“I think that was an important factor. The importance of finding a company that was going to take care of the employee base and making sure that they still had a home and still had a future. They felt an obligation to those employees.” Eric Stone
Thank you for joining us on another Get Spark episode. I’m
your host, Rob Hamm here with Dave Larson. And today we have a special guest
Eric Stone. Our topic today is going to be on acquisitions. Before we got
together we were talking about recent acquisitions that caught our attention.
We’d like to get started with one of those acquisitions. Dave, do you have any
recent acquisitions that caught your attention?
One that caught my attention, because it impacted me on a personal level. I am a sprint user and this acquisition had been talked about for two years, in fact, and just recently crossed the finish line. That was T-Mobile’s acquisition of Sprint. Together it puts T-Mobile into somewhat of the same playing field as the other two big companies in cellular service, that being Verizon and AT&T. What really was interesting to me was just kind of the reasons behind it and looking into it and reading a little bit more. T-Mobile wanted to be a part of the big three, and they were significantly behind in terms of just overall revenue. But, combining T-Mobile’s revenue with Sprint’s revenue, they’ll form a company that is well over 70 billion in annual revenue, and that helps them get up into the range of the two others. And what was interesting specifically was why it worked, why T-Mobile targeted sprint, obviously, they’re in the same playing field and cellular service, but sprint also had a large amount of debt when they first started this acquisition process. And so that helped T-Mobile look at Sprint as a feasible partner at a good price point to be able to bring their revenue into T-Mobile and help shed some of that debt to increase profits for the new T-Mobile as they’re calling it.
Dave, I’m actually glad you brought this one up because when we’re looking at acquisitions, to go outside of your existing expertise or market area into a new industry, or in this case, T-Mobile was looking to grab more of the market share and growing organically would have taken them a long time. By merging with Sprint, they were able to capture so much more of that market share to where now they’re actually on a competitive playing field with the two behemoths in the industry being AT&T and Verizon. So I’m glad you picked that one because it certainly is an interesting one.
To put some, some specifics to it, trying to remember the
article, off the top of my head. I know it was over 70 billion that the new
company will have in revenue and as a comparison point AT&T their annual
revenue is at 180 billion, but that includes a number of other business units
that aren’t cellular Time Warner Cable, being one of them, Warner Brothers
being another. So in terms of just the cellular game, the new T-Mobile, as
calling it, is at a very competitive point in terms of just annual revenue as
Just to touch on one other point that you made in courtship if you’d like to call it. The two-year process of going through and actually getting over the finish line is well worth it, because the amount that they grew in those two years, again, growing organically, it most likely would not have been possible to see those types of gains in that of time. So even though it was a long process, they got the job done.
Rob, what about yourself? You wanna share your acquisition?
Absolutely. The acquisition that caught my attention was the acquisition of Postmates by Uber. The reason this caught my attention is that I think it was maybe a week or two earlier. I had seen some advertisements for Postmates advertising, job opportunities in some of the local towns. Now, these towns that we live near are not very large towns. I thought it was interesting that this company like Postmates was looking to grow into these small towns and just increase their, their offerings and just broaden their, their customer base. And then a week later, I hear on the news that Uber purchases, Postmates, I thought that was interesting because it seemed as if Postmates was trying to position themselves for acquisitions by growing their, their offering and growing their customer base. And then Uber wanting to grow and wanting to stay competitive needed to increase their market share in the food delivery service as well.
Especially poignant in this time when restaurants are at minimal capacities to grab a share of that delivery service.
And to add on to that potential acquisition of Uber and Grub Hub got a lot of publicity when that ultimately fell through, they were having the ability to pivot to Postmate, and still get it to work. I think speaks volumes as well.
Eric, do you have an acquisition that caught your attention?
