The People-Centric Approach to M&A Success

0:00If you've ever run M &A in a competitive bank process, you know the game is rigged. The deadlines aren't real. The information is filtered. By the time you get what you need, you're already behind. The process isn't built for you. It's built to drive the banker's agenda. That's why we built the buyer-led M &A Masterclass, to flip the script. This is the playbook corporate development teams use to take control, cut through the noise, and win in competitive deals. It's loaded with real-world strategies, practical insights, to ensure you don't just survive the process, you own it. Want to see how the best corporate acquirers stay ahead?

0:44Go to dealroom.net slash masterclass. Link's also in the description. And you know how we do it at M &A Science? We give the best stuff away for free. Back to the episode.

1:01I'm Kisan Patel and you're listening to M &A Science, where we talk with deal professionals and learn valuable lessons from their experience. This podcast focuses on stories, strategies, and what actually happened during M &A deals.

1:26Hello, M &A scientists. Welcome to the M &A Science Podcast, where we learn from the best in M &A to uncover proven techniques for enterprise value creation. If you're interested in learning more about how to optimize your M &A practice or want to get involved with our community of forward-thinking M &A practitioners, visit mascience.com. Subscribe to our free weekly newsletter. If you want to keep up with us on the go, head over to LinkedIn and follow M &A Science. I'm your host, Kisan Patel, founder and CEO at Dealroom, the chief scientist at M &A Science. Joining me today is Michael Hoy, CEO of Great Day Improvements.

2:02Great Day Improvements is a vertically integrated, direct-to-consumer provider of branded premium building products and one of the leading residential remodeling companies in the United States with about 4 ,500 employees. Today, we're going to talk about the people-centric approach to M &A success. Michael, how are you doing today? I am doing great. Thanks for taking the time to have the conversation, taking a break from running a very large company, doing M &A deals. This is my favorite part is doing this. It's a mental break, but it's the stuff I love to talk about most. We can look at this like a form of therapy session.

2:37This is a therapy session. So for me and everybody who's listening. Can we kick off with a little bit about your background? Grew up in Baltimore, recently had a birthday, just turned 52. So I spent some time down in Florida near where you are. Grew up in the lumber business. At 14, I started in a lumber yard and have stayed in building materials for coming up on 38 years in January. And really was in building materials, dealing with home builders and contractors, and eventually got in the direct consumer world with a window business in the Baltimore, Washington area. one of Pella's largest distributors, became kind of an obsession to try to understand how the consumer responded to marketing and the sales methodologies.

3:16And there's really nothing better than seeing a customer's face after you finish a project and they're super happy with what you've done. So there was a whole new level of fulfillment that came from that. To be honest, the margins are much better in remodeling than they are in new homes. That didn't hurt either and decided to put my effort there. And it brings me to a great day today, some 10 years later after I joined the company. And you do M &A deals there? Yeah, we've done a few. So I go back to my days at Carolina Holdings and Stock Supply, and they were in a mode of rolling up lumber yards and building materials manufacturers that were direct to the builder.

3:51I learned a ton of what to do. And I think even more importantly, a ton of what not to do. That's really what brought us, we came to Great Day and we started to determine that M &A was going to be really an opportunity for us, we went at it with the idea of don't break a business that you buy. Every business has some degree of unique culture, unique processes, some of which it's really easy to judge from the outside, whether it's right or wrong based on perceptions or experience. And that was one of the things I learned not to do was really take a non-judgmental, be really curious approach to M &A and really focus on what is it that the people are bringing to the table.

4:35These businesses are very people-centric. They tend to have a lot of entrepreneurs in them, from the founders and leaders all the way down to the guy that's slinging a hammer tends to be somewhat of an entrepreneurial-minded person. And they all have a lot of opinions on how things should be done. And a lot of times their ways were better than ours. So I always felt like we needed to really be curious and not judgmental of the companies, which meant we needed to really get to know the people and build relationships and build trust really early on so that we could understand where the opportunity was for them and for us.

5:09We wanted everybody to win anytime we did a deal. And that's the same process or mentality we take to every deal we do today. Don't break a business. Instead, learn from it. Pretty much. When you go into M &A, there's an opportunity to bring multiple organizations together to create value of some kind. And when you're in the private equity world, we have outside investors that are really amazing. They bring a ton of skill to us, skills that we didn't have. But we like to say that we're not a portfolio company because we're primarily owned and operated a majority by the entrepreneurs, the people that have been in these businesses.

5:44So when you're a private equity company, you don't know how to not call someone a portfolio company or a business, not a portco. I think it's true. They don't know how to not be private equity and we don't know how to not be entrepreneurs. We find that balance. And when you're bringing business together, the value creation certainly is, there's an economy that go into this and the economical and the monetary opportunity that comes with value creation. But ultimately people make these things go. You got to really care about what you're doing. You really got to have a way to feel good about other folks.

