Acquisition activity up, multipliers set to increase

By Charles Rathmann, of SBT

While the number of business acquisition deals seems to be increasing in southeast Wisconsin, a still-lethargic economy means the sale prices are depressed, according to acquisitions professionals.
However, in the coming months, increased sales figures and higher multiples should boost the value of businesses offered for sale.
This is in contrast with six months ago, when some of the same deal makers reported that deal volume was low. Sales at many area businesses were at a several-year low, and would-be sellers were hesitant to sell at a time when the market value of their business was depleted. However, a relatively small number of businesses on the market meant that there was a mismatch between supply and demand, keeping multipliers higher than would otherwise be the case.
Currently, business valuations professionals report an uptick in activity — but the resurgence is in too early a stage to be noticed by the finance sector.
"All of last year was the slowest it has ever been," Victoria Fox, director of mergers and acquisitions for Emory Business Valuation, Milwaukee, said. The company specializes in working with companies between $2 million and $10 million in revenue. "But in 2003, we are seeing a lot of people interested in selling their business."
Fox said that since autumn, she has landed four clients who are interested in selling businesses ranging from $3 million to $20 million in sales.
Ward Wickwire, managing director of Wauwatosa-based Mertz Associates, is noticing the same upward trend. Wickwire, who works on deals typically worth between $10 million and $100 million, indicated that interest in transactions seems to be increasing on the part of both buyers and sellers.
"Sometime around September or October, things started to pick up significantly," Wickwire said. "Half our practice is representing buyers and half representing sellers."
M&A pros attribute some of the trend to the fact that would-be sellers have postponed selling their business during down economic years. However, for a number of reasons including age and the need to move on to other projects, many entrepreneurs now find themselves in situations where they need to exit the business.
According to Wipfli Ullrich Bertelson LLP Business Valuations Manager Cameron Cook, who handles deals typically between $2 million and $25 million, the urgent need to sell can come because of or despite of the economy.
"The view that I have is that there is some pent up demand on both the buy and sell side," Cameron said. "There are people out there that due to varying circumstances need to transition the company. It could be poor health. People get sick and die no matter what the economy is doing. Or it could be the health and well being of the company itself. If the company is losing a lot of money, it might be time to take your benefits and run."
Economic reasons to sell might also have to do with a company doing too well, according to Wickwire.
"We are seeing a pickup in the segment of the sale part of the business — small private companies that are overwhelmed with personal problems," Wickwire said. "We have companies supplying services or products to the defense industry. These days, that kind of business can overwhelm a management team, and they might want to sell to find someone to help shoulder the load."
Increased activity seen by M&A consultants appears to be part of a wave that has not yet crested on the beaches of financial institutions. Bankers say that while they are hearing about deals contemplated in the market, they have not made it to the point where financing is required.
"We have not seen a lot of deals out there," Rob Spitzer, vice president of Johnson Bank’s Waukesha office, said. "The multiples are still down. The sellers are still reticent to sell at these prices. I still think there are buyers out there. We are still hearing from those folks that are looking for opportunities."
"I would concur with those observations," Mark Mulloy, president of First Business Bank, Milwaukee, said. "The buyers and/or the sellers may be kind of starting the process, but I think there is a lag from the beginnings of those process to the point where the financial institutions are brought into the picture."
While deals are not close to completion yet, both banks to private equity firms are bracing for busy periods later this year.
"There has been a material increase in activity in the last six weeks," said Ronald Miller, managing director with Milwaukee-based investment banking firm Cleary Gull. "We are having significantly a lot more conversations with sellers and companies that need additional growth capital. I have talked to a lot of my peers and they are seeing the same uptick. We have not had as big of a backlog in the last two years."
A pending increase in deal volume, greater optimism in the market and a willingness among financiers to underwrite a greater percentage of the sale mean multipliers should be heading skyward. Some businesses with strategic importance or high growth potential are seeing multiples as high as seven times EBITDA (earnings before interest, taxes, depreciation and amortization).
"There has been a great lack of activity in the last 18 months to two years," Mulloy said. "Multiples certainly have contracted during this time. It becomes a supply and demand thing. When there is as much uncertainty in the economy as there is a reticence either to sell or to buy at a higher multiple."
But as economic uncertainty becomes less of a concern in the market and among lenders, conditions are more favorable for successful transactions.
"There is almost a feeding frenzy for high quality transactions," Miller of Cleary-Gull said. "There is $100 billion of uninvested private equity capital looking for companies in which to be invested. That is putting pressure on private equity returns. The banks have been extremely conservative in the last couple of years, and we have waited until we were beyond the bottom of the business cycle to increase multiples."
The reticence to follow the upswing in the economy, as well as other factors, have kept multiples from rising faster than they could, according to Cook of Wipfli.
"Prices are generally sticky on the down side," Cook said. "An owner’s perception of the company is not going to decline as fast as market values. But buyers and lenders can experience a similar lag in their thinking."
The gradual nature of the recovery — and the fact that lenders still may not be willing to lend buyers as much as sellers want for their enterprises — mean seller financing will still be an important part of the deal-making process according to several of the merger and financing professionals.
"We will still see some seller financing," Cook said. "It is still very typical to have some form of seller financing to bridge the gap between seller expectations and buyers. But right now it is not uncommon for high quality companies to sell at an excess of seven times EBIDTA if they performed well through the recession."
While prices paid for businesses are not increasing quickly, some businesses are commanding much higher multiples than their counterparts.
"A company that a few years ago got a multiplier of five now might have a value multiplier of four," Wickwire of Mertz said. "That doesn’t mean some companies aren’t going for multipliers of six or seven. It is skewed a little by last year. Some companies were very good and had high multiples."
Some businesses with strategic importance or high-value intellectual property are already selling at higher price points.
"The buyers we have been talking to are looking for businesses that have a proprietary product or proprietary process that gives them some staying power," Spitzer said. "They want that special product or project that insulates them from the economy."
Military- and security-related companies and some building products will be particularly hot as multiples begin to rise, according to Miller.

