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Growing Forward:

Merger and Acquisition Strategies

John Cain President & CEO, Wiseway Supply, Headquartered in Florence
Brandon Johnson CEO, Mountainland Supply Co., Orem, Utah
Mike Plasier CEO of Plumbing & Heating Wholesale in Sioux Center, Iowa and IMARK Plumbing Chairman
Drew Roberts CEO, Prosource Plumbing Supply, Greenville, South Carolina
Wilson Teachey President, Hubbard Pipe and Supply, Fayetteville, North Carolina

Selling or acquiring a company is an art; not a science. Every company has its own set of metrics to measure and a long-term plan it is working toward; thus, its requirements in these types of transactions will differ.

A good rule of thumb to follow is to never forget that there is another human on the other side of the transaction. Almost every challenge can be resolved if you strive to treat the other side with honesty and integrity. When both sides aim for a good deal, they walk away happy.

IMARK Plumbing members John Cain, president & CEO, Wiseway Supply, headquartered in Florence, Kentucky; Brandon Johnson, CEO, Mountainland Supply Co., Orem, Utah; Mike Plasier, CEO, Plumbing & Heating Wholesale, Sioux Center, Iowa and IMARK Plumbing Chairman of the Board; Drew Roberts, CEO, Prosource Plumbing Supply, Greenville, South Carolina and Wilson Teachey, president, Hubbard Pipe and Supply, Fayetteville, North Carolina recently took part in an interview about the merger and acquisition process and offer their best strategies for success.

How do I determine if a wholesaler is a good fit for my company?

Johnson: There are many factors to look at for a potential acquisition, but we summarize them into two different categories:

  1. Qualitative Factors (examples):
    • Culture and core values
    • Background (geographical location, number of employees, years of business, reputation in market, customer base)
    • Management (structure, background, experience, etc.)
    • Core strategy (sales channels, competitive advantages)
    • Integration of their current operations into our operations
    • Whether or not the owner is staying in the business (we like them to stay)
    • Integration of our service departments (IT, HR, finance, marketing, purchasing, etc.)
  2. Quantitative Factors (examples):
    • Financial metrics
    • Revenue and expenses
    • Net income and earnings before interest, taxes, depreciation and amortization
    • Assets and liabilities
    • Measure financial performance against our company and industry (key performance indicators)
    • Forecast of future performance of the company
    • Acquisition price versus calculated fair value

These are a few of the factors that our company looks at to determine if a potential acquisition would be a good fit for us.


Roberts: If the cultures do not align, it is probably worth taking a step back and potentially not pursuing the transaction. If the cultures align, the next steps will vary wildly depending on your company’s goals and objectives. Your objectives will drive your decisions but, generally, you begin your due diligence, verifying all of the data, such as financials, insurance, customers, safety, etc.

Plasier: First and foremost, you need to believe the core group of personnel will fit into your culture and have the ability to adjust to your Entrepreneurial Operating System (EOS). From there, look at the strategic fit. Do they offer the opportunity to expand into new product categories within the footprint you already serve? Are they a distributor outside of your current territory that aligns well with your current operations and will allow you to expand what you are doing today, or is it some combination of both. Then, evaluate financial information; having clean financials is critical. Inquire early on if the seller has a ballpark figure he/she is looking for in the sale, or if he/she has had a private valuation completed. If they have not had a private valuation done, encourage that and generally refer them to Industry Insights, an American Supply Association partner that will provide this service. Evaluating the systems and most importantly the personnel from ownership’s standpoint are usually one of the last, but one of the most critical steps. Do they have current processes documented and are the team members on board with following the current processes and procedures? Whether or not the processes align with yours is not important, having them in place, accepted and followed is what matters. Inventory reports, personnel reports, customer reports, sales reports, vendor reports, purchasing reports and more will be requested during due diligence. Being able to provide these timely and in a format that can be manipulated is desirable by the potential purchaser. While size is not the determining factor, it is a factor for determining how to and if you can finance the acquisition. Bank funding, additional shareholder equity or a cash-based acquisition have been our vehicles for financing to date; in most cases it is a combination.

