Thriving After a Private Equity Acquisition
I worked for Floor Solutions in Portland, Ore., for eight years when, in 2014, our owner, Robb Siegenthaler decided to sell the business. Robb was a commercial flooring “lifer” and, after purchasing Floor Solutions from DuPont Industries in 2004, he had led the business to a strong market share position in the Portland market. With this success and Robb’s planned retirement, we were faced with making strategic decisions for the business to continue to thrive in the future.
On a personal basis, Robb was a mentor and coach. A pal of my father, Robb took a chance on me and brought me into the business with zero experience in commercial flooring. In fact, I had zero business experience as my degree and previous work experience was in counseling and human behavior. At that point, I was working as a counseling psychologist and my clientele was troubled adolescents. When I decided to make a career change into business, Robb brought me into flooring and began to teach me the ropes. As they say, he taught me everything I know and then some.
Robb had a plan for selling the business and he spoke to a variety of buyers. He considered an outright sale to an external group or, possibly, to merge our company with another commercial flooring operation in our market. As is the case with all owners planning to sell their businesses, Robb’s goal was to minimize the risk on the business and to maximize the return. And, of course, he wanted to protect the employees as much as possible. He was juggling these priorities and trying to find a solution that worked for all parties.
Robb and I agreed on one thing: He believed that I was ready to run the business and I believed I was ready for the challenge. However, I did not want to own the business. I understood the pressure Robb was under and my priority was to lead the business without risking my assets. We had a dilemma.
Enter Private Equity
The solution came in the form of a private equity owner who wanted to invest in a commercial flooring company in the United States. In early 2014, Succession Capital, a division of Lynx Equity out of Canada, began discussions with Robb. Their business model is to invest in viable companies with good growth potential and hold on to them. Their operating strategy was to acquire successful business that did not have a succession plan, and to financially support their acquisitions while letting them operate independently with the existing successful team. Since they had already invested in a company in the northwest United States, Succession Capital believed in this geography and knew they could be successful with another purchase in that market. All the indicators were positive!
For Floor Solutions, Succession Capital was the right answer. We believe in their mission and we like the people. They have a solid history of investing in their companies and returning strong profits to their investors. Unlike other private equity companies, we believe that Succession Capital is first and foremost interested in building businesses. Robb executed the deal in April 2014 and I took over as president and CEO of Floor Solutions.
Life After Private Equity
We are very fortunate in how our business transitioned to our new ownership. From the beginning, our employees understood the new relationship we had with Succession Capital and, while skeptical at first, they soon observed that we were continuing to run our business as we always had. A huge benefit is that we have new investment dollars which help us to develop new business avenues to increase revenue and profits.
The normal financial stress of managing a commercial flooring business has changed. Now, we don’t worry on a day-to-day basis about cash flow and capital as we did in the past. However, of course we review our financials on a monthly basis with Succession Capital. The relationship is open and transparent.
As in any significant business transition, we had some challenges once the deal was consummated. When Robb retired, four sales people left as well. As the new leader of the organization, I needed to quickly replace these sales people with strong and effective employees. I was able to attract good talent, but I also knew that we needed a more systematic approach to our sales function. I wanted to establish a team environment where the group worked together to achieve shared goals without sacrificing individual incentives.
We have shifted from just a general contractor focus to a stronger focus on the architects, designers, and end-users. The motivation was simple: we needed to prioritize the earliest phase of the project in order to drive specifications and achieve better control of the project outcome. This shift required intensive training for our team. I focused on creating the excitement of working toward a shared goal and the power in achievement of the total team. In some cases, when we had a sales person who didn’t embrace this shift, I was forced to move them out of the role. These actions are never easy, but I was committed to the overall success and alignment of the team.
In general, our new sales team is younger than it has ever been. I quickly learned that they had to be managed differently then Robb had managed in the past. I needed to understand their “headset” in order to motivate them in the most effective fashion. This new sales team wanted a strong shared culture and we created that culture through a growing commitment to a successful future. To win, they had to win together. They had to break down the communications in order to put aside individual goals and, instead, to yield those goals to the common good.
Today, we are working together. There is little discussion on “my project” vs. “your project” and they back each other up when help is needed. They take pride in winning for the company as a team, and we definitely like to celebrate our team’s success together!
The other huge benefit is that our operations team has evolved and they also work as a stronger team with more focus on the team as a whole. Our operations leader, Traci Jacobs, was with Floor Solutions at the time of the acquisition and has very effectively created a positive culture for her employees. Plus, the normal stress between sales and operations has been reduced dramatically. Again, they function with a commitment to the business as a whole.
Traci and I augment their efforts with team-building activities like social outings, mill trips and other events which allow for better communication and team work. I believe that these offsite events pay back in very important ways. They create a stronger team and they help our employees to know each other on a more personal, recreational level.
Growing the Business With New Rules
Our challenge is to leverage the new investment dollars which are available to our team and to make the correct choices to maximize these funds for a strong return.
We have allocated those investment funds to several strong growth areas including ceramics and specialty flooring which is an emerging area in our business. Specifically, we have added a number of incremental services to our offerings. Leveraging our Floor Care business, we added several relevant service areas such as poured epoxies, urethanes and other important services which support our end users with flooring advancements that improve the appearance and function of their facilities. We made a large investment in concrete polishing and grinding and we anticipate moving towards a stronger commitment to self-performed moisture mitigation in the future. We feel we are tuned in to our end user’s needs and that approach is winning in the marketplace.
Coupled with the strength of our sales and operations teams, our revenues are growing. In fact, since Succession Capital took ownership of our business, our revenues doubled and our profits are solid and healthy.
The Benefits of Starnet Membership
Our membership in Starnet Commercial Flooring has been a huge asset for Floor Solutions since we joined in 2005. Robb began taking me to Starnet meetings after I joined the company and I quickly saw the benefits of the cooperative.
At Starnet, I focus on the many different business models and how each individual member runs a unique business. Because Portland is a relatively small city, I learn from Starnet members who work in a similarly sized city and their commitment to their customer base is inspiring to me. In addition, we utilize the training opportunities offered by Starnet from product knowledge, financial planning, innovative services, and project concepts. When possible, I bring members of our team to the meetings to broaden the impact of Starnet.
I am delighted that Floor Solutions has benefited so meaningfully from our experience with a Private Equity owner. It has truly been a win-win relationship. For our company, this was the right solution for a business transition and I am confident that our success with Succession Capital will continue. Very importantly, despite their initial intent to stay diverse in the businesses they acquire, Succession Capital has purchased two additional flooring companies since the acquisition of Floor Solutions, one of which is a Starnet member.
We find value in our new flooring partners and enjoy sharing best practices with them. I have great confidence in the future!