6:14And again, don't be judgmental, be curious, assume best in everyone. We find that one and one equals three when you bring some really great organizations together with a bunch of people who care a ton and you treat them really well. And you go into these with the idea of we don't go in saying we're going to get synergy because as soon as I say the word synergy, everybody assumes I'm going to cut costs and that means I'm going to cut heads. In our world, these are growth synergies. How do we come together in a way that everybody's going to rise. In our opinion, we need more people to do that, not less.

6:47So today we're around a billion and a half dollars in revenue. If we're going to be five billion in three years, more than 50 % of the people that I'm going to need in five years don't even work for us yet. Cutting people doesn't seem to be the way to go in my mind. It seems like we really should be building relationships and building trust and helping to develop them. So as they come into great day, we learn from them. They learn for us and all boats rise. You mentioned that the P firm's minority, the majority is owned by the owners. Is there like an anticipated return event, like an IPO or something?

7:20We have this belief system that if we're doing all the right things, we're growing the business, our margins are growing faster, we're retaining employees, the EBITDA is where we need it to be so we can continue to invest in the marketing machine, which really makes these things go, that we're going to have lots and lots of high quality choices across a period of time. So of course, some of our partners have timelines in mind that they want to exit. And we've brought in other partners to help supplement for when one wants to get out, another one's coming in. But we don't have some giant exit plan that says we're going to monetize this on X year.

7:58We're viewing it as opportunity seems to come our way because we love people. We're constantly in the marketplace building relationships with other investors or other strategic opportunities. And I see us doing more minority recapitalizations of the business over time. There can be some sort of monetization. But for us to continue to run the business and own it as the entrepreneurs and be the majority, we think that's the right model today. And for us to continue to do that, there's not going to be some major recapitalization of the business. We're going to continue to invest in it. And everybody seems to be on board with that idea.

8:35You could continue doing that, do another minority recap, then bring in some secondary to take out some folks that want to potentially have an exit. So the last deal we did was with LeafGuard and Engler. And we did those same company, Engler's the manufacturing arm of LeafGuard, and they also do building material distribution sales to contractors and supply houses. We did a recapitalization and brought in some new investors that are minority to help us get that deal done. The strategic relationships that are being built, again, because we've created a good reputation, we treat people well, you don't realize how important that is until an opportunity comes your way.

9:12Yeah, it's a lot where you're finding the business, the opportunity, then you need to put the capital together. How are you developing these relationships? I mean, does this all fall back on you? Do you have a board you're leaning on? Because I feel like it's so much for one person to do. I call myself first among peers. I don't call myself the CEO. I've always felt like we're all working together. We're all trying to accomplish the same thing. And in my 10-year period, I've never felt like I ever had to make a decision on my own or in a bubble without getting really good alignment from the team and the business or any of our partners.

9:43So the folks at Little John and Company who are one of our investors, they have tremendous relationships with institutional investors, family offices, sovereign wealth funds. My partner, Ed Weinfertner, who's our executive chairman, he and I are both relationship builders. We've reached out on LinkedIn to people we've never met before. and just to get a conversation started. And you'd be amazed where some of those relationships end up that you never would have thought could have happened. And then I've been really connected in our industry for ever and ever and ever. I've been doing this my whole life.

10:16So those relationships that I've established over years, we try to leverage those, not in a way that we're trying to get anything from anyone, but we want to leverage them so that if there's opportunity for them to grow with us or for us to grow with them, someone always knows somebody that needs something or wants an opportunity, whether it's new employees, whether it's an investment opportunity, whether it's M &A, I'm always amazed that the circle of people you put around you, how many opportunities they bring to you, and you don't even have to ask for them. If they like you and they trust you, and it's a mutual relationship, everybody feels it's worth having, opportunities come that you would have never thought could come.

10:54You're a big, strong point there. You have to build all the reputation, but also the relationships through this broader ecosystem. You mentioned the investors help you find other investors. I love how you're not shy about reaching out to people cold and then through your industry contacts, which I think is going to come up more in this interview. We haven't even touched your outline yet, but we will talk more about people side and when it comes to executing deals. One of the things you mentioned earlier was growth synergies. Can you talk to me about that in terms of how it relates to your strategy?

