With an aim to grow organically, inorganic growth for the companies held by Marsden Holding LLC was considered a gap strategy, says Chief Development Officer Thomas Kruse. But because the industries that the holding company works in — commercial services — are incredibly fragmented industries, there were many M&A opportunities.
“I really don't see too many more industries that are fragmented than HVAC, plumbing, janitorial,” Kruse said at the Columbus Smart Business Dealmakers Conference. “So, the opportunities are going to be there, probably until I decide to hang up my spurs.”
That reality, he says, changes the thinking a little bit, encouraging the company to be a little bit more aggressive on the inorganic growth. That's both risky and expensive, but taking advantage of that was just about being opportunistic.
“In the last, probably, eight to nine years or so, we've done around 52 deals,” he says. “And it's really just because the opportunities are there. Then you tend to mold your strategy to the opportunities that you have.”
So much of the company’s 6x growth has been through the inorganic side of it. And there’s reason to be careful when it comes to spurring additional growth through M&A.
“You can get hooked on the junk food a little bit and start looking at it a little bit more as your only strategy, and you can get addicted to that,” he says. “It shouldn't be so singular. So, we have to be careful and check ourselves.”
A deal can be good or bad at many different points in the life of it. Much of that depends on how each stage is managed.
“We can do all of our work. We can vet everything. We can do the diligence. We can manage the psychology of the seller and all the emotion, you can manage all that. And on the day of signing, it's a great deal. You close, it's a great deal. Looks good. Then you hand it over to the integration team but the integration team doesn't do their job. All of a sudden a good deal can become a bad deal really quick,” he says. “And so they've got to really be on their game. And then when the integration team is eventually done, at some point in time, the operating people come in and take control of the wheel. And if they just blow it up, then they can take a deal that was really good for the last 18 months and all of a sudden it just craps out because of the way that they dealt with it. So, everyone has a responsibility and a role, because a deal can also be bad and then get good if the next group takes it over and does the right thing with it.”
Because his holding company is made up of six or seven different operating entities, the holding company itself doesn't have a culture, per se, but each of those operating entities does. That makes his role unique.
“If I really take my job on the upfront and boil it down to the most simplest terms, I'm a matchmaker,” Kruse says. “I may have a great deal where the CIM is just off the charts, and everything's wonderful about it, and everything looks good on paper. And you start looking at it a little bit closer, and you're like, ‘This would be a disaster for that leader’ — there is no match here, there's no love connection, or whatever you want to call it, with that. So much about it, for me, is matching leadership capacity to what they need, to what the selling company needs. It's about matching the cultures. Sellers are going to have certain expectations and if you can uncover what those expectations are, then I can decide, can this leader, can he or she deliver on those expectations? Or is it just going to be a big disappointment?”
The numbers, he says, are going to be largely what they are. But for him, the real the trick is understanding the relational dynamic between the people who essentially must live under the same roof for a long time to come.
“Because if somebody starts calling for divorce after a month or whatever, the value is just done.”
The most precarious and risky part of the whole deal is usually that first six months after close. It’s a very emotional period for everybody that's involved, so they control that by having one point of contact for the integration process who is steady at the wheel.
“Because nothing frustrates a seller more when they have a question or an issue and they say, ‘Oh, well, call Jackie in Saint Paul. I don't know who the hell Jackie is,’” he says. “So, it really frustrates them.”
Also, during integration, sellers will get a little impatient early on, expecting more change sooner than it typically happens. That can be frustrating, especially for the employees. But, he says, it won’t be clear what to change to until it’s understood what it’s being changed from. That requires time to understand the business.
Something that helps the process go smoothly is to bring in their integration person as soon as they have the first initial agreement signed. The person then spends the entire diligence period getting up to speed on the nuts and bolts of the organization. And then about the last month, right before close, the integration conversation is pulled into it, so that they hit the ground running.