I do, this one might not fall into the category of recent. I’m going to go back to May when this acquisition went through. I thought it was relevant, especially in the world that we live in. We are meeting virtually right now for this podcast. Many people are working remotely or from home. The way we do business meetings has drastically changed as we’re going through the COVID-19 pandemic. The acquisition I wanted to talk about was a company with Zoom and they acquired a company by the name of Keybase. Unless you have been living under a rock, everyone is familiar with Zoom. Initially, it was the platform of choice for schools. They got a lot of negative publicity early on during the pandemic due to some potential security risks while using the platform. One of the ways that they looked to work through those issues was through their acquisition of Keybase. Keybase specializes in end to end encryption. So theoretically the content can’t be seen or heard by anyone outside of the parties involved, including the vendor. This was a way to take that initial negative publicity and spin it and show how they are adapting to correct some of those faults and give them some positive PR in the same time.
They certainly did get a lot of negative publicity. When
you’re a company of zoom size, it makes for a strategic PR move. If nothing
That, and trying to gear up or staff up to manage some of those programming challenges internally would take quite a while. So that’s a very quick way to position yourself or at least staff yourself to address some of those issues.
Yeah, exactly. You hit the nail on the head. It’s a lot harder to develop the intellectual property yourself. If you have the opportunity where you can secure it through acquisition, especially the timeliness was very important for them to be able to do that so quickly, most likely a huge benefit.
The speed was very key, especially in this age of
Eric, one of the reasons Rob and I wanted to have you on
today, all myriad of reasons, but one of them being your experience throughout
your career with finances specifically, well finances and human resources, but
how they relate to various components and how companies approach acquisitions
either by the one acquiring a company or the company who’s looking to sell. Can
you talk a little bit about your experience in your career, but also tell us a little
bit and how you’ve kind of gained experience in that world? Yeah.
You kind of alluded to it. My undergrad is in finance. I started my career working as a certified financial planner. Fast forward to when I came on board with R-V eight years ago, actually started out in the HR group, specifically as the company’s benefits manager. From there I was able to work in a couple of different roles here at RV before ultimately transitioning down into the general manager role down here at Genesis packaging technologies, which is our newest division. But prior to that, I was fortunate enough to be a part of the team that would evaluate potential acquisition opportunities. I think the first place to start is, at least in my experience, the majority of the opportunities don’t reach fruition. We can count numerous each year that we’re looking at, but for one reason or another, it doesn’t actually cross the finish line. So obviously that’s the ultimate goal, but the due diligence that you have to put in if you’re looking to acquire a company and learning that business, learning specifically the product line, who their customer base is, and then going deeper and looking at the culture and the staff or the team that they have on board, who the key players are. There are so many factors that need to line up for it to be advantageous to both the selling company and the acquiring company.
Can you bring us some examples of reasons you wanted to
move forward with inquiry and Genesis?
Yeah. So kind of like the example you brought up with T-Mobile and Sprint, and just how long that was in the works. I think the foundation level of this deal started years before through the leadership of each company. So for us at R-V, our CEO and president, and then the majority owner for Genesis. They actually served together on the board of the Chester County Economic Development Council, which is local to our area. Got to know each other and each other’s businesses through that operation and really build a relationship and get to know the values of each other and the businesses that they ran. I think at R-V, we even did some work for Genesis early on for some of their products. So again, key players got to know each other and when that opportunity came available, we kind of already had a leg up because of those relationships that were formed. A good understanding of the business, the niche market, they were in, knowing some of the key players and who was involved. As well as having a fairly good understanding of the product line itself, as well as the customer base,
Stepping back and looking at the general big picture about acquisitions. Why would a company want to sell?
There can be a lot of reasons. Some of the ones that jump out, if you’re looking at a smaller family-owned business, for example, there may not be a great succession plan. You know, maybe the founder or a majority owner is looking to retire, move on. Whatever that reason is that if there’s not a good succession plan there, they may be motivated to sell. Obviously the world we live in right now, going through this pandemic, you look back at 2008, 2009 financial crisis. There’s a number of companies that find themselves in some sort of financial distress. You know, maybe they’re defaulting on some of their loans. Maybe their sales have just dropped off. We look at restaurants right now, other organizations, you know, the sporting world, um, some travel with their projections going into the beginning of this year have completely changed because of the worldwide pandemic. Financial distress could be another motivating factor where companies, they don’t have another choice, but to either close, the doors, look to sell.
