and it felt like we had been bought out. The attitude here was 'Shut up and do what you are told.' That was very difficult for me. I kept waiting for the Harty Press culture to kick in here. It never did. It felt like we were the ones being taken over."
That was not how Terri Diglio, a Mac operator at Pre-Press, saw it. "The Harty Press people had this superior attitude. They came in, knocked down walls, and moved light tables around. They said, 'We will run it our way.' They were the favored employees."
The fractiousness in Branford could not be contained. It spread into Harty's New Haven operations, raising tensions among managers.
The principal force behind the rushed August move to Branford had been Michael Platt. While employees consider George to be quiet, imaginative, and thoughtful, they see Michael as methodical, forceful, and brusque. Bob Lukaszek can remember seeing Michael recently passing by the lunchroom about 10 minutes after break, noting a few stragglers and pointedly eyeing his watch. Shades of Don Prohaski.
Jon Northway says, "George uses his imagination. Michael uses formulas. Some people would call that overengineering." The employees think Harty is George's company to run, but the daily reality is that Michael, who has moved from controller to chief financial officer and now to general manager, is in charge. George spends much of his time thinking strategically about the market and about how to bring in more and better business.
Sitting behind his desk, leaning back in his chair, and lighting up a Marlboro, Michael Platt, a dark-haired, solidly built man of medium height, projects certainty and drive -- unlike his older brother. He readily takes more than his share of the rap for the bungled merger, saying it was "management's fault" and that "we overanalyzed this stuff from a financial standpoint. It wasn't analyzed at all from a people standpoint. I thought all that stuff people said about culture when it came to mergers was a bunch of fluff -- until it happened. We should have talked a lot more with people." Michael's demeanor and actions have buttressed two other self-assessments, namely, "that I tend to step in and take charge when I probably shouldn't" and that "some people may think I'm a poor communicator."
Michael Platt did step in and take charge in the wake of the merger and the decline in business in mid-1991. He took over Raffone's job as general manager, and Raffone was sent up to Branford to head the computer side of that business. Raffone moved from a job supervising 75 people to one supervising 8. He was, in effect, demoted.
Raffone is the quintessential Harty employee, a throwback to the way things used to be before the merger made the business more complex and upped the ante for everyone. He puts in 12-hour days. If any employee has forged an identity through his work at Harty, it is Raffone, who has been there 26 years, beginning when he was still in high school and his father was Harty's accountant.
An intense and energetic man, Raffone speaks reverently of earlier days at the company. "There was a very, very special feeling here." Leaning back in his chair, arms folded before him, his gaze cast wistfully out the window, Raffone says he agreed to this interview reluctantly as "a personal favor to George," who thought it might heal wounds that had shown few signs of closing. He says he has little appetite for rehashing "the worst year of my life."
Raffone was always the employee who volunteered for the jobs that others would rather not do: handling human relations, dealing with pension issues, and even planning the company picnic. In time that eagerness and drive made him general manager, and he also sat on the executive committee with the Platts. Then came the merger.
"I got demoted for reasons that were never fully explained to me," Raffone says. "It had been reiterated to me what an outstanding job I was doing. But after this happened, I just got pushed into the background." Raffone claims he had originally been sent to Branford to plan and bring about a smooth transition and that he was doing that -- when Michael Platt decided unilaterally and on short notice to move the New Haven prepress operation on August 19, a day whose memory shall live in infamy at Harty.
The Platts contend that Raffone was not demoted but rather had been overextended in his earlier job as general manager, which became even more complex with the merger. The Platts believe they have given him a key job at Pre-Press, which will see significant growth in the years ahead. About the rough transition, Michael Platt says, "They weren't moving fast enough. If people up there had been organized, there wouldn't have been a problem. We moved the people, but no one got the process going."
Raffone's advocates say he was set up to fail. "Part of the problem was that George told Ricky and me to handle it," says Lukaszek. "We went ahead. Mike then said, 'I don't want to do it that way.' If Mike wanted to have the last say, he should have been there at the beginning. He waits till we get done and then says, 'That's stupid.' That's demeaning to Ricky. It's hard to know what it would take to please Mike."
Jon Northway says, "It was disheartening to see the company slap someone in the face like that. Sure, Ricky made some mistakes, but upper management just expected him to figure it out, and he was expecting more directives from them. I've always respected Mike -- until things started happening here. My respect has diminished. He has had a problem communicating on a human level." Northway says that Michael Platt is the sort of manager who will pass his employees in the hall "and 9 out of 10 times not even say hello." He adds, "You know it's more than just an issue of common courtesy. It's ignorance not to say hello to your employees."