11:22It sounds like you're not just buying companies that look like good deals. Yeah, we're not. So when our initial objective when we, when they was first formed is we had two brands. We had the Patio Enclosures brand, which a lot of people knew of nationally. We had the Stanek Windows brand. The Patio Enclosures brand, Sunrooms, is really arguably one of the hardest fulfillment type of projects you can do. There's a lot of permitting and electric and lots of subs. And we wanted to process that to a point where it could be replicated really easily. It could create a great experience for someone. And we figured if we could scale that business, what could you layer on top of it over time that were much easier type of installations and fulfillments, such as windows or gutters or whatever it may be?

12:05So that was the original premise of building out the national platform on the patio enclosures name, if you will. There is not one home improvement company in America that we know of that has scale like we do, that does multiple products and specialties. If you're a homeowner and you replace your windows and you had to get it done, it's not necessarily something you want to do, but you have to do it and you do it and you have a really great experience. You're going to tell everybody about that experience. You probably are going to do other things to your home as well. you're eventually going to do your gutters or you're going to do your bath or maybe you're going to do your roof.

12:42So our objective changed from just building this national platform to building a national platform that's the most referable. So not only refer outside of your network, but for you to be a repeat customer and we can create a customer for life. So we've got nine big brands today around the country that people know. Some are more regional, some are national in scale, But why shouldn't a customer have a great experience with patio enclosures? And then why shouldn't they be introduced to the other brands that are under the Great Day family, whether it be LeafGuard or Champion or Universal or the Bath Authority?

13:18People want to deal with someone they can trust. And if we've done a great job for them, every one of these businesses should be able to grow organically because of the reputation of the other businesses. We keep calling that the Holy Grail. If we can create that, which nobody else has created, it should give us a competitive advantage to continue to satisfy homeowners across the nation in a way that no one else has done. That's interesting. The synergy betting on is a strong referral platform. Yes. Not a complicated integration. It's not about bringing these things together in one roof or centralizing.

13:54There is some centralization that goes on. We do want consistency in our financial reporting. So there is a certain degree of bringing that into a central system, not necessarily taking all the people and picking them up and moving them to our corporate office, but doing it in a way where we get consistency and data and practice. That's really important to us. ITHR Finance, that's like every private equity firm reaches. We are bringing more and more of that into the back office, into a shared services environment. Since day one, we do that. However, we don't want to lose that entrepreneurial spirit.

14:30And all these businesses come with different systems, different philosophies, different processes. So we have realized some opportunity in saying, look, we've got some businesses that are really alike. They should probably be on one platform in terms of their CRM. And we've got everybody aligned with that. And we're in the process of doing that in five of our brands right now. We all agree that having eight call center systems makes no sense at all. So how do you bring your call center and your communication technologies and your tech stack together there to benefit everybody internally, but also that your customer benefits from it so they can have a great experience with everyone in the same manner?

15:09Think about this. Anytime you've done a home improvement project, no matter who you decided to purchase from, your expectation was a great experience every time. Right. So we want to try to create that across all the brands. There is consistency in communication. There is a great day way of handling a customer, regardless of what brand was facing you at the table. Does that experience come to the customer at all where they associate with great day and then that becomes part of the trust? That has not been the way we've been set up, but that's where we're heading. So there is a lot of work going on behind the scenes today to really help us understand how does the customer see each one of our brands?

15:49Each one has a little different value proposition. At least that's what we believe. Does the consumer see it that way? And if they do, how do we make sure we maximize that? But then how does Great Day span over all of these different brands as really that leader of home improvement and the provider of all of these services? So we're doing work now with a lot of customer-focused groups. We've brought in some outside help to really help us figure out how do we leverage the Great Day name so that we bring everything together for the homeowner under one package. Build a stronger brand. This is what gets your investors and owners of businesses you acquire excited is that there's a story about building revenue synergy.

16:29We're not just doing the typical consolidate cost synergies, but we're actually building a way to grow revenue. And it's actually worked for you. And it continues to work. Right now, we've brought a group of 25 high potential employees, leaders from around the company for a new leadership course that we're going to kick off in January. It's led by myself. that's called the Great Day Way. And we've taken all of our core strategies, all of our core competencies that we believe it takes to be a really great leader at Great Day. And we're going to teach you on those specific things. And these are folks that span all 12 of the brands.

17:07So 12 brands working together, some are competing with each other from time to time, but they all understand we're on the same team and we all have a benefit. Imagine a scenario where you have one company you got all these opportunities you want to test stuff so you're piloting things all the time we're literally a petri dish of ideas so i can test at your home improvement company a system and test their competing system over at patio enclosures and go which one really works without any bias or opinion the data will win and now we have all these places where we can create petri dishes of new ways of trying things.