What common traits should our organizations share?

Roberts: Common suppliers and/or common customers: Have a general alignment of vendors—it makes the transition much smoother unless you are trying to enter into a new product segment. Minimal customer crossover: This allows for the customer base to grow more broadly and there is less risk of a customer seeking a new vendor because they have too many eggs in their basket. Common Enterprise Resource Planning (ERP) systems: Having the same ERP system makes integrations smoother but the ERP system doesn’t necessarily have to impact an acquisition decision. Common culture is mandatory: When making an acquisition, you can make mistakes, but this is one you must get right, otherwise, it is going to be some tough sledding.

Teachey: A good culture fit means that your teams will be like-minded and willing to embrace change. After three acquisitions, I have yet to see a transition that did not reshape the buyer and seller. Knowing when to be flexible and when not to be is critical. ERP, EOS and other commonalities are a bonus.

Should I utilize brokers to help find potential acquisition targets or an internal process to find targets?

Roberts: There are times when using a broker would make sense, especially when you have identified some markets that you would like to enter but do not have any local relationships.

To identify targets:

  1. Know the markets you want to enter, including key attributes such as product focus, size, area, target segments, etc.
    • Be honest about your capabilities, culture, risk tolerance, etc.—this helps align your strengths with potential opportunities.
  2. Warm leads are always easier—let people know you are interested in entering a market.
    • You need to make decisions if the warm lead does not pan out into a deal. First, are you still interested in the market? If so, you might make cold calls or engage with a broker.
    • Don’t be afraid to walk away. Sometimes the best deal is the one you didn’t do.
  3. A broker can play a pivotal role and save you a significant amount of time and energy by doing all of the legwork on your behalf—it really comes down to what works best for your company.

Plasier: We have only been successful with one out of about five opportunities that were brought to us by a broker. Internally, we work to establish relationships with companies that we see as a strategic fit. We make sure they understand that we are not applying any pressure, but we would appreciate an opportunity to be in the conversation when/if that day arrives. From there, we will generally keep in touch with leadership one to two times annually to ensure they know we continue to have interest.

Cain: I will work with a broker who presents an opportunity to me; however, I have not retained a broker to seek acquisition candidates for me. When presented with a broker-generated opportunity, it always involves a non-disclosure agreement. From there, we do what we can to assess the company based on the information in their Confidential Information Memorandum, our own knowledge of the seller, etc. If we are interested after such review, we will work within the broker’s delineated process. We have generally been the most successful through personal contact with the potential seller without a broker. I have made informal contact by a personal call, an invitation to lunch, etc. In the past, I have sent a personal note to companies that I had some interest in; one of those notes yielded a call seven years later! Making sure your local rep network and broader manufacturer community are aware of your interest will often yield information on those that might be for sale…or better yet, before it is public, those who are thinking about selling. Basically, let it be known as broadly as possible that you are interested in making acquisitions.

Johnson: The successful acquisitions that we have made in the past have come from references from our own employees. Employees let management know of a potential acquisition that they may know about from their network connections in the industry or contacts that they have made in the business.

Teachey: Of our three acquisitions, each was internal. I like to view an acquisition similar to the dating process. First, you have to get to know the folks you are looking to acquire. Secondly, can you see yourself investing a lot of time and effort embracing this team? Finally, can you both agree to terms that work well for the buyer and seller? These are a few of the questions we ask when exploring opportunities… Define their why? How do they grow their business? What is the makeup of their team? All of these questions, as well as our own reason for wanting to acquire, must be discussed in an open and honest forum with your leadership team and theirs.

When working through the due diligence process, what critical attributes/metrics do I analyze?

