Consolidation Case Studies
Acquisitions are a successful strategy to grow businesses from solar to pool maintenance.
Consolidation Best Practices
At OriginClear we value a set of well-established consolidation best practices. Our pillars include:
- Acquiring strong companies with reliable business histories.
- Looking for specialties that in potentially high-growth areas.
- Looking for complementary skills sets or market coverage.
- Keeping owners and managements in charge.
- Supporting acquired companies with desired services, such as back office operations, marketing, or customer acquisition, while ensuring independent decision-making.
We present a few case studies here to show how consolidation can work best.
When CEO Jim Nelson joined Solar3D five years ago, leaving a 25-year career in private equity for the opportunity to work in Santa Barbara, California, the firm was just a small development. The technology never really took off, Nelson said, and he set to diversify the business to capitalize on opportunities in the burgeoning green energy sector.
Solar3D’s bread and butter has come to be expanding business through acquisitions. Since American companies can no longer viably compete with Asian ones in solar manufacturing, Nelson said his belief is that “If you really want to make a competitive company, you have to do it as fast as you can. So there’s no shame, if you’re a smart business guy and you love America, in partnering with other companies and other countries that do things well.”
So Nelson went shopping for companies that do solar integration. After its first purchase, a company in Roseville called SUNworks, Solar3D “boomed,” Nelson said, and SUNworks nearly tripled its sales in 2014, the first year after the sale.
The $12.5 million the up-listing brought in will help Solar3D shape up its balance sheet and fund additional acquisitions, Nelson said. And just being on the NASDAQ gives the firm increased equity for transactions as well as an expanded and solidified investor base.
“As an OTC company we just had a bunch of retail — which is individual — investors,” Nelson said. “It allows us to bring in institutions and do other things that will add to strength and stability of our investor base.”
Next, Nelson said the company is looking to acquire a couple more companies this year and two or three next year, targeting firms with between $10 million and $50 million in revenue located in California and Nevada, which account for well over half of U.S. installations…
Pacific Coast Business Times:
Solar3D up-lists to NASDAQ on strength of acquisitions
This Los Angeles provider of pool maintenance and service was founded in 2009 has had 15 acquisitions to date, ranging from a one-pool route to a pool business with 15 employees. Since opening its franchise business in 2012, the pool care franchise has made acquisitions in four states and has found acquisition to be a highly efficient and beneficial route to garnering clients in unexplored markets. The CEO, Willan Johnson, looks for small businesses that have strong client orientation, profitability, and that are well run. When looking for a brand to acquire, Johnson says, you should make sure the target business has strong financials and is culturally aligned with your company.
Overall, Johnson advises others to be sure to have all employees on board with an acquisition first, and only then should you transition the customers. The internal team must fully understand why the change is better; and when they do, they will play a key role in enacting the change in a positive way with the company’s customers.
Acquisition has been a critical strategy in Vivo’s expansion in just four years beyond California to Nevada, Arizona, and Florida, as well. In all, the company currently serves 3,000 residential accounts and 250 commercial customers including W Hotels.
Beginning in the 1960s, Service Corporation International grew from a single funeral home in Houston, Texas, to more than 1,400 funeral homes and cemeteries in 2008.
This strategy works when businesses as a group can realize substantial cost savings or achieve higher revenues than individual businesses can. Service Corporation’s funeral homes in a given city can share vehicles, purchasing, and back-office operations, for example. They can also coordinate advertising across a city to reduce costs and raise revenues.
Size per se is not what creates a successful roll-up; what matters is the right kind of size. For Service Corporation, multiple locations in individual cities have been more important than many branches spread over many cities, because the cost savings (such as sharing vehicles) can be realized only if the branches are near one another.
Roll-up strategies are hard to disguise, so they invite copycats. As others tried to imitate Service Corporation’s strategy, prices for some funeral homes were eventually bid up to levels that made additional acquisitions uneconomic.
McKinsey & Co.:
The Five Types of Successful Acquisitions
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