Who should take over the business?

July 18, 2000
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INCLINE VILLAGE, NV — Finding qualified technicians may be Contractor Concern #1, but figuring out who’s going to take over the business once the boss retires may be concern #11/2.

That succession issue surfaced time and again during a panel discussion among contractors here at the annual meeting of the Mechanical Service Contractors Association (MSCA).

The topic was takeovers, be it by utilities or consolidators. The panel included those who have gone either route as well as those who decided to stay independent.

Underlying most decisions was an answer to the question, “What will it take for my company to go on after I’m no longer in charge?”

Here is a sample of comments, beginning with two who went with utilities, two who went with consolidators, and one who stayed independent.

Two went with a utility

Ed Quinn, of Fluidics Inc., Philadelphia, said that he “was looking at the succession issue. I wanted to stay [but] the partners wanted to get out.

“The children were not interested in the business. So, we were looking for a buyout. We spoke to three or four utilities at the same time.”

William McClure, McClure Co., Harrisburg, PA, commented that “We had a succession plan in place. We were not looking to sell.

“Out of the blue, we were approached by three utilities. We were bowled over by the idea.

“We decided to listen. We knew they [the utilities] were going to buy someone in our marketplace and that concerned us.”

Two went with a consolidator

Darrel Scarborough, Scarborough Mechanical, Louisville, KY, said that “Our goal was succession. Our number-one fear is these big guys [consolidators and larger contractors].

“With a consolidator, we got help with purchasing, human resource management, the placing of ads, screening, testing.”

Paul Moray, Kuempel Service, Cincinnati, said that “We weren’t sure what was going to happen [with consolidation]. We didn’t want to react to that. We wanted to keep up.

“We went with [a consolidator] who leaves us autonomous, but requires strict reporting procedures.”

And this one is still independent

James Fallon, A.T. Chadwick Services, Bensalem, PA, explained that “The boss has children involved in the business, so there is a plan for succession.

“The discussions have been to stay independent. The business is growing the way he wants to grow it. Why give it up?”

In going the utility or consolidator route, those who did so warned that the transition is complex and time consuming.

The first issue is especially true with unionized employees, they said. Timetables ranged from several months to more than a year.

Key point people in the company may find their day-to-day responsibilities shortchanged, they said.

Brokering the deal

Speakers were both for and against the idea of using brokers to handle negotiations between the utility-consolidator and the company.

Said McClure, “Brokers will keep you out of the middle of the negotiations. It’s good to have a middleman.”

However, Moray stated that, “I’d just as soon cut my own deal. Just go to an outside accountant to get an idea as to the value of your company.”

One recurring issue in the consolidation debate is the fact that those entities taking over the company expect the key players of the company to stay in place for a predetermined number of years. But questions from the audience at the MSCA conference focused on exit plans should the utility buyer merge into another utility, or should the consolidator go under.

“We all have those thoughts about what might happen,” said Quinn, “but we are going forward with one-, three-, and five-year plans. We try to keep positive.”

Added McClure, “We can’t afford to think about an exit plan. We can’t do much about the whims of Wall Street, but we have a lot more financial backing than we did when we were going it alone.”

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