So how about buying. Companies like R-V Industries look to
purchase and expand into different market areas. What are some of the other
reasons the company would want to look to acquire?
It could be both to expand into a new industry. Like we talked earlier, it could be to gain market share, or have a bolt-on product in your existing industry. Acquisitions can be like we talked about with T-Mobile and Sprint a quick way to gain market share, achieve revenue growth. It could also be like the example we gave of Zoom and Keybase as far as gaining that additional IP or new technology. Whether it’s looking to get into a new industry. RV’s a great example over the years, how we’ve grown. You look at each of our market areas. Most of them have come through acquisition. Now there are some key synergies that fit under the umbrella of R-V, but these acquisitions Genesis packaging technologies, for example, gave us the inroads into the pharmaceutical industry. Acquiring a company with 70 years of experience in working with these big blue-chip pharmaceutical companies, to achieve that on your own, would most likely take a long time and proved to be quite difficult. When you bring that brand name, and quality that’s been around would be invaluable.
Especially I think it can really help some of the other divisions who have done work for pharmaceutical customers, vessels, autoclaves, things like that. But none of them have brand recognition in the industry that Genesis has. One of the things that you look at from a buyer standpoint, people will talk about revenue as an indicator of what a company’s worth. People will talk about GP, people talking about EBITDA. Where do you land in terms of the most important financial figure to look at it from an acquisition standpoint.
We typically use EBITDA as far as the regiment, valuation for a company. If you’re getting your business ready to sell, obviously financial history is something that’s going to be reviewed in depth. That last three to five years, and what your sales or revenue numbers where, are you experiencing steady growth? And then for the buyer, probably more importantly, what that future outlook looks like and how much of that business is repeatable, whether it be service contracts or parts business that’s repeatable year over, or who are your top 10 customers and what portion of revenue do they make up each year? Then break that down further of what area of businesses is it in. Is it parts, is it repeatable parts, is it service, is it new capital equipment? We’ll try to be able to project what that looks like in the future, but the overall metric that we’re going to use when we’re evaluating account company, ultimately it’s going to be EBITDA. Specifically, because there are different variations that companies will use to really disclose what their gross profit is, where EBITDA is a firm standardized accounting measurement that is consistent across the board.
You’ve talked a lot about some of the strategic importance
of why you would sell being mainly tied to financials and stuff, which are all
important. But another important factor to consider for the strength of both
organizations is they become one is the people. From a culture standpoint, from
a relationship standpoint, from a knowledge standpoint, can you just share a
little bit on what that has looked like for you as you’ve looked at acquisitions,
but also in your experience now as leading an organization that has been
acquired and kind of managing some of those changes.
For me, Dave people is going to rank really high as one of the most important factors. I’m speaking now, specifically as my time here, here at Genesis, but the culture of the organization, the values of the people, if they don’t align with the acquiring company, it’s never going to work in my opinion. Looking at it through the lens of how R-V has approached acquisitions in the past, we’re acquiring the company for a reason. We do not want to come in and clean house. They have the expertise in their product line. They’re the ones who have built it. So we are relying on them for their expertise in that market. Sure, there are some things that hopefully we can bring to the table as far as the added support, whether we’re leveraging our relationships with some of our vendors or wider spread that overhead that we may have from an executive-level or from an HR level or an engineering level, some of those other, those other measures. But when it comes down to the nuts and bolts of knowing their particular business, it is absolutely crucial to identify who the key players are and to be able to retain those people.
Some of those conversations, the approach you guys take
when walking through this acquisition can be very tricky. How was your
experience in working through this acquisition?
