Learn how to buy businesses in 5-minutes or less, once a week. Lessons & specific tactics on how invest your money and generate cash flow for your life.
🔑 The risks of buying a business and changing its culture
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Welcome to The Business Buying Academy with Sieva Kozinsky. Here's what we have in store for you today:
🔑 An LBO with culture fit issues Over the last few months, I've written about deals that either failed spectacularly or were massive homeruns. Today, I'm writing about one that's somewhere in between. It was a good deal with a pretty good result, but it was hampered by a culture fit issue. Let's dive in. The Deal
Wesray was actually a white knight, fending off a hostile takeover bid from Contrans Acquisitions Inc., led by Atlas's former president Edward Bland (who offered $18 per share for a controlling stake). But the sheen on Wesray's knight armor wouldn't sparkle for long. The agents making up Atlas' network eventually sought to buy the business from Wesray. But we'll get to that in a moment. As part of the deal, Wesray paid Contrans (the hostile bidder) about $2.4 million to cover their costs and acquired their 250,000 shares at the same price. If the name Wesray sounds familiar, you may have heard of one of the best LBOs of all-time:
In 1982, Wesray Capital Corporation, led by William E. Simon and Ray Chambers, acquired Gibson Greeting Cards from RCA Corp. for $80 million, using mostly debt (junk bonds) with only $1 million in equity, a landmark Leveraged Buyout (LBO) that kicked off the private equity boom. Just 18 months later, in 1983, Wesray took Gibson public (IPO) for $290 million, making massive profits (Simon reportedly $66M from a $330k investment) and demonstrating the LBO model's potential. Operating the Business Post-acquisition, Wesray shifted Atlas's focus toward aggressive profitability. This new strategy clashed with the company's longstanding emphasis on service quality and personal support. Atlas® Van Lines is the second largest household goods mover in the United States. With nearly 350 local Atlas movers throughout North America, we are prepared to handle any relocation need, from a small move around the block to a massive cross-country adventure. Atlas vans are easily recognizable on the road, with a big, blue, stylized “A” on every vehicle. - from Atlas' website Under Wesray, operations saw modest efficiency tweaks, including a gradual employment reduction from about 600 employees to 520. This period strained relationships with agents (Atlas' word for the local movers who partnered with the company), directors, and employees. But despite these tensions, the firm continued expanding. And there was a major catalyst that helped the business grow. Deregulation The acquisition occurred amid the transformation of the industry from the Motor Carrier Act of 1980, which deregulated the U.S. trucking and moving industry. The legislation eased entry barriers, nearly doubling the number of moving companies from 18,045 in 1980 to 30,481 by 1984. This drove down prices and increased competition. For Atlas, already a top player in the business, deregulation presented both opportunities and challenges.
Results Wesray owned the business for less than four years. In 1988 Atlas agents orchestrated a leveraged buyout to repurchase the company for its 40th anniversary, restoring private, agent-owned independence. While specific exit profits for Wesray aren't detailed, the deal was reportedly profitable for Wesray. The buyers took out $95 million in debt to complete the deal, which signals that the acquisition price was at least 35% higher than just a few years earlier. Post-buyback, Atlas thrived, with revenues growing from $217.5 million in 1992 to nearly $295 million in 1994, and achieving record earnings for five straight years through 1995. By the mid-1990s, it ranked as the fifth-largest mover in the United States. While this was a successful LBO, it shows us a great example of a deal with culture fit risk. If you're buying a business, you'll have to make a tough call on culture fit without completely understanding the culture of the business you're buying. I think the most important question to ask yourself is: Knowing what I know about the culture of the business, how will they react to the changes I plan to make to the business? 🔑 Roll-ups, Horizontal HoldCos, and SMB acquisitions My YouTube channel has a little bit of everything in the business buying world. I talked with a guy who owns 9 companies in totally different industries. And I also sat down with someone who rolled up multiple software companies in a very specific niche. Plus I have an interview with a business owner who bought a small flooring business and grew it organically before selling it. No matter what type of business you're looking to buy, I probably have a story for you. Check out the interviews below. Have a great day, Sieva P.S. - Are you hiring? Get started with top global talent from Somewhere (I'm a customer and investor) What did you think of today's newsletter? Rate this newsletter using the poll below: Disclaimer: nothing here is investment advice. Please do your own research. The information above is just for information and learning. |
Sieva Kozinsky
Learn how to buy businesses in 5-minutes or less, once a week. Lessons & specific tactics on how invest your money and generate cash flow for your life.
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