Mike Plumley understands merger-mania from the front lines.
Three years ago his family-owned Plumley Co. was an independent supplier making hoses and gaskets in Tennessee. Today it's a division of Dana Corp.
Mike Plumley and his three brothers owned the company. Two wanted to grow the business, but the other two siblings wanted out.
"We could have bought out our brothers, but the first recession probably would have put us under," says Mr. Plumley, now vice president of Dana's Industrial Components Group.
So they agreed to sell.
And while they all made lots of money on the deal, Mr. Plumley says a major reason he went with Dana was the assurance that they would fold his company into the corporation without slashing payrolls and eliminating jobs.
The bottom line is that the staff that ran the company three years ago is the same as the staff that runs the unit today, except that they now work for Dana. Dana was quick to assure the employees and followed through on their promises, he says.
But such painless linkups are rare among the fiercely competitive auto companies where former foes are sometimes asked to suddenly put aside old rivalries at the drop of a few billion dollars.
It's rare to find two businesses that do things exactly the same way. Put them together, and the differences eventually will surface. Many times the mergers result in thousands of layoffs and frigid relationships among the survivors.
A major test case likely will begin next year as employees and executives of Daimler-Benz AG and Chrysler Corp. work to bring the free-wheeling Chrysler into the folds of a more stodgy German conqueror.
But different views and methods can be a positive, rather than a negative. It all depends on how the new management faces the issue. The trick is to introduce new practices in a way that complements existing operations. The last thing employees want to hear is that they've been doing it all wrong.
Acquisitions and partnerships have spurred phenomenal growth at Johnson Controls Inc., which is an automotive interiors powerhouse, with 1997 automotive sales of $8 billion.
In 1996, JCI completed the $1.3 billion acquisition of Prince Holding Corp. of Holland, MI. And a few months ago, JCI began steps to purchase Becker Group of Sterling Heights, MI, which anticipates 1998 sales of $1.3 billion. With Becker, JCI gets a greater presence in Europe, where Becker generates 70% of its sales.
"With Prince, our goal has been to allow an appropriate level of independence, but we still need to align the organizations because our customers expect it," says Jeffrey Steiner, director of worldwide marketing communications for JCI's Automotive Systems Group. "We want to make sure Prince maintains its base and grows."
Taking the best practices of both companies and applying them throughout has helped many Prince employees think of the acquisition more as a collaboration. Prince's advanced design studio has become a cornerstone for new product development across JCI.
But it remains to be seen how JCI will merge Becker's design studio with Prince in North America. Both design groups have their own U.S. headquarters in Michigan.
The arrival of new contracts and the absence of an executive exodus from Prince after the acquisition are positive signs to Mr. Steiner. "It's two years after we made the acquisition and nobody has left," he says. If anything, it has provided some mobility, allowing JCI executives to take new jobs at Prince and vice versa.
Successful mergers require a two-pronged approach, agrees Richard Leider, a partner in the Minneapolis-based Inventure Group, who helped ease the transitions of multiple acquisitions under Richard Snell both at Tenneco Automotive and more recently at Federal-Mogul Corp.
Mr. Leider says when he first applied for the job with Tenneco, he told Mr. Snell he was wrong to focus on the business aspect of the strategy without first winning the confidence of employees.
"He wanted strategy and alignment," Mr. Leider recalls. "I wanted to start with the people and the values and start to build a coalition of trust before we look at strategy. I said to go for the soft stuff before the hard stuff. He trusted me to try it, and it worked."
Mr. Snell hired Mr. Leider again in 1997 after becoming chief executive of Federal-Mogul Corp. His new job was to help restore a positive attitude among Federal-Mogul employees and to re-emphasize the company's automotive manufacturing roots. Within a year, the company acquired Britain's T&N plc and Fel-Pro Inc. of Skokie, IL, increasing sales to $5 billion.
The lesson learned is that supplier consolidations may create outstanding business opportunities in the eyes of investors, but these new and even awkward alliances need to be massaged with a gentle touch that top management too often lacks.
"In our viewpoint, when someone buys another company or they merge, what sinks the deal is not strategy but the lack of unity," says Mr. Leider, who acts as a marriage counselor of sorts in helping unite employees of newly partnered companies.
