Mergers & Acquisitions. Part 1, The Basics.
Well before 9/11, numerous recessions, the APPnology apocalypse, and now the pandemic, our industry saw mergers, acquisitions, buying, selling, and working alliances as regularly as rain. For every reason someone wanted out there was another reason someone wanted in. Some sellers wanted a lot for a little while many buyers offered a little for a lot. Everyone had their own reasons including health issues, retirement, new business opportunities, or relocating. The most common reason: growth; the myth that size equals profit, bigger is better.
If there is one thing I have learned over the years it is that size does not always equate to better revenue and profits. In many cases it means debt, exposure, and liability. I know large operators who make little or no profits and small operators who generate handsome profits.
There was a Southern company some years back that was running a 45 car operation — it was a mess, an operational freak show.
Approximately 60% of their business was a major investment bank. Upon contract renewal time they decided to bring in a consultant. The consultant flew in and spent three 8–10 hour days at the operation. When finished he flew home and said he will have a report sent to them in 48 hours. Once the report was received the operator found many constructive suggestions on a variety of operational changes, adjustments, and what not. However, the final page contained the “bomb”. The consultant made it clear and concise: Do not renew the investment bank. Let them go and wash your hands of them.
The staff and ownership were befuddled. Like most, they looked at a big check every month but did not really analyze the cost and sacrifice they went through to receive it. After days of deep thought and analysis, they agreed to heed the consultant’s advice and cancel the renewal.
The first day of the following month things were different. Driver days off were immediately and graciously granted. Maintenance costs down, complaints down 60%, and driver attitudinal outbursts now became suspensions and terminations.
Management regained control. Nobody held their work or performance hostage. There was now a new sheriff in town. Lesson learned: “Don’t always strive to raise the bridge. Feel free to lower the river.”
The big question remained: money, money and money.
The first 30 days post account they showed a slight paper loss. As the months went on and the operation was streamlined and acclimated to the new normal they were showing acceptable profits. Most importantly, as I was told, it was a pleasure to work there again. The pressure was gone and they became a manageable enterprise.
It reminds me of a friendly competitor who operates a generic answering service with the exception of one limousine company that they serviced for years. When the limo company started it was a two car operation and chose to work with this particular answering service simply because they were located in the same strip mall.
As time progressed the limo company grew to a 25 car fleet but always stayed loyal to their little answering service; a service who charged their non medical clients a flat rate. By this time the limo company was up to $550.00 per month.
About a year ago the owner of the answering service was forced to request a rate increase from the limo client. Her primary reason for the increase was the new batch of drivers were combative, argumentative and it was becoming very distracting. She decided to request a rate increase to $675.00 per month.
Not two hours later she received an email stating that the limo company would be leaving at the end of the month and staying live 24/7 in house.
She was at her wits end. As much work as this was, the money was big in comparison with her medical and trades account. I offered her the very simple, “raise the bridge, lower the river” suggestion.
Since she only has one third shift operator, I advised her to release her second seat on second shift one hour early. Then have your second seat, first shift arrive one hour later. That move alone will save her 60 hours per month in labor.
Weeks later she brought me a tray of her trademark dish — Polish Lasagna — and walked in with a big smile. Turns out the schedule trim exceeded the revenue of the lost account and has since trimmed an additional 30 minutes off each shift by splitting amongst 6 operators.
Bottom line, the account was actually costing her money. Lessons learned.