Mergers and acquisitions are powerful forces in home improvement retail. The rate by which they’re completed has risen by 58 percent in the U.S. in the last decade, and in 2017, the total of all such deals amounted to $1.9 trillion, according to the Institute for Mergers, Acquisitions and Alliances.
For many home improvement retailers, acquisitions are the quickest ways to grow their footprint and reach new customers. Jeremy Melnick, owner of Gordon’s Ace Hardware, viewed acquisitions as the right path forward for his operation. Discover how he decided the time was right to acquire businesses and how he merged staff members into a cohesive, powerful sales force.
Seizing the Opportunity
Gordon’s Ace Hardware was founded in 1950 in downtown Chicago. Until 2005, the business fluctuated between one and two stores. In 2006, Melnick was approached by the owner of a four-store chain within Melnick’s market. He was looking to retire and offered to sell the locations to Melnick.
“You have to review the situation and determine what’s best for your business. We opened a ground-up store on Orleans Street in Chicago in 2005 and were looking for ways to grow even more,” Melnick says. “Those four stores surrounded my existing stores, so it made sense to build on the market they already had. It wasn’t always pretty, but we went from one store to six in essentially 18 months.”
Melnick says one of the most important aspects of his acquisitions was seeking external advice, from his co-op, financial experts and retail peers.
“Ace was extremely helpful,” he says. “They put together multiple pro formas and because they had experience with chain operations and growth strategies, they were able to advise me on a lot of financial and operational areas I didn’t even know to ask about.”
Another important component of successfully acquiring four new businesses was drafting a buy-sell agreement with a trusted lawyer.
“Any time we had questions after the closing, we could refer to that document where everything was spelled out in black and white,” he says.
He also conferred with other business owners who had scaled their operations to fine-tune his approach.
‘A Zone Defense’
As Melnick merged businesses and stayed afloat during a national economic downturn, he relied heavily on his existing management personnel and key associates from the acquired stores who stayed on through the acquisition.
“When you’re a single location, you can see everything in one shot,” he says. “When you expand, you have to use your management team to divide and conquer. With six stores, it became a zone defense.”
Melnick went from managing 12 employees to as many as 50. Though that influx was daunting, he says it also brought new employees with new skills he could depend on. He relied on one of his most trusted existing team members to manage inventory and entrusted two managers from the acquired business for human resources tasks.
“Evaluating the strengths of the existing employees was really important in the transition,” he says. “I had to put my faith in people, who I didn’t know well at the time and merge our existing processes. That was the key to our success and the key to overcoming the economic hurdles of 2008.”
Reaping the Benefits
As the dust settled, sales grew and Gordon’s Ace Hardware increased its overall service area. The transition also motivated his staff to update the company’s employee handbook to more clearly define its goals and values. Additionally, Melnick says the acquisition brought new opportunities for employees at all levels.
“Ask anyone who’s acquired businesses, and there are always changes,” he says. “We’ve had good and bad experiences—sometimes people leave automatically, sometimes people recognize the opportunity to grow and act on it.”