A $7-million company in Los Angeles doesn't gobble up a $19-million competitor in Phoenix without suffering a little indigestion -- Ray Thurston knew that. So, when his company, Sonic Air Courier Inc., acquired Air Couriers International Inc. (ACI) in May 1984, chief executive officer Thurston made allowances for the usual logistical and staffing difficulties. He expected the first-year malaise to put sales off somewhat, perhaps even by 25%. But in no way did he foresee the chronic bellyache the merger was to become.

Sitting in his all-but-bare Phoenix office, picking through a bland lunch necessitated by the bout of colitis that began after the acquisition, Thurston ticks off the painful facts: Sales volume for the acquired company dropped not 25%, but 37%. Eighty percent of the sales staff quit within 120 days of the merger. The ensuing cash crunch stretched out Sonic Air's payables to as much as 150 days. Vendors, among them the major airlines that transport Sonic Air's cargo, threatened to put the company on a cash-only basis.

Thurston's choices were bleak: sell, declare bankruptcy, take on a partner, or do some serious cost-cutting. Choosing the last option, Thurston laid off 10% of his work force, including some of his top managers, and he instituted substantial cuts in pay and benefits.

When the books closed at the end of the year, the combined companies had lost $43,000 on revenues of $26 million -- results that almost seemed cause for celebration, given the year-end deficit of $250,000 that had been feared. Thurston, once accustomed to net profits of almost 20%, is now keeping his fingers crossed for a 4% margin on revenues of $25 million in 1986. He is also holding out hope that "someday, maybe soon, we'll be hanging plaques from INC. again."

Sonic Air Courier was a three-time INC. 500 honoree. It ranked #122 in 1982, #469 in 1983, and #271 in 1984. But, like 282 others, it fell off the list in 1985. At least 2 of the alumni went out of business. Sixteen were acquired, 8 went public, and 2 filed for Chapter 11 protection. Two others grew too large to qualify (by exceeding a volume of $25 million in the base year of 1980), while 105 grew too slowly (if growth rates of up to 458% can be considered slow). Sonic Air, like 35 others, was disqualified simply because its sales volume went south.

But, unlike some of the others, Sonic Air can't blame its downturn on sagging markets. The business world's growing insistence on same-day and before-9 a.m. deliveries has done nothing but strengthen the demand for Sonic Air's domestic and international air courier and messenger services. Rather, the story here is one that is all too common among fast-growing companies: CEO Thurston, accustomed to double- and triple-digit growth with consistently high margins, became overly confident of his ability to sustain such performance, even after the acquisition of a company twice as big as his own. As Thurston himself acknowledges, he bit off more than his managerial capabilities would let him chew.

"I always thought I could leap tall buildings," Thurston says, nodding ruefully. "Believe me, this acquisition taught me otherwise. It gave me a hell of a crash course in cash-flow management." Before buying ACI, Thurston was able to devote most of his time to doing what he likes best: sales and marketing. "We were so profitable that I didn't have to worry about anything else," he shrugs. Now, Thurston can scarcely work himself out from behind the desk, for all the administrative matters demanding his attention. There are margins to watch, interoffice disputes to referee, and still-nervous vendors to reassure. There is also a lawsuit to fight -- one Thurston filed against ACI's former owners.

Thurston blames part of Sonic Air's post-merger difficulties on not getting what he thought he was paying for in the ACI acquisition. In court documents, Thurston alleges that company assets were overstated or misrepresented. He further alleges that ACI was engaged in commercial bribery, "paying kickbacks . . . [that] . . . secured business revenues in excess of $400,000 per month." ACI and its principals have denied the accusations.

His decision to quit paying the alleged kickbacks "just about killed us," Thurston recalls. He believes it was the reason Sonic Air lost several large chunks of business and, in turn, the services of so many of its salespeople -- whom he says resigned when they found that their commissions would be thus reduced by up to 50%. But Thurston admits that he himself laid the groundwork for trouble, at first by rushing the merger, and later, by underestimating the difficulty of melding two totally different organizations.

Thurston was ready to schedule the closing almost from the moment he learned that ACI was for sale. Its East Coast penetration, combined with Sonic Air's predominantly West Coast operation, could take him national with the stroke of a pen. Anxiously aware that a larger competitor was also interested in the company and was offering payment in cash, Thurston didn't insist on obtaining audited financial statements. "It would have taken three months to get them." Nor did he insist on examining ACI's customer contracts -- some of which he now says proved to be either nonrenewable or less valuable than he had thought. "The heat was on," Thurston says. "I wasn't going to play hardball and blow the deal." His haste was understandable, if not wise, he says. He believes that if the other suitor had managed to pull the sale out from under him, it would have been only a matter of time before the combined clout of the newly merged companies would have weakened Sonic's position in West Coast markets. "I did write what I thought was a lot of protection into the agreement," Thurston interjects. "But court remedies don't help when what you need is cash." He sighs. "Not when those remedies are three or four years away."

Thurston, however, reserves his strongest self-criticism for his blase assumption that he could manage two so disparate organizations as one. ACI employees were accustomed to strong, directive leadership. Sonic employees, never knowing whether the boss would be in, on the road, or just out, had grown comfortable making their own decisions. Sonic devoted time and money to training and goal setting; ACI did not. ACI, in Phoenix, was relatively isolated and unpressured by its competitors, while Sonic employees were practically bumping into competitors on the streets in Los Angeles. Phoenix was a family station wagon steering a steady course. L.A. was life in the fast lane.

"I blinded myself to all the resentment that was bound to crop up between the two offices," Thurston says. Instead of "letting them fight among themselves for power," which made it all the harder to track -- much less attack -- the cash-flow problems that arose post-merger, Thurston thinks he "should have taken a stronger stance."

Thinking it over, Thurston can call to mind little about the merger that came off as planned. While there has been a recent upturn -- he has cut his operating costs and has turned his first profitable month since January -- his five-year growth plan, which had him running a $40-million operation by 1990, is off kilter. He has elected not to devote much energy to the New York City territory that he had so coveted. Once a confirmed Southern Californian, Thurston now calls Phoenix home -- and works among people who somebody else hired. The dream house he was building in Los Angeles had to be put on the market before it was finished. Thurston takes it all philosophically. "It's been a change for everybody, and certainly it's been a big one for me. But I can manage a bottom line now. I can make hard decisions without letting personal feelings get in the way. I'm tough, and getting tougher."