Plasier: When working through the due diligence process, analyze gross profit as a percentage of sales; the aged inventory report; four years of financials; four yeas of tax returns; employee wages, hours, bonuses, commissions, 401K, insurance; company vehicles; mobile phones; customer credit records (applications and cash-on-demand and problem accounts); next year or current year sales projections and budget; any contracts in place (customer-related or vendor-related); two years of purchase data by vendor; the existing workforce and an inventory audit prior to close to substantiate reporting.

Teachey: Some of the information we like to collect includes team health (who is staying and who is not), profitability, combined efficiencies, back office information, vendor pricing and locations gained.

Johnson: We have found that doing the due diligence between a large company and a small company does not vary materially. However, the structure of the agreement (i.e., stock versus asset purchase) can make a difference on the amount of due diligence. Besides the items found on the due diligence checklist, the overall theme that we are looking for is the consistency of the items reported to what has been told to us. Comparing that information with the ratios and analysis that we had previously made will give us comfort with the agreement that was made.

Once I have decided on a potential target, what legal steps, capital requirements and other considerations are there to close the deal?

Cain: For the last 15 years or so, I have always included an attorney to ensure that all aspects of the deal protect me. There are so many things that we, even experienced business-types, do not consider, e.g., bulk sale laws, intellectual property laws for trademarks, names, logos, websites, etc. A favorite saying of mine is, “Don’t get tight at the wrong time.” Ultimately, people are the most critical part of a deal. It is easy to rent a building and fill it with inventory. What you are purchasing is access to a group of people who operate the company you are trying to purchase. A very important facet that I like to address as early as possible is key leadership. I want to know who must stay, is willing to stay, etc. Often, I will require the selling owner, if involved, to stay with us for an agreed upon length of time. I will also want to lock down key managers and salespersons with “stay agreements,” i.e., agreements that offer incentive to remain at the company. These can be added commissions, bonuses after a specified length of time, etc. Of course, if it is a fairly large deal, you will likely have to borrow money. I try to be ready in this regard well ahead of opportunities. Like being pre-qualified for a home mortgage, I determine my own comfort level when it comes to debt, and I want to know how much money I can borrow.


Generally, I am aware of this as I approach a deal. Concurrent with the earliest steps, I will involve my lender in the process to ensure that I have access to the dollars and structure I need to get the deal done. I have always operated conservatively to ensure that we are able to borrow money when an opportunity presents itself. A smaller company might be asked to have their owner personally guarantee the loans. While dependent on deal size, I have worked hard to mitigate that as we have grown.

Johnson: Once we feel that a potential acquisition is qualitatively and quantitively a good fit for our company, we then need to make sure that all parties pertaining to the deal are comfortable with the arrangements. We want to make sure that the seller feels that this is a good deal for them. There are many ways that you can structure a deal to help with tax liability, commitments, and other things that might make it more difficult to sell. Taking the information from the seller, we are then able to create a Letter of Intent that will summarize the overall arrangement. We want to make sure that our legal team and the seller’s legal team feel comfortable with what has been stated in this document. If the seller for any reason does not have legal or tax representation, we will encourage them to find some. One party to the agreement that might be overlooked is the financial institution. If you have any lines of credit or debt agreements, there might need to be approval from the financial institution before it can proceed. Much of the information that can or will be gathered in the due diligence stage will help satisfy any questions or concerns that the financial institution might have. Overall, we want this to be a win for all parties at the table.

Plasier: Having legal representation with experience in mergers and acquisitions activity is very beneficial. Accounting expertise is also beneficial; our accounting firm has personnel we leverage throughout the due diligence period as we work to finalize a purchase agreement. Capital requirements will vary based on the size of the acquisition. To date, we have been able to work either off of a cash basis or worked our primary bank lender to finance the acquisition over a 10-year period. We generally evaluate an acquisition to be able to pay it off in five years, but look for flexibility with our lender.

What are some best practices to integrate the new business and employees?

Roberts: Have an immediate town hall with all employees. Be honest about what will change, what will stay the same and how you may stumble along the way. Once the new company realizes that you are human, it may provide you with some grace. Integrate insurance, names, payroll, etc. as quickly as possible. Look for some quick wins.


