Steven Marks of Kairos Companies on Bolt-On Business Acquisitions for Growth
Steven Marks has ample knowledge in acquiring bolt-on businesses for growth, first by studying mergers and acquisitions as a student and then by spending several years in a private equity firm. As the founder of Kairos Companies, his knowledge has evolved into practical experience that taught him more. He says there is one important aspect of successful bolt-on acquisitions for business growth that is commonly overlooked in the flurry of due diligence: the people.
“A bolt-on strategy should include looking for add-on acquisitions in new markets—that means new opportunities.”
“You have to consider the potential integration risks,” Marks says. “There are cultural considerations and the acquisition must be looked at from an employee standpoint.” Marks gives the example of acquiring two competing companies in which one company pays their employees well but doesn’t provide health insurance, while the other company pays less but provides a generous health insurance benefit. When two companies will be placed under the same umbrella upon acquisition, it won’t take long for employees to realize the disparity. The expectations of employees need to be managed and everyone must be treated fairly, otherwise employees will think negatively of the acquisition.
Marks solved this problem when he encountered it by providing a health plan to all the employees, which was a solution the employees appreciated and responded to positively. He did so within two months of the acquisition, not wasting any time in demonstrating to employees his dedication in providing equitable benefits.
Marks also cautions about the employee transition when acquiring two companies in the same industry, in the same geographic market. “The idea of one day deciding we’re going to switch from competitors to one team can lead to integration issues,” he says. It is important to foster a team culture when merging competing businesses.
Every acquisition is a unique situation, Marks says. What works for one merger may not work with another.
“Some firms take a one-size-fits-all approach to acquisitions, but that’s wrong,” Marks warns. Kairos Companies is a private equity firm exclusive to family-owned businesses, making it all the more important to consider the experience of employees in the transition period. There can be a great deal of emotion involved with local, family-owned businesses. “From an investor standpoint, it’s easy to get excited about an add-on, but you have to make sure all the employees are excited about it too.”
One of the benefits of a bolt-on acquisition is the existing staff is already in place, reducing the likelihood of needing to go out and recruit new talent. A staff in place that supports the merger can prove invaluable in an acquisition and make everything run much smoother than it would otherwise.
Service companies, in particular, are people-dependent, Marks advises. “It’s important to spend a lot of time with the employees ahead of time. Make sure everyone is excited about the acquisition. Ask them what makes the company a special place to work. If the employees aren’t on board—especially with a family business—it can get complicated.”
For this reason, bolt-on businesses can be a risk, says Marks. When instead starting a business from the ground up, “It’s organic growth you can control,” he says. “But with a bolt-on business, you can step in and continue to grow.”
Timing can be an important factor to consider and can sometimes get overlooked by investors excited to acquire new businesses. “Timing can be complicated,” he says. “The seller’s timing will not always align with what’s best for the business. Timing may never work out perfectly.” If a too-good-to-be-true opportunity arises it may be that it is, in fact, too good to be true—or at least not in the buyer’s best interests to pursue.
“What worked in one business applied to another business can become a costly mistake,” Marks says. “An add-on done wrong can ruin the whole company.” Due diligence that includes ample time with employees can help substantially decrease risk.
There is so much more to a business than what the numbers reveal in due diligence. “An Excel spreadsheet can look attractive to investors, but it ignores the components of people and culture,” Marks says.
Resist the urge to acquire bolt-ons rapidly, Marks advises. “It’s a mistake to think that bigger is necessarily better,” he says. Growth will come if things are done right, as is evident by the growth experienced by the platform businesses acquired by Kairos Companies. “Our headcount increased by 33 percent. We’ve added people and services—we keep investing back into the business.”
Marks considers what businesses might help round out his existing businesses. “A bolt-on strategy should include looking for add-on acquisitions in new markets—that means new opportunities.” His acquisition of Turner Safety (a company offering safety training OSHA training in California) in November 2018 followed by Daily Saw Service (a company providing cutting tool sharpening services, sales, and manufacturing) in March 2019 were well thought out and included substantial time spent with existing employees.
Turner Safety now falls under the umbrella of Hawkeye Safety, a Kairos Company. Hawkeye Safety offers occupational safety training and solutions for construction and general industry clients. The acquisition of Turner Safety not only bolstered the capabilities and credibility of Hawkeye Safety, but also reduced direct competitors in the region.
“Once you have studied an industry and now it well, it can be beneficial to go deeper into that industry,” Marks says. In the instance of Turner Safety, he found ways to grow within that industry. “We identified an attractive aspect of the safety market is staffing.” Expanding the services of a bolt-on business can help reveal the navigation necessary to go even deeper into the market.
Bolt-on acquisition is “a proven business model,” Marks says. “Instead of starting from scratch and finding new employees and clients, you can hit the ground running.” When the acquisition follows significant research and a deep understanding of the employees and the culture within the workplace, it can be a good way to grow fairly quickly.
“It’s a way to acquire your way into a market,” Marks says. He anticipates more acquisitions in the future and the ability to offer enhanced services at existing businesses he holds. Backed by enthusiastic employees and a solid grasp of successful acquisitions, Marks will continue to seek out new opportunities to “round out” his company.