Tom Kelly is no novice when it comes to buying other businesses. Two decades ago, the Portland, Ore.–based Neil Kelly Co. acquired a kitchen and bath dealership in nearby Beaverton. Four years ago it snapped up a similar outfit in Eugene. And last February, president Tom Kelly sealed the deal on Kitchen & Bath Concepts, in Bend, an hour southeast across the Cascade Range. For the firm, whose four divisions totaled $25.5 million in revenue last year, this latest purchase presented an opportunity not only to expand geographically but to hit the ground running with clients, trade relationships, and proven managers in place.
Remodeling companies aspiring to grow can go about it any number of ways. They might add services to an existing company, start from scratch in a new region, create a joint venture with another firm, or set up a franchise. But for many company owners, tapping into the capital assets and intellectual property of an established entity is the best way to go. For one thing, it minimizes the risk of expanding into a new market. The other business has a handle on local conditions, from understanding competitive pressures to what drives consumers to how the supply chain works. That said, it takes a dispassionate eye to judge the merits of a merge. “The greatest mistake business owners make is that they get an idea they want to purchase a certain company, and then look for the rationale afterward,” says business consultant Stephen S. Little, author of The 7 Irrefutable Rules of Small Business Growth. “They let emotions play a greater role than they should and tend to ignore things that would say ‘red flag.’ They need to look at the purchase logically and with outside expertise.”
A Good Fit
The deal-clincher is different for every company. At the top of Kelly’s criteria list was the quality of the other business’ reputation, and that’s true for each purchase he has made. Although profitability figured into the decision, Kelly planned to re-brand the other firm and revamp its business systems, so its repeat-client and business relationships are what he valued most. In fact, Kelly never intended to buy a business in Bend. He wanted to build a new showroom there, capitalizing on the name recognition he’d planted through statewide advertising on National Public Radio and in Portland’s newspaper The Oregonian. Kelly contacted the Kitchen & Bath Concepts owner — a long-time dealer for Neil Kelly Cabinets — as a courtesy to let him know that he wanted to expand into that market. Serendipitously, the owner was in the process of selling the business to retire. “We knew this person fairly well and we had always been paid on time,” Kelly says of his attraction to the company. In addition to the client list, the purchase included some vehicles and a showroom, which Neil Kelly Co. is remodeling from top to bottom.
Acquiring a company can be an integration nightmare, though, making roll-ups a challenge to run. Kelly is reluctant to expand into new markets without long-time employees who are willing to run the branch. In this case, he sent over a sales manager and a designer from the Portland office and hired two additional people for the new location. He also interviewed Kitchen & Bath Concepts’ three employees — a designer/salesperson, a carpenter, and an office manager — and hired all three to stay the course in Bend.
“One of my biggest concerns is always whether the people who work in that firm will fit the culture,” Kelly says. “I’m a real believer that you want to give everyone a chance to stay if they want, but be prepared to find out that some of the people and traditions may not fit.” To speed the transition, the original staff received routine orientation and training specific to their job. As Kelly has discovered, when the shoe fits, the advantages are immediate and long-lasting. “One of the top project managers from the company we purchased in 1988 came along and is still here, so there can be some huge benefits from that perspective,” he says.