Again, let me speak to the most recent one that we’ve been through with Genesis packaging technologies. When that actually became official, I was still working in HR. I was able to work on the backend and be a part of the onboarding with all the employees. I was extremely fortunate because I got to know each individual on a very personal level. There was a quite frankly from the employee side, when a company’s being acquired, it’s, it’s scary because they’re not involved in the whole upfront process. You know, when you’re going through the due diligence and the negotiation fees, they find out the company is acquiring us. They’re quickly scrambling, who is this company? What are their values? Is the company gonna move? Is my position safe? So I think you have to show a level of empathy to listen to those concerns, allow people to express some of the fears, and just really take the time to educate them on who you are as a company and what your values are and why it was advantageous to go through this acquisition, the approach that we’re looking at it from, and the importance that they are going to play in it. Like I said, going back to they’re the experts in their world and their product and reinforcing the fact that we need them. They’re important to us and we’re going to work together and we want to incorporate them into our business, and some of the benefits that can come from that with being part of the larger business. Are things going to change, absolutely to some level things do change. And that’s when you get into the weeds where you have to evaluate kind of medical plan, they have what their vacation policy is. Just little intricate details of certain things that may change one way or the other. But there’s a lot of things that the acquiring company you can potentially take from the acquire that might be able to enhance your business. So it can be a give and take for sure.
One of the things you said that Caught my ear as being interesting from the HR standpoint, I think to really think about for companies that are acquiring other companies, you use the term onboarding, which is typically a new hire term. Companies I think understand when you’re hiring somebody there’s an investment, there’s training, you know, there’s probably stuff there’s also a personal investment. I don’t think that can be overlooked as an acquiring company to approach each of these employees as almost new hires and with the same level of investment, both in training education, but also learning from these now new employees that your company has hired.
Yeah. And I think the keyword that you said there that I want to reinforce is learning, and that has really been our approach when it comes to acquisition is learning from the company that we’re acquiring. Learning about their product, learning about their expertise. And I think any time, this goes back to showing empathy, anytime that you can show that you’re going to listen and you’re going to learn from them goes a long way and starting to build that trust.
It’s almost a give and take, but there’s an understanding
that, hey, as a company being acquired, there might be some changes, but the
idea of it’s going to be two way, you know, the changes in terms of what a
company being acquired can bring to the company. I mean, it takes, it takes
humility often when you’re the company with the cash, you know, as executives
or even the employees, it’s natural as human beings to be like, Oh, some era of
superiority. To really have acquisitions work, humility can’t be said enough in
terms of importance.
Yeah, absolutely. It can’t be understated.
Eric, you went from an HR role here at R-V industries in
Honey Brook, PA to a general manager role at Genesis packaging. How has that
shaped your role?
My experience in time in HR and then in a few other areas of the business that R-V really helped when I transitioned down here into the end of the general manager role or for Genesis. Number one, I was extremely fortunate with already having base-level relationships with all the employees down here. I wasn’t walking in the door or as a new face. They all knew me at some level. So it was very, I don’t want to say it was easy. It was easier for me to start to grow those relationships. Again, going back to listening and learning job one for me was to listen and learn from each of the employees, not only to build relationships on a personal level but also to become further educated on our products and our expertise. Again, our product line has been developed over the past 60, 70 years to that brand recognition of having the fastest capper on the market, the quality of our machine, the ones that are still in operation, maybe with some minor upgrades, just the reliability, and then the service aspect of it domestically that our competition just can’t touch. Our customers, know the responsiveness that we’re going to give any time their machines down, or they have a question. Those are really the differentiators. So for me coming in the door, it was, it was a listening and learning phase. And then slowly starting to incorporate, some of my expertise and knowledge that I can bring to the table. And in my time at RV and before that.
Some of those original employees at Genesis are still
there. Some of the ones who have grown the company to where it is today.
Yeah. So very similar again, when you get back to culture,
looking to see if it’s going to be a good fit on the acquisition side, Genesis
is very similar to RV where we have a number of employees tenured over 20, 25
years. Some of the original owners are still here. That passion expertise,
blood, sweat, and tears that have really grown the business to where it is
today. Some of those people are still here and the same importance that we rely
on at R-V with these tenured employees is very similar down here at Genesis.