May 30, 2003 Small Business Times, Milwaukee

Harley-Davidson, Johnson Bank win Export Achievement Awards

Harley-Davidson Motor Co. and Johnson Bank’s International Banking Centre are among six companies statewide to win the Governor’s Export Achievement Awards, which were presented by Gov. Jim Doyle earlier this month.
Each year, the governor recognizes firms and organizations that have achieved extraordinary results in international sales or have contributed to Wisconsin’s increased ability to compete in a global market.
"My Grow Wisconsin initiative calls for investing in expanding international markets to create important growth opportunities for Wisconsin firms," Gov. Doyle said.
Award winners are:

International Banking Centre at Johnson Bank, Madison – The Johnson Financial Group had its start 32 years ago as a single bank in Racine. When the Madison East office of Johnson Bank opened its doors in 1996, the International Banking Centre (IBC) was established to provide customized solutions and specialized international services to the bank’s commercial clients engaging in global trade. The bank has nearly tripled its international customer base since 2000. It serves Johnson Bank customers statewide.

Harley-Davidson Motor Co., Milwaukee – Harley-Davidson has been making motorcycles in Wisconsin for 100 years, and has been exporting them for nearly as long. From its earliest days, the company established a strong base of international dealers, who delivered Wisconsin craftsmanship to every corner of the world. Today, Harley-Davidson exports more than 50,000 motorcycles annually. To feed the booming demand for its motorcycles both abroad and at home, the company has added jobs and grown its facilities in Tomahawk, Menomonee Falls, Wauwatosa, Franklin and East Troy.

ABS Global, DeForest – ABS Global provides the finest genetics available to dairy and beef producers around the world, providing protein and energy to more of the world’s people. ABS Global Inc. employs 150 people in DeForest with partners and serves 62 countries, with ventures in Australia, Brazil, Italy, Mexico and the United Kingdom. The company’s export sales represent 50 percent of total sales and are steadily growing. The company makes continuing education and technical advancement the key component to its international marketing programs.

Link Snacks, Minong – Link Snacks, also known as Jack Links Beef Jerky, is the world’s leading manufacturer of meat snack products. Link Snacks employs 380 people and has an extensive network of international sales offices in Canada, Japan, Brazil and New Zealand with warehousing in Amsterdam, Holland and Ipswich, England. Its international sales have grown from zero to 10% of corporate sales in five years.

Oshkosh Truck Corp., Oshkosh – Oshkosh Truck is a
Fortune 1000 industrial company and a leading manufacturer of specialty trucks and truck bodies for the defense, concrete placement, refuse hauling and fire and emergency markets. Oshkosh currently sells and services products in more than 100 countries and has a significant manufacturing presence in the U.S., the U.K., the Netherlands, Sweden and Mexico.

Promega Corp., Madison – Promega is a global leader in providing innovative solutions and technical support for the life sciences industry. The company’s 1,200 products enable scientists worldwide to research gene, protein and cellular interactions.
Promega also has an extensive portfolio of products for use in human identification as well as molecular diagnostics. Founded in 1978, the company is headquartered in Madison with branches in nine countries.
Promega sells its products through an established network of branch offices located in Europe, Japan and Australia. In addition, Promega has representative offices in China and Singapore, and a network of 50 distributors that serve Pacific Asia, Latin America and the Middle East. Promega also has a joint venture in China, Shanghai. Promega’s international sales account for 52% of its total sales.

