Post-pandemic, certain aspects of management have garnered a lot more attention than they have in the past, says Mason Wells Senior Managing Director Jay Radtke. HR and supply chain, in particular, are on the top of those lists.
Regarding the supply chain, he says one of the things his firm has done is to look at every one of their companies and analyze the price increases, the material cost increases, the labor increases, and annualize that starting back to January of 2021 when, in their eyes, an inflationary period started.
“We grind on that with our teams every month because we think that's the most important thing if you're running a business — you got to have pricing power,” Radtke says. “And if you're not passing along prices, you're going to be at a load of trouble. You're starting to see that now with a number of companies that are struggling, that have leveraged balance sheets and not being able to get price because you haven't been disciplined about that.”
The inflationary pressures are new for many business leaders. And because of that, diligence has even greater emphasis.
“You’ve got to be, as a buyer, eyes wide open on the pricing power and the supply chain options around, particularly, raw material purchasing, in a way that you've never had before,” he says. “We spend a lot more time on that in diligence compared to what we did before.”
Additionally, new labor realities have increased attention on a company’s HR functions. In the past, when it came to HR, Radtke says HR directors weren’t that important. Now, he says they absolutely have a seat at the table.
“We spend a lot of time with our management teams talking about HR in a way we never did before,” he says. “And we do that in diligence. Recruiting and retention is at the very top of it.”
He says there’s now greater scrutiny of issues such as turnover and open positions as well as the culture.
“How do we make the environment pleasant for people to come and want to work at your business because you can only pass along wage increases so many times,” he says. “You got to make people want to enjoy working wherever they work. And I'd say, those two areas have a whole different level of scrutiny for us as buyers because we're living it as owners of business today.”
While HR is top-of-mind, Radtke says there hasn’t been anything he’s seen in the past 12 months of acquisition work that would make them drop a potential target entirely. Rather, when there are issues the tendency is to try to find a way to turn it around and see it as an opportunity. For example, Radtke says his firm hosts semi-annual HR webinars where they showcase best practices. They asked one of their HR leaders to analyze data from a 15-20 question survey of HR leaders and then present it on those webinars.
“It's been remarkably powerful to the point where we're asking the HR leaders to talk to each other,” Radtke says.
Talent is a critical competitive advantage, making effective recruitment and retention valuable.
“And it can't just be about driving up the wage another $3 an hour for someone working on the floor because that's just a race to the bottom,” he says. “So much of it is HR talent. And there hasn't been that much of a focus up until the last couple of years. Those folks who are really good — and there aren't lots of those — they are really, really valuable. If you have a really good HR leader, tie them up. They are worth their weight in gold. They have leverage in a way that didn't exist before the pandemic.”
Radtke spoke at the Milwaukee Smart Business Dealmakers Conference about how to be an effective buyer in this hyper-competitive and ever-changing environment. We’ll bring you more from the conference in future article on the Smart Business Dealmakers website.
