Why They Didn’t Sell

One aspect of the consolidation process that hasn’t been addressed much, however, is why some contractors, who could sell their businesses for hefty prices tomorrow if they wanted to, have elected to remain independent. Five such contractors were the panelists for a session presented at the Green Industry Expo in Baltimore, and following is a review of what they had to say.

The panelists were:

• Landon Reeve, president, Chapel Valley Landscape, Woodbine, Md.
• Mike Rorie, president, Groundmasters, Cincinnati, Ohio
• Wayne Richards, chief operating officer, Cagwin & Dorward, Novato, Calif.
• John Gachina, president, Gachina Landscape Management, Menlo Park, Calif.
• David Snodgrass, president, Dennis’ 7 Dees Landscape, Portland, Ore.

In talking about his decision not to sell, Snodgrass noted that the forecast for the next few years in the lawn and landscape industry is very positive. And despite the notion that surfaced early in the consolidation craze that contractors had a limited window of opportunity for selling their businesses, more potential buyers have emerged since the summer of 1998 due to the industry’s growth.

"There are potential buyers inside and outside of our industry," observed Snodgrass. "We could sell to janitorial companies, facility management companies, other contractors or even financial roll-up groups from outside of the industry."

Snodgrass and the other panel members each acknowledged that they entertained the idea of selling their business at some point over the last two years, and each also said they met with representatives from potential buyers. But each of these contractors came away with the same decision – selling was not the best move for them to make.

"My partner and I tried to gather a lot of information to see why we, as owners, would be interested in selling," noted Richards, who recommended that contractors thinking of selling should seek professional accounting, legal and/or brokering assistance. "We decided selling wasn’t the right move for us because we’re active in the business and selling would really change the culture we’ve worked to build. Neither one of us wanted to be a part of that."

Richards also related the decision not to sell to other strategic decisions a company makes. "We’ve all made decisions not to enter certain markets or not to offer certain services because doing so wouldn’t fit with our scope of business," he explained. "Businesses have to do what is best for them."

"For me, the decision not to sell came down to desire," noted Rorie. "The idea of being part of this national company and working with this pool of talented individuals was very intriguing, so I kept asking a lot of questions and learning from people who were involved and had sold their businesses.

"But I just don’t think you’re going to have as much fun at some national company," he added. "We don’t have to report to anyone other than me or always worry about the next quarter. Our goal is more than the bottom line."

"The decision not to sell was essentially my children’s decision because they will take over the business from me," shared Reeve, who added that dealing with rumors that he would sell the business have been a tremendous challenge. "We have 250 families that depend on us because we employ at least one member of that family, and we felt that could do better ourselves rather than being dependent on Wall Street."

Reeve also believes that an independently owned company benefits from having an owner who is active and present in the business.

"We work in my community, where the employees and I have a vested interest in the quality of life," he noted. "Good companies come about as they are driven by people who live in the area the company operates. I don’t believe outside controllers have the same level of local commitment and can give the same level of service."

(It should be noted, however, that while this is one of the more common criticisms of the national companies, each company they acquire and turn into a branch is typically run by a branch manager who lives in that branch’s market and has a similar vested interest in the community.)

THE PEOPLE FACTOR.
A key consideration for any contractor considering selling his or her business to keep in mind is how the subject is handled with employees. While some contractors may elect to say nothing to employees so as to not risk upsetting them or make them nervous about a potential sale, sometimes honesty may be the most effective approach.

"Once we made our decision not to sell, we called together our key personnel and told them everything," recalled Richards. "We explained that our decision was an investment to remain independent and now we needed their support so we could continue to be a successful company."

"That meeting turned out to be a pretty powerful event because we came to them," continued Richards. "They have really risen to the occasion."

"Whether or not you sell is obviously the shareholder’s decision, but your key people have gotten you where you are, so I think you do want to talk to them at some point," agreed Rorie.

"If you’re on the fence, get off of it – one way or the other," stressed Gachina. "Decide what is best for you and go that route. Otherwise you’re going to confuse your people by vacillating.

WHAT’S NEXT?
The contractors on the panel each noted that they haven’t seen any instance of the national companies trying to cut prices or "buy contracts," but a logical question to ask of contractors who decide not to sell is how they plan to compete with the emerging national companies.

For Rorie, the answer has been to begin a consolidation effort of his own.

"We’ve bought two companies during that last two years to grow stronger and expand our market," he explained, noting that he is preparing for what he considers the inevitable arrival of a national player in the Cincinnati market that Groundmasters currently dominates. "But if TruGreen LandCare hits its goal, then it will serve about 5 percent of the market. I think there’s room for me to work in the other 95 percent."

Rorie also said his business has probably already improved because of the consolidation trend.

"Consolidation has caused us to get a little better and be prepared. At some point, we’ll have a national competitor, but that will probably be a company that we’re already competing against, only then they’ll have a new name and a new owner. And if these companies have new advantages, then I think we’ll ultimately learn from them and integrate those ideas into our company and throughout the industry."

Richards believes the challenges the consolidating companies face, in particular TruGreen LandCare because of the number of acquisitions it has made, will benefit his company.

"They have a lot of work to do trying to merge all of those companies into one set of standards and values," he explained. "And in many cases they have to get companies who have hated each other to work together. I’m sure they will get this all worked out, but there are additional opportunities available to us in the meantime."

Reeve agreed with Richards that opportunities for work have increased because some of his main competition has been sold, but he compared the situation to the honeymoon stage.

"At some point, you wake up and realize that you’re actually married, and that’s when the challenges begin," he pointed out. "And there will be new challenges once these companies complete with their integration. They will have advantages in terms of economies of scale, resources, their national presence, access to national customers and their attractiveness to certain employees."

Reeve is not concerned about having to compete against companies 50 times the size of his. "I strongly believe that we, not our competitors, control our own destiny," he said.

A number of companies in different parts of the country have reported that they’ve been able to hire key personnel after those people left their job because their company was sold.

"Some of these people were working for an owner they really enjoyed working for, and now that owner may be gone entirely from the company and that company may not be right for that employee any longer," observed Gachina. "At the same time, however, being part of a national organization has been very good for some of the mid-level managers who have remained with the company."

Gachina also noted that to strengthen themselves for increased competition he and some other California contractors who don’t compete with each other have formed a networking group that meets regularly to share experiences and ideas and help each other improve.

"Businesses have to be willing and able to change as the markets change, and I think that is an advantage the larger companies don’t have over us," he added.

Despite all of the advantages the national companies may have over smaller, independent companies, Reeve still sees one other group in the market that concerns him even more than the TruGreen LandCares of the world do.

"My biggest concern remains the small start-up company that doesn’t understand the costs of doing business and ends up undercutting the market," he related.

And since the panelists’ companies average about $12 million in annual revenues, they advise for companies not nearly as large as theirs.

"The secret is having a clientele that you take care of," related Reeve.

"Define your niche and continue to market your company to those customers," added Gachina.

"You can’t boost your price without delivering added value," commented Rorie. "See what your market tells you that you can and can’t do well, and give them what you can do well and make sure you get paid fairly for it."