As co-founder and president, Ken Holsclaw's goal for Phase 3 has always been to provide clients with complete marketing solutions, from ideation to execution, in-house under one roof. Over the last twenty-plus years, he has accomplished this goal, in part, through a smart business acquisition strategy that is both art and science.
Phase 3's most recent acquisition was Dallas-based Technology Media Group, Inc. (TMG). TMG's capabilities have enhanced Phase 3's fabrication, embroidery, and branded merchandise product offerings. The TMG acquisition has also strengthened Phase 3's vertical services to include commercial architectural outdoor signage. We are proud to announce that Technology Media Group is now fully integrated into the Phase 3 family after a fabulous start in March of this year.
We asked Ken about his take on what makes for a good acquisition. Here’s what he had to say.
Q: Does Acquisition Always Mean Integration?
A: Not always. An acquisition is a corporate transaction where one company purchases a controlling interest or all of another company's shares or assets with the goal of assuming control of its operations. The acquiring company may then integrate the acquired company into its operations or allow it to operate independently as a subsidiary.
Integration can be tricky because it involves folding an existing company into another company, including assets, staff, processes, systems, and culture. It is important to take the time to plan and execute the necessary steps for a smooth integration and therefore maximize the value of the acquisition.
Over the years, I’ve learned many lessons on how best to acquire and integrate a business into our company. We have developed a deliberate process for integration that accounts for the needs of both Phase 3 and the acquired company. This process helps to smooth the transition and sets the emerging company up for success.
Q: Why Acquire a Company?
A: Acquiring a new company can serve various strategic purposes. Here are some of the reasons we’ve had for pursuing acquisitions:
Market Expansion/New Customers: Acquiring a company can enable us to expand into new markets by entering new locations or regions, reaching untapped customer segments, or expanding into complementary markets. This allows us to increase and diversify revenue streams quickly and reduce dependence on a single market, industry or customer.
Increased Market Share and Competitive Advantage: Acquisitions can also help us gain a larger market share in our current markets, strengthen our competitive position and consolidate our market presence.
Expansion of Product Portfolio: Phase 3 often pursues acquisitions to expand the products and services offered to our clients, such as our branding and public relations acquisitions. These additional offerings broaden our portfolio, cater to a wider customer base, and provide more value to our existing customers.
Talent Acquisition and Expertise: Acquiring a company can augment a workforce with highly-skilled talent or essential industry expertise; and we’ve been extremely lucky in this regard. Many of the senior leaders of Phase 3 came to us through an acquisition, filling skill gaps, strengthening our internal capabilities and accelerating our growth.
Cost Synergies and Operational Efficiency: When consolidating operations through integration, acquisitions can create cost savings and efficiencies through shared resources, streamlined operations, or eliminating redundancies.
Brand Enhancement: We’ve been very careful to only acquire companies with a strong brand reputation. An acquisition can increase market recognition, customer trust, brand loyalty, and new market opportunities for the acquiring company.
Q: What Are Other Key Aspects to Consider?
A: For each acquisition we contemplate, we carefully evaluate the opportunity in the context of our overall business strategy, long-term goals, and the specific opportunities presented. There are four key considerations we focus on to ensure a successful acquisition.
Strategic Fit: First, we evaluate how the potential acquisition fits into Phase 3’s overall strategic goals and vision. We want to be sure that the company complements our existing products and services, expands our customer base, supply chain, or geographic reach, fills a gap in our external or internal capabilities, or improves our competitive position in the market.
Synergies: Secondly, we identify how the combined resources, expertise, technologies, or customer bases can unlock additional value. We look for ways these synergies can lead to cost savings, revenue growth, operational efficiencies, or market expansion. Company size is also important as smaller companies are not always the best candidates for integration because they have less infrastructure (people, processes, customers, systems, etc.) to support it.
Integrating the Team: Taking care of the people involved always makes the process smoother. When considering a company to acquire, we evaluate the target company’s leadership team, their employee roster, the team’s track record of success and if they have a shared vision for the future.
In our experience, printing companies are much easier to integrate than agency services because you have fewer redundancies in expertise. It's important to review the available "seats on the bus" once the integration is complete and evaluate the acquired company's roster to determine which seat would be the best fit for them. We get very creative in finding ways to leverage the strengths and abilities of individuals that also accentuate the synergies between teams.
Culture: A cultural fit is very important for successful integration and then ongoing collaboration post-acquisition. In the end, it's the people involved who make acquisitions work. If the new company's people are used to working under different expectations or in a radically different environment, it may be difficult to transition them to the way we work at Phase 3. If the culture is similar, employees tend to stay.
Q: What About the Previous Owner?
A: When acquiring a company, there are both risks and rewards in deciding if the owner of the acquired company will stay on as an employee.
In some cases, the owner's contacts, expertise, or knowledge is the primary reason for the acquisition, so it's critical that the owner stays on for an extended period. If this is the case, we have extensive discussions with the owner about their willingness to work within the new structure and accept that they are no longer in charge. The owner must be fully bought into the integration strategy and process.
If the owner does not want to stay with the new company, we transition the owner out as soon as possible. The longer that owner stays, the more confusing and upsetting it can be for employees and the more costly it’ll be for us. Keeping an owner on just for the integration process is rarely helpful. Instead, we look for a “new pilot” within the executive team to lead the company through the integration.
Q: How Important is Timing?
A: As we begin the integration process, the timeline is critical to success. We’ve found that the quicker we integrate, the less costly and disruptive. A lengthy integration process does not bode well for the buying company, the selling company or any of the employees involved. It is important to have a methodical and deliberate process in place to achieve an efficient integration.
The one thing I always keep in mind during an acquisition is to expect the unexpected. No matter how detailed our plan is or how much due diligence we did, something unexpected always happens. It’s important to be nimble, address unexpected occurrences immediately and to always keep moving forward.
Ken believes the secret to a successful business acquisition is strategic and creative planning (the art) and methodical execution (the science). He's learned this through more than 20 years of running Phase 3 and 11 successful industry-related acquisitions.