May 30, 2003 Small Business Times, Milwaukee

German manufacturer builds headquarters in Franklin

Hermle Machine Co., a division of a German manufacturing company, has decided to make Franklin its North American headquarters.
The company dedicated its new headquarters plant at 5100 W. Franklin Dr. on May 1. The plant is a new 15,000-square-foot building that includes a showroom.
Hermle originally had moved to Franklin in leased space at 9600 S. Franklin Dr. from Menomonee Falls in 1997.
"We decided it was time to show our commitment to North America, and so we built our own building in Franklin," said Jean Brzeski, vice president of finance for the firm.
Hermle Machine is a division of Berthold Hermle AG, Gosheim, Germany.
The German company manufactures computer-controlled machining centers for prototype and production applications.
Hermle produces high-tech machining centers that serve the aerospace, medical, automotive, mold-making, tool-making and cutting tool manufacturing industries.
The company’s customers include Sikorski Aircraft, Johnson & Johnson, Lockheed Martin and Delta Airlines.
The Franklin office, which has 10 employees, markets and distributes the German-made machines throughout the United States, Canada and Mexico through a network that includes 20 dealers.
"We’re lean and mean, and we handle all of North America with 10 employees," Brzeski said.
Hermle’s agreement with the City of Franklin indicates the company plans to expand in three to five years on the four-acre site.
The new plant includes state-of-the-art audio, visual and communication equipment, an enlarged service and applications department and parts storage space.
Hermle sells 40 to 50 machines per year throughout North America, said Kenneth Merk, executive vice president. Merk declined to disclose the firm’s annual revenues.
Although its customers are manufacturers, the US manufacturing slowdown has not had a substantial adverse effect on Hermle, Merk said.
"It has some, but not to the degree for other tool builders," Merk said. "Even in downturns, technology is required. People need to find a better solution to make parts. This year looks as if we’ll be at somewhat of an equal level of last year, which was a very good year for us."

May 30, 2003 Small Business Times, Milwaukee

The winning edge
Paying attention to three basic steps can help you win more business

By Marcia Gauger, for SBT

Question: Lately, I’ve been losing sales and I don’t know why. Some are being lost to competitive situations while others just drop off my hit list for reasons that I am unsure of. Do you have any suggestions for increasing my effectiveness with potential business?

Answer: The first step to overcoming your predicament is to understand why you are losing sales. Ask customers specific questions before the sale is finalized to uncover what they will base their decisions on and, if competition is involved, what they like best about the competition. Then, make corrections.
If you have already lost the sale, go back to the customer and ask what the final decision was based on. Check your attitude before you do this. Make sure you are willing to listen and make corrections based on the customer’s recommendation. Don’t get defensive or try to prove your point; it’s simply a learning experience at this point.
You are right to keep what you refer to as a "hit list." I would define this as a list of potential businesses that you have identified, qualified and are actively working. Let’s break these three steps down further.

Identify the business – A hit list should not be a laundry list of every conceivable business in your target area. The customers that you identify should be viable potential customers, a good fit both from a product standpoint and what I refer to as "personality traits."
Those traits are those attributes that go beyond whether or not they can use your product or service.
The traits refer to attributes that make potential customers a good fit to work with. For instance, are they easy to do business with? Do they fit your plan for growth? Will they take time away from developing business that is more fruitful?
Once you know what your best customers look like, actively seek them out by attending meetings that they attend, getting lists from manufacturing groups and then by actively making contact.

Qualify the business – There are a number of steps to take to qualify your business.
1) Make sure you understand the implied and unspoken needs of the customer. Sales are often lost because there are gaps between what the customer expects and what the salesperson thinks they want.
You may be losing sales simply because the competition more closely understands the customer’s needs. Ask good open-ended questions that help the customer predict the future. For instance, you may ask something like, "If you decide to go ahead with our recommendation, how will you evaluate the success of the program?" Then, frame your recommendations based on the responses you receive.
2) Complete a checklist prior to the first sales call. Develop a list of questions of what you need to know about a customer to sell to that business. Use it as a checklist to determine what you know about the customer and what you need to find out. Develop questions prior to the sales call to help fill in the gaps.
3) Assess your competition. Don’t be afraid to ask the customer who they are considering besides yourself.
Once you know who your competition is, evaluate how you have stacked up to that firm in the past. Ask yourself some hard questions like, "What are my strengths/weaknesses compared to the competition?" "What does the customer like about the competition?"
Use the information you gain to emphasize your strengths when you deliver your proposal and make your specific recommendations. Don’t guess at this information. If you don’t know, ask!

Work for the business – Just because a potential customer is on your list or you have submitted a proposal doesn’t mean that the prospect will turn into a customer. You need to stay in front of the client.
Research issues affecting the customer and send the customer a copy.
National averages show that it takes at least five contacts to make a sale. Only 10% of all salespeople make more than five calls and 60% make only one call to the same account. So, just by being more active in the account, you will gain business over your competition.