17:46It's pretty exciting for people to get involved with that. Yeah, that's like the fun part you want to experiment on is the real growth drivers of the business versus some of the other. We call them the growth levers. Which one are we pulling right now? And what can we pull? And how fast can we pull it? We're doing that all the time. Let's talk about execution. Now I'm going to actually look at my notes here. Let's talk about how do you actually make this work? Oh, certainly the philosophy matters, but the execution of it is where the magic happens. So the strategy is pretty simple. We're trying to create the first nationally scaled home improvement business that has multiple products that can be the most referable and create the best customer experience.

18:24That is our mission. That's what we're trying to do. A lot of pieces and parts that make that happen. So when we're looking to bring in a new business, the very first thing we do, especially through diligence, is really that management meeting and getting to understand how they think about their business, why they think about it the way they think about it. What have the results been, which is always important. And we are looking for certain results. But we want to understand how the leadership team drives the agenda. What do they execute? How do they execute it? What are the big barriers? and there's one question I ask a lot, or it's really two.

19:00The second is the follow-up is, what is one thing that we would be crazy to change if we walked in the door? And they always have a very consistent answer. And then we'll ask the next question is, what would be the one thing that we would be crazy not to change the day we walk in the door? And it's funny, everybody wants change, but they don't want it to them. They want it for everybody else. So we really come in early on with the idea in the first 100 days, we're going to do nothing but seek to understand. We're not going to change a thing unless something's broken and it's a crisis or something's been identified as it really needs to be addressed early on.

19:41Our objective is to do nothing the first 100 days and really get to learn the people, the business, the process, the practice. This post-acquisition, you don't do anything for 100 days. There are some things that we will start to do. The very first day, and even prior to close, we will start working on harmonizing the data. So we have a dashboard of all the metrics of our business. We think that's what winning looks like. That's what high performance looks like. We will go into their metrics with them and say, okay, explain to us what a lead is. We're all trying to get leads. define what you count as a lead.

20:19Every business we've ever acquired has a different definition. Although subtle and sometimes nuanced, the way they count things, the way they measure things, what close rate looks like differs by company. So we want to make sure that when we're talking to a new partner that we're bringing into our world, that we're all looking at the same scorecard and we all know that it means the exact same thing. Everybody's going to know what winning looks like really early on. So if you don't harmonize terminology and harmonize the data, it's almost like we're speaking Spanish and they're speaking Chinese.

20:54We have to get early on really good communication. Yeah, on the same metric. We do start to, again, part of harmonizing data is the financial. So what's their financial structure look like? All the GL accounts. We don't change it right away, but we do start to map it in a way that we can understand their financials in the way that we would typically view them. But business process changes, practices, change in strategy, marketing tactics. All we want to do is learn why it is they do what they do. We're buying them for a reason because they've been successful. We see there's opportunity to help them improve and they may be help improve us in areas where we're weak based on what their criteria is and what their strengths were.

21:39But I don't want to break them. There's a culture, there's a spirit there. Michael, what stage are we talking about? Are we like pre-LOI? Are we signed LOI? We're signed. We're signed. So we're signed LOI. And what we're really trying to do initially is just keep clicking in the business. You got enough interest to sign with them. And then you really want to dig deeper and seek to understand, figure out the how, the why, understand what the historical results were from what they've done, and then how they execute things. So what behind that? And then I love the two questions. What would be the one thing that would be crazy to change?

22:11where you want something that's crazy not to change. I find that really helpful where you just get people thinking about one thing instead of trying to make a laundry list, but you tend to get the answer versus getting a long list and then trying to have to figure out what the one thing was. Yep. That makes a lot of sense. It sounds like that's sort of a great start for just understanding the people and culture components. How do you start thinking in terms of what it's going to other components, I guess, drive success? Well, for us, it's all growth synergy. So we typically start where the business starts, which is with the marketing.

22:38So we want to understand what the marketing tactics are, why they've been chosen? What's been the strategy? Is it data-based or is it more in somebody's mind? That's just how we've always done it. What metrics are available to help us prove out if the strategy is right or not? Do you have data to help with that? And if your reporting isn't great, that's an area we're going to write down is we can bring a lot of opportunity and help to fix that or make it better than it is today. And we're going to spend a lot of time on marketing in the beginning. So we tend to be more aggressive and assertive with our marketing approach in terms of the amount we're willing to spend and invest than most of the companies that we acquire.

23:15That's a new concept for them. So when we tell them, look, we want you to double your spend in this area, they look at us like we got 10 heads. They need to understand what they're doing, what we're doing and why we're doing it and what the results are so we can prove that the methodology makes sense. Another question we asked very early on, and this is more in diligence, is how many locations or what was their growth plan that they had planned for the coming year or the next three to five years. And usually there's some sort of organic plan to open new locations, add a new product. And we'll ask the question, if you're going to open up two new locations next year, what would you need to open up 10?