The Benefits of Acquisition

Over the last month, there have been a number of headlines in our weekly SBC Industry News devoted to mergers and acquisitions. While there appears to be a lot of speculation on how these transactions will impact the market in the near and long term, everyone seems to think the changes will be significant. This got me thinking about my own experience of working for an independent component manufacturer (CM) that was acquired by another company, and how that changed how we do business. There are several benefits that I think other CMs could realize, whether or not they remain independent.

I started working for Plum Building Systems in 1997. Even back then, our owner was approached about selling the company, but he decided to stay independent. In Central Iowa, the market is primarily a two-step process, with CMs selling to lumber yards, as opposed to selling directly to builders. As a consequence, our largest client was Gilcrest/Jewett Lumber Company, which started in 1856 and is one of the oldest companies in Iowa. 

We sold to other lumberyards as well; it was a business model that worked well for us. Lumberyards were good about paying invoices on time, and they also provided a more consistent demand by pooling builders together. Instead of having to sell to 75-100 builders, we could concentrate on keeping 10-15 lumberyards happy. However, we did so much business with Gilcrest/Jewett that we had a salesperson who designated almost all of his time to handling their business. We developed a great working relationship with them over the years, so it wasn’t a big surprise when, during the downturn, they approached the owner with an offer to purchase the company.

Gilcrest/Jewett bought Plum in 2008, but they still, for the most part, treat us as a separate company. When we fill orders, we invoice Gilcrest/Jewett directly. Since they still run us independently, we continue to sell to smaller, rural lumberyards that were customers of ours before the purchase. One of the biggest changes that occurred when we were acquired was the immediate increase in communication. Our staff started attending the company’s weekly meetings with their sales staff, so we were much better informed about potential orders coming into the pipeline.

Once our office lease was up, our sales and design offices moved into the same building as their sales staff. This close proximity has made a world of difference for our sales team and designers. Now, when a builder customer comes into the lumberyard with a set of plans, they can bring them right into our sales office where our team can go through the plans with them immediately and navigate potential issues. Having an opportunity to work through problems face-to-face in the office at the front end of the process saves us what used to be hours, or even days, of sending plans back and forth and working through multiple iterations.

This approach bolstered the design services side of our business, which also increased because of the heightened knowledge and understanding of the lumberyard sales staff, especially when it comes to products that best fit a customer’s needs, like a better set of plans. The sales staff does a great job promoting everything from our design services, to the benefit of all the component products we manufacture.

While Gilcrest/Jewett increases our sales, it also helps lower the cost to produce our products. Even before the acquisition, Plum and Gilcrest/Jewett would buy material together; now it is something we work on consistently. Through them, we also became part of the Lumbermens Merchandising Corporation (LMC) to enhance our purchasing power. In addition, we now have access to the lumberyard’s rail spur, which lowers our transportation costs.

Fortunately, both Plum and Gilcrest/Jewett shared strong, complementary service-oriented goals. Together, we have leveraged our existing relationships with builders, building officials and lawmakers and have even more influence in our market.

Finally, our collective commitment to service has proven very rewarding. Both of our companies were dedicated to organizations like Habitat for Humanity and military veteran support organizations. Together, we have been able to do even more for these organizations and make a significant impact on the lives of several deserving people here in Iowa.

I don’t think a CM has to be part of a lumberyard to take advantage of many of these benefits. For the independent CM, it’s really about building a close relationship with a lumberyard or other partner that fits well and complements your business. I believe we have both benefited each other’s businesses. I’d encourage you to consider who you could partner with that would enhance both companies. The opportunity to improve your business practices shouldn’t be overlooked, and it certainly doesn’t have to be a purchase! We were great partners before we were acquired; we are just that much more collaborative now.