U.S. manufacturers wanting to grow their businesses often look overseas for acquisitions, but navigating foreign business terrain presents a unique set of challenges. There are plenty of dos and don'ts and a fair share of discovery necessary to identify and successfully bring a compatible business into the fold.
Web Industries—a contract manufacturer and precision formatter of advanced materials for the aerospace, medical, personal care and industrial sectors—recently went through this process when we acquired France-based Omega Systèmes, producers of similar aerospace products and services.
We decided to purchase offshore to build on our successful North American strategy of delivering our products directly to aerospace OEMs and Tier 1 suppliers. We lacked an independent manufacturing presence in Europe—and in order to grow, we needed formatting capabilities close to our targeted offshore customers.
Doing the legwork
Our first step was to validate our assumption that there was a need for Web’s products and services in Europe. We hired an outside business development specialist to interview customers and ascertain the demand. We used industry reports to validate market size, industry tech trends and the timing with respect to these trends. And we hired an expert consultant to validate our assumptions and to explore the market in detail to make sure we didn’t miss potential acquisition targets.
Our research confirmed that there was strong European demand for our aerospace competency. But our customers made it clear that in order to be successful in this space, we had to be present in the market, and that shipping from the United States was not an option. They needed to know we were committed to the E.U. market.
Next, we determined how best to establish a European manufacturing presence. Acquisition was only one avenue we investigated. Other possibilities were constructing a factory from the ground up (greenfield) and taking an existing facility and retrofitting it to meet our business requirements (brownfield).
Acquisition emerged as the preferred option due to its quick market-entry advantage. Additionally, it would provide immediate access to customers and a positive cash flow from day one.
Acquiring the right business was crucial, as M&As fail at a rate somewhere between 70 and 90%. Incompatible cultures, software interface challenges, losing sight of objectives, management turnover, miscalculation of risk, and poor pricing practices are all cited in various business literature as potential causes.
With that caveat in mind, we searched and identified three prospective companies. We also hired a converting-industry expert consulting firm that evaluated hundreds of potential companies and arrived at the same final three. We then identified Omega Systèmes as the preferred acquisition target, due largely to the impressive tenure of company founder Jean-Louis Bretin and his willingness to keep running Omega for the foreseeable future. We also recognized Omega’s expertise in aerospace formatting technologies required by Web’s customers.
Another factor was Omega’s legacy of continually improving operations—a practice that made the business more compatible with Web Industries, which embraces lean and continuous improvement standards at every manufacturing, administrative and sales facility. CI would come prominently into play during the post-acquisition integration stage.
To initiate outreach to Omega, our Europe-based business development manager invited Bretin to meet on neutral ground, the JEC World trade show in Paris, in March 2017. That meeting was the beginning of the process of Omega becoming a Web Industries company in January 2019.
In between, there was planning, re-planning, and more planning. Our learning curve was steep but manageable. The words of Bob Fulton, the late Web Industries’ founder guided us: “The essence of life is relationships.”
We held frequent meetings with Bretin to build trust, meeting at our respective plants and, later, at dinner so we could get to know one another. Bretin and Fulton got to meet in person before Fulton died in November 2017. It was clear they had a lot in common from being entrepreneurs and having a strong concern for their employees’ best interest. (We also made sure that all our employees involved in discussions were educated on anti-trust laws of both France and the U.S.)
Beyond our complementary products, we needed to determine whether we had a like mindset toward company growth. Was there a good cultural fit? Could we see opportunities to cooperate? The more we talked, the more sense it made for Omega to become a part of Web Industries.
We addressed what steps we would take to make the acquisition and how to realize our strategy. We listed questions, issues and opportunities, and customs to adapt and avoid in our new milieu. There was almost one year of familiarizing ourselves with the other company’s capabilities to ensure we had a strong fit.
Next, it was time to put a confidentiality agreement in place. It’s important for each company to respect the other’s rights. The agreement protected both Web and Omega going forward. This is critical, especially when you are in the same industry and have potential customer overlap.
Making an offer
When we felt confident, we made an offer, followed by both parties signing a letter of intent.
Letters of intent can be overly complex when attorneys or management want to provide for every contingency, and simple when there is mutual trust and agreement.
What you’re really looking for with the letter is to ensure that the intended target company will not entertain offers from another company for a specified period. It is basically an exclusivity period that allows the acquiring company time to conduct a comprehensive appraisal of the business’s assets and liabilities, and to evaluate its commercial potential.
The commercial, financial and legal due diligence involved setting up an integration management office and conducting a two-week onsite review of Omega’s operations. Our attorneys reviewed every legal and commercial contract, and our audit firm reviewed several years of financial history to ensure that all business transactions were properly recorded and no environmental issues or employee complaints persisted.
Once that was complete, Web and Omega signed a Purchase and Sales Agreement (P&S), the final “paperwork step” involved in the acquisition. The P&S contract addresses all protections required to minimize risks associated with the deal for both parties.
Getting the word out
Communications job number one was alerting Web and Omega’s customers that we had made the deal, assuring them that service would remain uninterrupted and that certain initiatives would soon improve existing business practices. We called our largest customers and suppliers directly to inform them, then sent letters to our entire customer and supplier base. Finally, we announced the acquisition to the marketplace through news releases and executive interviews with selected publications.
Concurrent with this, we informed the most important of audiences, our employees. It was critical to be transparent, open to questions and forthcoming about how Web and Omega would work as a single company. As with any acquisition, we knew there would be trepidation on both sides. We spent considerable time describing our vision and helping employees understand their involvement. For example, Omega employees had questions about their future with the company. Our answer was that we acquired the business for the trained workforce and not the assets, and were looking forward to growing the company with their assistance.
Mapping out the future
Early on, we began work on a post-acquisition integration plan. It is never too early to think about how you will integrate a new company into your existing one. Developing an engagement strategy early on, of how you will work together post-acquisition, helps ensure a smoother transition.
The merging of operations, the exchange of best practices, the examination of processes all loomed large. We asked ourselves what work streams to focus on, e.g., sales, legal, operations and finance. We identified 11 and then selected project leaders from both Web and Omega. This critical upfront planning ensured that we could categorize opportunities and issues related to each target.
On the commercial side, we knew there would be contracts coming up for renewal. We had to know what issues there might be and how to address them. Case in point: An ISO certification was coming up for renewal and we needed to ensure that everything would go flawlessly. The idea is that if you spot issues and concerns early on, you can make a checklist that becomes part of your post-acquisition company integration.
When the time came to turn two companies into a single cohesive unit, we were ready. In fact, we are involved in that very job as I write this column. It is a job that will persist, well, indefinitely. The tasks involved all lend themselves to Web’s indispensable continuous improvement practices, and they are key to our prosperity in the marketplace of Europe where our new business resides.