Can a Merger Make You Recession-Proof?
Mergers cut expenses and expand potential clientele, which is just what many integrators need right now.
George Hall had a sense of déjà vu as he read about the merger of two New Jersey-based integrators.
The story seemed familiar to Hall because his own company, Elkridge, Md.-based Questron, was in the middle of a similar merger with Baltimore-based Homesafe Security Systems to become HS Technology Group.
It wasn’t just the merger aspect that struck Hall as a coincidence. There were a lot of circumstances that he says are “very similar” to his.
“Friendly Competitors” — Much like Home Systems principal Ralph Scrofani says Intrahome Technologies had been its friendly competitor, that’s how Hall describes Questron’s relationship with Homesafe Security.
Similar Timeframe — Questron and Homesafe Security had also been casually kicking around the idea of a merger for years before deciding to do it during summer of 2008.
Consolidating Venues — Just as the new company Intra Home Systems will work out of one location in Pompton Plains, HS Technology will cut back to one showroom.
Making New, Keeping Old — None of the merging companies are going away, at least for the time being. Each will exist in addition to the new companies created by their mergers. By keeping the old companies in tact, Scrofani explains, the other companies will be able to finalize existing projects “while phasing out” respective payables. Once that has occurred, he says, they will “make the original companies dormant and eventually close them down.”
Perhaps the most significant commonality between the two mergers involves cost savings. By consolidating certain resources, both new companies say their reduction in overhead has been significant. By consolidating employees, headquarters, insurance and purchasing, Scrofani says the companies involved in his merger will benefit from “economies of scale.”
Hall agrees that the merger has been “really effective” in terms of cost savings. In HS Technology’s case, both Questron and Homesafe Security had expensive showrooms, he says. “We’re consolidating, and it’s saving us on real estate costs.”
Financial Savings at Ideal Time
In recessionary times, it’s common for similar companies, “friendly competitors,” to merge, according to John Mack, who recently discussed the merger and acquisition market at a CE Pro 100 Summit. He’s an executive vice president of investment banking firm Imperial Capital.
Mack says the goal is to share some fixed overhead. “If you have two offices, you get rid of one. If you have two office managers, you get rid of one.”
In the custom electronics field, two merging companies aren’t likely to find redundancies among technicians, but “you should have decent consolidation and synergies at the operations level,” Mack adds.
Both of these mergers were conceived prior to the custom installation industry being leveled by the recession. Scrofani and Hall say all parties involved anticipated the economic downturn and prepared for it.
In Intra Home Systems’ case, both merging companies had spent the last year or so trimming personnel and overhead in anticipation of an economic slowdown. Hall says Questron started cost-cutting in 2006 because the company “saw it coming.”
Even though both mergers would have happened with or without a recession, according to the companies, the moves seem to be good insulators. Scrofani acknowledges that the savings from the merger are coming at an ideal time.
By joining forces with “friendly competitors,” the Intra Home Systems and HS Technology mergers consolidate resources and effectively expand — not just maintain — their market shares by broadening their geographic focuses.
In the case of both mergers, the companies had overlaps in geographic focus, but also had focuses on vast areas that the other company did not. By joining together, the companies significantly broaden their potential client base.
Home Systems and Intrahome Technologies were “friendly competitors” (see overlapping area). In addition to no longer having to compete with each other for business, the combined company has a much larger geographic focus.
Tom has been covering consumer electronics for six years. Before that, he wrote for the sports department of the Boston Herald. Migrating to magazines, he was a staff editor for a golf publication and an outdoor sports publication. Now, as senior writer/technology editor of CE Pro magazine since 2003, he dabbles in all departments and offers expertise in marketing. Have a suggestion or a topic you want to read more about? Email Tom at [email protected]
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