Engineered Floors, J&J Execs Discuss Merger
Nobody, but nobody, anticipated that a new carpet mill would materialize in the midst of an elongated and hollow recovery, let alone watch it become the third largest carpet producer in the country. Certainly no one would have dreamed that the man behind this phenomenon was someone who had piloted the world’s largest carpet producer to capture that mantle serving as its CEO since 1957. No one in Dalton or in the United States could have possibly foreseen Bob Shaw stepping down as chairman and CEO of Shaw Industries in his 70s only to turn around and launch what is now a company with three very large and high tech facilities, one of which is said to be the largest single carpet manufacturing facility in the world. And all this, mind you, taking place nearly in the shadows of the world’s two largest players.
So how do you top a story like this one? What about adding a chapter that sees Engineered Floors merge with 59-year-old carpet producer, owned by another Dalton-based family very similar to the Shaw family? Well that’s exactly what has happened, and that transaction was closed just a few weeks ago. Bob Shaw has been building Engineered Floors when many in the industry were experiencing tough times and he did so by focusing on polyester and the multifamily sector and later by acquiring Dreamweaver and expanding into the single-family retail arena.
The merger, the one with a 59-year-old company we mentioned, was with J&J Flooring Group, a company that operates solely in the commercial sector with absolutely no overlap with Engineered Floor. We had an opportunity to talk with James Lesslie, assistant to the chairman at Engineered Floors, and David Jolly, president and CEO at J&J Flooring Group, shortly after the merger was finalized. You can listen to that conversation in its entirety on the TalkFloor.com website. Here are some excerpts from that conversation.
TF: Talk about where each of the companies were prior to the first conversation about a merger. Engineered had been on record saying it had interest in the commercial sector. Fill us in on the frame of mind preceding the first conversation with J&J.
Lesslie: Engineered had said it was looking into the construction of a commercial tile operation. We were beginning to formulate plans but hadn’t yet pulled any triggers. Then this opportunity came to our attention and its was a perfect fit, allowing us much easier entry into the commercial market with an organization with the reputation of J&J, a 59-year history and expertise in the commercial marketplace. It just made a natural fit for us.
TF: What about the process? Did it happen relatively quickly?
Lesslie: You have to understand something about the Jolly family and the Shaw family. They have both lived in Dalton for eons and there is a great deal to history here. This is as close to what I would describe as a handshake deal as there is.
Jolly: We were very flattered and appreciative that Mr. Shaw called and spoke with my father. As they talked more and as James said, it didn’t take long with what we know of each company taking into account Engineered Floor’s growth rate and what they have done in our industry over six years, it’s unparalleled, certainly over the last decade. We saw that that the two companies made a great deal of sense together culturally. We go after completely different markets, there is no overlap. It really didn’t take a long time to make a decision to go forward when you know the leadership team of both companies and you share that same culture. It wasn’t like we had to be introduced to each other and spend a great deal of time getting to know one another.
Speaking of fast-track, I would dare say that for a merger/acquisition of this size there has not been one in our industry that have moved this quickly as this one has. I think it moved so quickly that it caught a great many people by surprise.
TF: Engineered Floors has been a fantastic success story. If someone had said 15 years ago that a new carpet mill would be launched and have the growth and success that Engineered has had in such a short period of time, no one would have believed you.
Lesslie: It’s a textbook story of coming into a market with a new a production and a new technology model and using that model to grow the business in a market that’s not really growing that fast.
TF: Talk about the synergies that exist between the two companies. How will the technologies of the two company benefit each other?
Lesslie: We are on record for saying we would be entering the commercial marketplace. We will be using the facilities at J&J to make and produce commercial carpets in both broadloom and tile, which we will sell through the Engineered Floors sales force. We will be primarily focused on the main street market segment, which is a segment J&J does not really participate in. There is very little overlap. Every merger you have ever read about is described as a perfect fit, and they often rarely are. This is literally a perfect fit. When we say there is virtually no overlap we mean it. For us it allows us to enter the commercial market much faster than if we had to go through the construction and ramp up our own facility.
TF: The main street segment currently appears to be a hot property. Many retailers who had not focused on it in the past are doing so now.
Lesslie: It’s a growing segment of the commercial space and the growth potential is what has driven us to want to enter that market place.
Jolly: As James mentioned we have capacity in some commercial tufting groups that we can make use of with Engineered. We do a fair amount of business in the assisted living sector. We get the corridor and public spaces areas, but one area that has hurt us over the years is that we have no products for the rooms. The big guys we compete against all have large residential businesses and can bring the cut piles, the cut and loops and other products to bear at price points that work and we have not had that opportunity. We will have that opportunity going forward through Engineered Floors. There are several options in this area. In the long run our Kinetex composite flooring product is growing at exceptional rates in the commercial market, we feel that there are some opportunities here to expand it even further with through Engineered Floors. There are a great many synergies. I just want to reemphasize a point that James made: When you get into people and manufacturing you won’t find two companies that have greater differences. It’s not like we have an abundance of the same type of tufting technology, they are wide-gauge residential we are narrow-gauge commercial, we have a dye house, they do not have a dye house, our extrusion is full, theirs is growing, growing, growing. It’s a wonderful thing when you are going forces and not sending a third of your workforce home. This is really a nice match because have not overlapped in the marketplace nor do we overlap in manufacturing.
Lesslie: When the merger is fully integrated, both sales forces are going to have more tools to grow than less. They really don’t compete with each other now so it is actually a win-win for both companies.
Jolly: We are still walking through the early integration steps of J&J joining the Engineered team, but we are already getting phone calls from our the two sales forces. We have 80-plus sales people, Engineered has significantly more than that. We are getting calls from sales people running into opportunities and sharing projects where Engineered finds needs in the commercial arena that J&J Could potentially bring to the table. And, vice versa, there are J&J people running into opportunities in the multi-family arena. In essence we have doubled the people on the street that have the opportunity to coordinate one with another to bring the other side to bear. That immediately is new found business that operating individually we never would have gotten to. That is happening just by default, no one is encouraging it.
TF: Talk about growth and your expectations going forward.
Lesslie: Addressing that from an industry standpoint, we see the industry residentially posting another relatively flat year. If you look at the last four years we have either been two percent up versus the prior year or two percent down. I think that’s where we are going to be as an industry. Looking at Engineered Floors, as you know we are in the expansion of our Dalton “Sam” facility, which is the fourth expansion. We’re still growing and our plan is to continue to grow and do it with our solution dyed technology. We’re seeing more and more customers preferring this technology over the other forces out there. So we see another solid year of growth for the company.
Jolly: The commercial sector is not radically different. If I were to distill the last four years down after talking with competitors and flooring contractors it appears to be the same thing, everyone is expecting two and a half to four percent growth. When we end the year we probably average two percent growth. It’s been anemic, we’re all waiting for a big up tick. But the reality on the commercial side is (and it plays true on the residential side as well), we’re still not selling the square yards we sold in 2007. Our top lines have grown as we move to more and more to tile, but we’re still not selling the number of units.
We’d love to hear your feedback on this and other conversations you’ve watched or listened to on the site, along with any ideas you have for people and companies you’d like to see interviewed. Contact Dave Foster at firstname.lastname@example.org.