Cain: Initially, a couple key managers from my company (including me), usually spend a fair amount of time with the key leadership who will remain. We will work together to develop a transition plan customized for this transaction. We will be concerned about the integration of systems and processes. Early on, we also try to figure out how to inject some of our own culture into the acquired company. This can take the form of cross-sharing between the two companies, the rotation of some of our key leaders through both entities, or an all-company event to cross-pollinate the two groups of people. Again, the people are the critical element of the transaction. If the acquired company is in a completely different market, we will arrange to meet with all vendor reps in the territory. It is critical to provide them assurance that we will keep the business with them in their territory. The last thing you want is the local reps trying to move business to your new competitors, because they do not feel like they are getting a fair shake. The final, and a very key element, is to ensure that we provide comfort to the new customers. We provide a packet containing information about us, a new credit application, key contacts, our vision for an even better combined company, etc. We also make a point of meeting with all of the key customers before culminating with an introductory event or two for all customers.

Teachey: An onboarding plan is a key piece of your transition success. A few of our top priorities are ERP setup, testing and training, employee benefits training, EOS training and standard operating procedure training.

How do I know if I am making the right choice or if I should walk away?

Plasier: To date, all of our decisions to walk away from a deal have come down to two things.

  1. The valuation the seller was expecting was significantly outside of our scope and we were not willing to shoulder the load it would take to get to their number. Being fiscally responsible regarding your companies resources is important. An acquisition should be an opportunity for added revenue, not a boat anchor.
  2. The culture wasn’t right. If it is clear that our expectations in no way align with current processes and procedures, we will walk away.

Cain: I want to purchase a vibrant company with great things going on. Early on in my career, I used to look for a “good deal” on companies. While often successful at finding such good deals, they were usually for “fixer upper” companies. The good deal was measured by how much I was paying for the inventory. Well, education is not free! Such good deals usually did not work out very well, because by then, the key salespeople were gone, the best inventory was sold, and all that remained was the shell of a company. I no longer look for “good deals.” I have to pay more for a vibrant company, but they are worth it! It is okay to negotiate as well as you can with a good company, but be willing to pay up for it! I also learned that it is as easy to integrate a larger company as it is to integrate a small company. My company has reached the size that we will not really even look at the smaller opportunities. The last thing I would want to do is have a lot of people and resources tied up in a smaller deal when a better, larger deal comes along.


Johnson: First, know your business. This means to understand what your culture can tolerate, what are your strengths and weaknesses, understand your people and what they are able to take on, and what are your own personal capabilities. If you know your business, then you will know what a good or bad choice will be. Second, don’t be afraid to walk away. There have been times that we have found companies that make financial sense, but just in the short time of talking with the owner you can tell that the culture would not integrate well with yours. This doesn’t mean that they are a bad company, but they are not a good fit for your company. Those are times that will be the most difficult because you want it to work, but those are the ones that will take up a lot more of your resources. Third, don’t be afraid to say yes! There are situations where you can get “paralysis by analysis.” All the information that you have looked at shows that it would be a great option, but we keep analyzing and analyzing. I don’t know if it is because we are trying to find something to tell us know or we want to uncover all the risks before we commit. But there are opportunities that we just need to jump on! For me, I try to recognize all the risks that I can at first and have a plan to minimize those to the best of our ability. If we can mitigate those risk to a level that I am comfortable with, then we will execute. Rarely will you ever be able to eliminate all risks. Knowing your risk appetite is important through this exercise. I have found that 90% of the time, the feelings that I have from the first meeting with a potential acquisition will be correct. The information from additional meetings or due diligence will confirm that for me. But trusting those feelings only comes from knowing me and our company.

Teachey: Stay true to your Vision/Traction Organizer (1, 3, 10 year objectives). Be aware of squirrels/tangents that will lead you away from your core focus. At the end of the day, trust your gut!