I think for companies looking to acquire other companies and in those discussions, and Eric alluded to it during negotiation times and things of that nature, ask some of these questions, look at what does employee retention looks like when you’re looking at the health of a company. Financials are definitely a part of it, but indicators of a company that might be able to bounce back out of those financial downturns. So Eric alluded to some of the effects that pandemic has caused, the 08 09 recession. To focus only on financials, you might not be able to identify a company that will be able to bounce back. If you’re a restaurant owner, no matter how great of an organization that you’re running financially. This is probably a difficult time. I think looking at some of that employee retention, things like Eric’s talking about, like they looked at and why Genesis was such a good fit. Was that. Do you have any more kind of thoughts, comments on, on that?
Yeah. So two points speaking specifically on Genesis and you know, what we alluded to originally how that relationship and foundation was built between the two Giardia leaders early on. In my opinion, I think that was an important factor for old Genesis that was selling. The importance of finding a company that was going to take care of the employee base and making sure that they still had a home and still had a future. They felt an obligation to those employees. So that again matches up the cultural point. But then speaking on a broader scale, when you’re in the evaluation phase, you indicated, you know, whether it’s key indicators or if you’re looking at key personnel and what the odds are of retaining those people. So let’s, let’s look at, you know, when you’re doing your due diligence, let’s look at the key personnel. If you’re reviewing the financials and the sales over the last three to five years, and let’s say the majority owner is the one who will be retiring and he is responsible for 75% of your sales or is a large majority of your sales force. If he solely has that relationship with that customer base, what’s the likelihood that you’re going to be able to retain it. So then you’re going to need to take it a step further and have direct conversations with the customer base to gauge, to ask some of those questions to try to, it’s almost like an interview trying to find out if they’re going to be loyal to the company or were they loyal to that key personnel person who is ultimately leaving. And then that can show you some of the risks in the future being able to maintain some of that ongoing sales metrics.
One final question to think about before we wrap up, you alluded to it a little bit in terms of taking a Genesis approach because of the recency of the acquisition, but you mentioned the fastest capital in the market. From a technology product or service standpoint, identifying something that’s unique to that company. Ideally, if it’s patented, but even if it’s not, what do you look at? How did Genesis kind of fit that mold in terms of a product that’s unique and thus you have a distinct advantage with acquiring that company.
Going back to nearing the due diligence phase and my favorite part of the evaluation phase is getting to know the company and specifically their product and the market that they serve. If you’re fortunate enough to get out and take a tour and actually see the operations in action, and whether you’re going through an acquisition or know you’re just visiting a customer or a vendor, whoever it may be, I’m a big proponent of, get out of your bubble and go see what other companies are doing, because you can learn so much just having eyes on the floor. Back to your original question, you know, reviewing the product and taking Genesis into account and the unique features as Dave alluded to differentiators of being the fastest machine on the market and also being a little bit different. And the majority of our competition is your big OEM suppliers that really supply full lines to these big blue-chip pharma companies, but might not have the expertise in the section that we do because you know, their knowledge base is spread across all of the equipment. Genesis being a sole supplier, building cappers is a unique feature. Brand recognition is extremely important. And you know, and then I think you got to look at what are the synergies with your existing company? Are there opportunities where we can kind of blend some of the business together. For example, for R-V and Genesis, R-V fabricates a lot of our parts. So there’s some, there are some good synergies there as well. So identifying number one, what some of those unique features are, but then also how it can either bolt-on or enhance your existing business is extremely important.
Eric, I appreciate your approach. I appreciate R-V industry’s approach and doing your due diligence and looking at the financial health of a company, digging into the personnel, the key personnel, and finding out what makes this company special. What makes this company important? What makes this company run. Hanging on to those key people, which is very important for R-V industries, very important for Genesis and looking for those synergies. You summed up a very healthy acquisition for a company to step into. Thanks so much for joining us today. And you’re doing a great job with that team and everybody down there is doing a fabulous job. We appreciate the relationship we have.
Thank you, guys. You guys are doing a great job with the podcast series. So I appreciate you letting me jump on board and this, this was fun. I enjoyed it.
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