To Raffone the current breach of trust symbolizes something much deeper: a sense of the loss of what Harty Press used to be. Raffone says George was a "visionary" during the heady years of growth in the 1980s. He is not alone in thinking George has abdicated that role, leaving a power vacuum into which his ambitious, headstrong younger brother has stepped. "It's not the same company it was. There's not the same camaraderie, the same family feeling. And I feel sorry for the people who will never get to share that feeling."
George Platt replies ambiguously to Raffone's assertions. He concedes that Michael has an overbearing nature. "Michael is so hands-on he leaves Ricky no flexibility. Michael attempts to have Ricky handle things, but then he gets anxious and steps in." But George adds that two years ago he would have backed Raffone in this dispute; now he is not sure. He wonders about Raffone's performance. "I don't feel good that we are not getting the work out up there in an efficient way."
But George also concedes that Raffone's job at Branford is difficult -- "the hottest seat in the house" -- and that maybe the management hasn't given him enough equipment to juggle the job flow. Then he falls back on what he sees as Raffone's excessive complaining, what he dubs "the leaking-garbage issue," as being a needlessly corrosive force at Pre-Press. He says that Raffone needs to stop complaining and start focusing on his job, instead of thinking he can take on every job in the company. "This has been a big frustration for him because he's had his hand in a lot of different things. Doing all that is what gives him juice."
As if to symbolize the gaping wound that can't be closed, Harty's two operations remain miles apart, and the company can't afford to combine them. The Platts figure it could cost as much as $1 million to do so. They're in a business that lays out as much as $1 million just for a new press, so they have to take a long, hard look at every overhead expense. The Platts are also trapped by their New Haven location. They own a building in a neighborhood that's going nowhere; even if they wanted to sell, they'd find few takers.
In an effort to bridge that gulf, Michael Platt now drops by the Branford location on his way to work each morning, spending an hour or two there before heading into New Haven. "In the course of a week I try to see everybody in the building."
But Lukaszek says, "He tries to say hi to people, but he doesn't really. He's always got his game face on." Lukaszek adds that Michael creates the impression of being a listener, but "everyone thinks he's going to do whatever he feels like doing. They're scared of him."
Michael shakes his head in dismay over the response he gets at Pre-Press. "People's fear of the unknown is tremendous." He recalls recently bringing an architect in to look at the space with the idea of knocking down a wall to enhance communication. Before long, rumors were circulating that the Platts might move the facility out of state.
Yet when asked if greater communication between the management and the work force is necessary, Michael replies that he and his brothers "have enough faith in what we're doing" that they don't need to stay in touch constantly with employees about their decisions. "Our attitude is, if we don't have a problem with something, how the hell can these guys have a problem?"
Jon Northway contends the answer to that question lies in the fact that Michael Platt changes his mind so often. "Uncertainty is the worst enemy of any business. People want to know where they stand. This is their livelihood. It's how they put food on the table." Instead, what Harty's workers have to contend with is "the project of the month," which gets abandoned for something else almost as soon as it's up and running. "Mike doesn't know what he wants to do, and we don't know what he's decided until we find out about it two weeks later. I understand it's the Platts' company, but they've got to understand what it does to the morale of the people here."* * *
In buying his company a future, George Platt unwittingly sold its past. Business is never easy, and Harty Press embodies that notion. The Pre-Press acquisition was necessary, and yet for now it has simply guaranteed Harty's survival -- and little more.
George Platt says that his employees underestimate the effort required to keep this fast-changing, capital-intensive business growing in a world full of shocks and surprises. "Traditionally, we saw the business grow by $1.5 million a year," he says. "We could will that to happen." Those days are gone. George Platt finds no need to apologize for spending more time looking outward to the market than inward to the company. He has no choice. Further, the company has to be run more tightly now; labor must be more cleanly divided.
While some employees long for the ideal of Harty as "family," what they overlook is that the idea of family carries bittersweet connotations for George Platt. "I was always picking up the pieces as far as the business was concerned." That leaves him with little stomach for conflict with his younger brother, despite the quiet pleadings of employees that he be more engaged.
George says that he and Michael are "at a loss" about how to put the merger behind them, even though the company, by dint of the acquisition, is better positioned than ever. Now George Platt needs to restore the magic. "People want to be involved in something bigger than themselves. For a while, Harty Press was that something."* * *