Editor’s note: What follows is an excerpt from “Level the Field!” by Kemp Anderson. The book is an updated version of Pam Jordan Wolf’s classic pest management M&A book and features the tagline “Bringing direction to the acquisition process.”
Previously, Anderson was vice president of business development at Scotts Lawn Service (SLS), a division of Scotts MiracleGro. His responsibilities included leading all merger and acquisition (M&A) activity, developing new service lines, growing existing service lines, as well as expansion of the franchise operations including service offerings and growth in new geography.
Prior to joining SLS, he was director of acquisitions for Rollins Inc., parent company of Orkin, responsible for expanding the company via merger and acquisition activity throughout North America and the Caribbean.
At Middleton Lawn and Pest Control, Anderson was both director of business development and manager of legal affairs. He was responsible for growing the company organically and via acquisitions, with oversight and negotiation of all acquisitions.
At the beginning of each chapter of “Level the Field!” Anderson offers a quote or two that apply to the chapter. An example: “The difference between involvement and commitment is like ham and eggs. The chicken is involved, the pig is committed,” said Martina Navratilova, winner of 18 Grand Slam singles tennis titles.
Navratilova knows something about commitment. How committed are you to selling your business for the best possible price? How many hours are you prepared to invest to win this life-changing game or business event? To sell for the maximum amount, you and your business must be committed.
Along with a step-by-step look at the process of selling a business, Anderson includes case studies based on his decades of experience in the industry. What follows is an excerpt from “Level the Field!”
I once worked on a multi-million dollar transaction where the seller said in every meeting that his employees were drug tested. He went as far as advertising he was a “drug-free workplace.” During the initial meetings, during due diligence and even at the close, the seller claimed to be a drug-free workplace.
The buyer was a sophisticated organization that acquires businesses on a regular basis. The buyer asked several times about the employees and did human resources due diligence. The buyer was under the clear understanding that the seller:
- was a drug-free workplace.
- had completed criminal background checks.
- had completed physicals on all employees who worked in the field or delivered services.
- had completed motor vehicle/driver’s license checks (MVR) and credit checks on each employee that drove a company vehicle or did service.
Despite multiple answers by the seller that these checks were completed for all employees prior to being hired, as well as any time a customer complained or a vehicle accident occurred, that was not the case. The fact was the seller never did any of these things.
The issue came to a head at an open house (which included a nice welcome buffet!) for new employees. The buyer brought in human resources, operations and even benefits executives to tell the new transferring employees what they would gain in the sale including better benefits, better and newer vehicles and equipment, and, in most cases, better pay.
The only thing left to do was to have the employees sign new non-competes, complete new drug testing, and give approval for credit, MVR and criminal background checks.
These “on-boarding” items were thought to be a formality since the seller had claimed that all of those items already had been done. When the buyer announced that these checks were required, several crucial employees got up, walked out, and were never seen or heard from again. The employees were upset and felt misled by both the buyer and the seller.
The employees who left had a significant impact on the business. Several hundreds of thousands of acquired customer value was lost. Litigation started between the buyer and seller, and funds were frozen. Ultimately, the buyer won the litigation and the seller was found to have created a fraud during the sale.
In my opinion, everyone lost — the buyer and the seller as well as the employees and customers. This was all caused by the seller simply not disclosing his lack of employment policies. What is even more disturbing is had the seller told the truth, the buyer would have still acquired the business — so the only real result from all of this was ill will and litigation.
The author is president of Kemp Anderson Consulting. Contact him via www.kempanderson.com.