“Over the past thirty months, we’ve been surprised on how easy it is to acquire and how hard it is to integrate. We have learned a significant number of lessons as a result of our experience with acquisitions. It is harder to integrate than to start from scratch.”

One of the biggest challenges facing Johnson is finding a standard integrated support system that all service companies can utilize, which is the current focus of Blue Dot.

“We are in the middle of a 24-month plan to commonize the business formats among our companies, such as common visual standards, guarantees, pricing, hours of operation, etc.,” he said. “Our next big transition step is to a common information system.”

Papadakis could not agree more.

“Without a good information system, it is difficult to manage,” she said. “Everything that can possibly be standardized will be standardized.”

ROSY OUTLOOK

Blue Dot is a partner company of the Sioux Falls, SD-based Northwestern Corporation, a $4.8 billion dollar service and solutions company. Blue Dot now has service operations in 32 leading U.S. markets, serving over 650,000 customers and employing 4,000 “team members.”

The business mix includes 82% heating and a/c and 11% plumbing; 64% residential and 36% light commercial markets; and 73% repair-installation and 27% new construction.

Johnson likes the mix of former owners who, along with a recognizable name and logo, have carried team management to a new level. “We’ve had some locations that have performed terribly and some that have done great, but on balance, we have an extraordinary, extremely cooperative group of former owners,” he said.

“We have a participatory management style — everyone is asked for feedback before decisions are made,” said Papadakis. “This style of management makes everyone feel that they are part of the organization.”

Blue Dot management paints a rosy picture. Of course, the company is aware of the skeptics who criticize the way consolidated companies do business. These critics assert that consolidators are removing the “personal touch” and diluting the talent pool, which is already depleted from technician shortages. And although some industry people say that consolidators have raised the service bar to a new level, Johnson isn’t patting himself on the back — yet.

“I don’t think we have significantly raised the bar yet,” he said. “We already have a good record of customer service, but the real power of consolidation and its affect on service won’t be felt for a while.”

Papadakis added that once a business reaches a certain size, there is a tendency to lose touch with the owner. In her estimation, this negates some of the criticism about consolidators losing the personal touch.

“Once a business gets up to $7, $8 or $9 million in revenues, the owner doesn’t talk to all of the customers anymore,” she said. “That’s usually handled by the customer service staff.”

Johnson and Papadakis continue to look over future acquisitions and plot strategies with one purpose — to strengthen existing markets and expand into new ones. They are not watching their competitors because they’d rather focus on their own direction.

“We’re not looking in the rear view mirror,” said Johnson.

CONTEMPLATING GOING PUBLIC

Since Blue Dot is paying little attention to its publicly traded competition, will it follow their lead and go public?

“We had no idea that public hvac companies would have so many problems, but when the market is ready to accept a fundamental service business, Blue Dot will be in the right place,” said Johnson said. “I can’t tell you when that will happen, but we’ll be ready.”

The consolidation industry seems to have slowed its acquisition pace in the past 18 months, with mergers, buyouts, and tuck-ins taking center stage. However, Johnson does not see that as a reason for Blue Dot to slow down.

“Will our acquisition pace slow down? Only to the extent that we are unable to buy great companies in the marketplaces we want to be in,” said Johnson, answering his own question. “We have a goal, but there is no time period to complete it.”

A final question: Can Blue Dot companies and independents compete successfully in the same marketplaces? According to Johnson, there is one easy answer.

“Any company can compete effectively if they pay attention to the customer,” he said. “Some companies in our business have lost sight of what a service company is all about —servicing customers, not how fast they can grow the company.”

Publication date: 09/11/2000