When evaluating strategic add-on acquisition opportunities our math is simple: 1+1=3. The combined business must have the potential to create more value than the companies can individually.  In order to determine the potential value creation, we focus concretely on front-end synergies and organizational culture pre-acquisition and mindful integration and relentless execution post-acquisition. For the equation to work a potential acquisition target must allow for several or more of the following front-end synergies:

• Expanding sales into regions not currently served
• Expand the current customer base
• Increasing product offerings
• Cross-selling/upselling opportunities for existing products
• Eliminating idle manufacturing capacity
• Enhancing buying power

In late 2018, MCM Capital portfolio company, Torsion Group Corp (“TGC”), a vertically integrated manufacturer and distributor of garage door parts and accessories had an important strategic decision to make.  The Company was growing well in its traditional market channels but identified an opportunity to further accelerate growth through the implementation of an online ordering platform.  The executive team at TGC presented two options to the board: invest the necessary time and resources including people, marketing, and infrastructure to internally develop and grow online ordering or acquire a company with an established brand and track record of success selling garage door parts online.  While management believed they could eventually develop the capability internally, the initiative would take a couple of years and require significant investment before becoming a meaningful portion of their revenue.  Consequently, we set out on a path to find a willing dance partner.

After a dedicated search effort, we identified North Shore Commercial Door (NSCD) as an ideal opportunity. Since its founding, NSCD has been the go-to online resource for commercial and residential garage door replacement parts, openers, and accessories. On paper, the Company appeared to be the perfect acquisition for TGC.  The company’s shared a common corporate culture, vision for growth, and many up-front synergies.

However, identifying and evaluating up-front synergies is only the first part of a successful add-on acquisition.  In order for 1+1 to truly equal 3 the businesses must be integrated in a way that creates shareholder value in reality, not just on paper.  This often requires management’s focus on achieving the acquisition objectives through a structured, time-based program that includes tracking progress against specified goals, risk management, and continuous communication.  Business combinations, of course, involve people, and “soft” factors related to culture and needs to be addressed with care.  Mindful integration means more than running down the list of acquisition objectives and ensuring that the parties get along at a personal level or that their cultures mesh.  It means walking before you run and gaining a complete understanding of the acquired business inclusive of its people, processes, and culture. Perhaps most importantly, a successful integration cannot be rushed and management should understand that not every process or function should be integrated immediately after close.

Over the ensuing twelve months, TGC’s team flawlessly executed the integration.  They developed and implemented a well-thought out plan based on the investment thesis including a time-based approach to meet the goals/objectives, defined tactics to achieve cost and operational savings, and clear communication of roles and responsibilities.  Consequently, the acquisition of NSCD provided the following synergies:

• Online Presence: NSCD brings an established brand, well developed infrastructure, high performing, search engine optimized website, and e-marketing strategy TGC is able to leverage throughout the organization.
• Expanded Customer Base: NSCD provides access to a growing customer base of “DIY” customers as well as dealers that have not traditionally purchased from TGC.
• Broader Product Offering: The acquisition gives TGC the ability to tap into NSCD’s current product offering, which includes brand name residential and commercial operators, transmitters, remotes, and operator replacement parts, amongst others.
• Cross-selling/upselling:  NSCD’s team of industry experts provide trusted technical support and best-in-class service for garage door dealers and do-it-yourself customers
• Leverage current manufacturing capacity:  NSCD was buying several of TGC’s weatherseal products as well as a competitor’s products. With open capacity at our manufacturing facility, TGC was able to bring those products in-house.
• Increased Buying Power:  By combining the businesses and bringing some of NSCD’s outsourced manufacturing in-house, TGC was able to realize product and raw material cost savings.
• Human Resources:  NSCD brought a talented team to TGC including a technical sales team and marketing team allowing TGC to bring all aspects of marketing in-house leveraging their experience to other sales channels.
• ERP Integration:  TGC fully integrated NSCD into their SAP B1 ERP system allowing management to drive more efficiencies and productivity within the online channel through real-time data analysis of purchasing, inventory, product margin and freight

As a result of the realized synergies, TGC was able to almost triple the profitability of NSCD online sales in one year and position the Company well for future growth.  Indeed, with low hanging fruit still to pick and harvest management believes, in this particular case, 1+1 will more likely equal 4, 5 or 6!