"The cultures don't meld together. Part of it is they can't articulate the business strategy and they're not enlightened about the culture of the companies," he says.
But sometimes that message is difficult to swallow. Federal-Mogul has since announced it willtrim 4,200 employees and ship some of the labor-intensive jobs to Mexico. Such a dramatic shift is likely to make it more difficult to spread the corporate message until the gravity of the changes is absorbed.
Working quickly to ease the concerns of edgy employees is vital to any acquisition.
When Dana bought the axle business from Eaton Corp. in a swap for Dana's heavy-duty clutch business, it was only four days before Dana Chairman and CEO Southwood (Woody) Morcott visited former Eaton facilities.
In fact, the Eaton deal closed Jan. 1 and by Jan. 12 Mr. Morcott had visited all the domestic facilities, and by the end of February had been to most of the overseas locations.
Don Decker's job at Dana over the last 18 months has been to help smooth the transition of multiple acquired companies, with combined sales of more than $1 billion, into Dana.
"The most immediate concern is 'How does it affect me?'" says Mr. Decker, Dana vice president of corporate services. "You can talk about synergy and management style and all that, but until you talk about the impact on the employees, you don't have their attention."
It was no different at Plumley.
"At one point there was almost a mini-mutiny over expected changes in the staff," says Mr. Plumley, now vice president of Dana's Industrial Components Group. "But they didn't make any changes."
Also, nearly every supplier has reduced its company vision to a set of easy-to-read talking points that are posted in every facility. Some analysts actually test employees on the company goals to gauge the extent of buy-in. Many companies also distribute the slogans and vision on small cards to help hammer the message home.
And new employees aren't the only people who sometimes need a refresher. Thus Dana executives don't stop with visits to their acquisitions. Mr. Morcott and President and Chief Operating Officer Joseph Magliochetti also tour the globe to bring existing plants up to speed.
Such visits are especially important at suppliers like Dana where units sold value about the same as operations added. It's not often clear to employees whether their operations remain part of the future of the company.
At a recent visit to the Spicer Axle plant in Columbia, MO, he assured employees that their operations remain core to the company and tried to ease fear about losing jobs to Mexico. Some workers were uneasy at the plant because of layoffs last year when the company lost the Ford Aerostar business, even though those jobs were quickly replaced with new business.
Employees also expressed concern about business going to Mexico. Mr. Magliochetti candidly explained that Dana business would likely only go to Mexico if a customer required it, not to cut costs. But he also made it clear that if a unit didn't remain competitive, anything was possible.
The meetings also gave employees at the plant a chance to show off recent productivity improvements and ensure executives come away from the visit knowing the plant is working to remain competitive.
Often, mergers or acquisitions come together in a matter of weeks or months. But occasionally, two parties will spend considerable time researching every aspect and potential pitfalls before consummating a deal.
H.B. Fuller Co. of St. Paul, MN, and EMS-Chemie Holding AG of Zurich, Switzerland, spent two years combining their automotive adhesives, sealants and coatings businesses into a global joint venture called Eftec.
"There was never a honeymoon," says James Conaty, president and CEO of Eftec. "The honeymoon was prenuptial."
Eliminating bureaucracy and minimizing cash flow back and forth between Europe and the United States were among the chief goals that executives of both companies accomplished before even signing off.
Mr. Conaty is among the people questioning the effectiveness of 50-50 joint ventures, partly because it's hard to tell who's in charge. Eftec's solution was to make Fuller a 70% owner of Eftec in North America and to make EMS-Chemie a 70% owner of the venture in Europe.
"We've done a decent job making sure that everyone knows the mission statement," Mr. Conaty says. "You either know the business or you're dead."
In other cases, investors select the executive first and then work to build companies that will play on the individual's talents and make a good corporate fit.
Palladium Equity Partners worked more than a year to find the right kind of company for Michael N. Hammes to lead. The eventual deal snatched up Delphi Automotive Systems lighting division, to be renamed Guide Corp.
By carefully selecting their target, Palladium Managing Director Marcos Rodriguez says the new company will have a better chance of success.
"We believe companies can't just be bought and sold using financial techniques alone," he says.