— Sell to all of the influencers. An influencer is anyone who can affect whether or not you get the sale. Such people may be obvious or they may not.
Think in terms of who will be affected by the decision to buy your product or service. Who will release funds for the sale and who will make judgments or recommendations?
Then, make sure you sell each the value that is important to them. Don’t assume that because your relationship is good with one buyer that it’s good with all.

— Be persistent but not pushy. Make sure you stay in front of the customer. This doesn’t always mean face to face.

— Recognize buying signs. Do you know what buying signs are? If a customer leans forward, it’s a buying sign and an opportunity to close. If the customer asks specific questions, that’s an opportunity to close with a line such as, "How soon could we take delivery if we decide to go ahead?"

— Clarify stalls. Stalls are dangerous because they tend to look like the truth even though they usually aren’t. Typical stalls include; "We’ll look over your proposal and get back to you." Or "Give us a call back in a month." Clarify stalls by asking open-ended questions. It could make the difference between gaining or losing a sale.

— Use closing techniques to check the pulse of the buyer. Closing techniques are very personal. You need to feel comfortable with the ones that you use. Practice several until you find a couple that work for you. An example of a closing question that works well for many is, "Is there any reason why you would not go ahead with this?"

Most important is that you learn from each sale and don’t give up. If you are marginally missing sales opportunities, consistently executing the basics will make the difference between you and the competition.

Marcia Gauger is the president of Impact Sales, a performance improvement and training company with offices in Wisconsin, Florida and Arkansas. Her column appears in every other issue of SBT. You can contact her at 262-642-9610 or marciag@makinganimpact.com.

May 30, 2003 Small Business Times, Milwaukee

Partnering pays off for Mercury communications marketing firm

Bonnie Moyer Topczewski thought she had an ideal situation when she started her own marketing communications firm in 1999.
She had worked for the Owens-Darr and Advertising Boelter and Lincoln agencies and learned some great business practices from those companies.
"I didn’t want any employees," she recalled during a recent interview at the Brookfield offices of her Mercury Communication Partners.
Yet she wouldn’t be alone, despite not having employees and working at home.
She would partner with the right people for the right jobs.
And it worked very well. Too well.
"We just grew," Moyer Topczewski said. "I saw that we had something pretty serious here, something we really had to pay attention to."
The business eventually moved out of what was her children’s toy room, into leased office space, ending up in an office complex along 124th Street in Brookfield today, with 10 employees.
And it’s time to move again. This fall, Mercury Communication Partners will move to Elm Grove, leasing 5,600 square feet of space in the Reinders feed mill building.
Kubala Washatko architects is coming up with the design, transforming the current seed-mixing space into offices. (The seed operation is moving to Oak Creek.)
Mercury will have twice the space the firm now has. And it will have room for growth.
Keeping with her philosophy of employee involvement, Moyer Topczewski asked her staff about the change and the opportunities it presented. "We discussed it as a group, and everybody said ‘Yes, let’s go for it,’" she said.
But Moyer Topczewski doesn’t want to grow too much. "I want to keep it small," she said. "The new office will have room for 20 people – that’s the maximum I want to build this to."
The company is also rolling out a new corporate image, with the solo Mercury name preceded by the familiar flamed shoe of the Roman god Mercury.
Mercury was the messenger to the other Roman gods, due to his swiftness and speed, Moyer Topczewski notes. He was the god of commerce, the protector of merchants and travelers, and served as ambassador for integrity and ethics.
"That’s a good umbrella to keep us honest," Moyer Topczewski says. It’s about delivering ideas quickly and flawlessly and with integrity and ethics.
As a reminder of those missions, everyone on staff wears an old Mercury dime. Those caught without their dime pay a penalty – but a positive one, like bringing in a snack.
It’s all part of making Mercury Communication Partners an enjoyable place to work.
How good?
Moyer Topczewski tells of a vendor who has asked to come in and help answer the telephones at Mercury after she retires from her own job.
A family place
So good that, when the staff has to work late on a project, it’s not unusual for their children to come along to play while the parents work. Moyer Topczewski’s own office has a stack of infant things for when her 18-month-old daughter is there.
"We have a very different environment here," she says. "Family members come in, vendors come in just to hang around."
An obvious buzz of energy filled the air the day a reporter visited the firm – a regular atmosphere there, Moyer Topczewski says, noting the staff’s commitment to the company.
She’s confident the buzz would continue in her absence. "If I wanted to take a month off, I have no concern that this place would not thrive," she says.
But she has no plans for an extended leave or early retirement. "This is too much fun," she says.
And there’s business growth to enjoy, too. Mercury Communication Partners has about $12 million in billings now, Moyer Topczewski says. She can see capitalizing out at about $35 million, at that 20-employee level her new offices will accommodate.
How will it get to that point? Strategically. "You need to stop every now and then and ask yourself where you are going as a company," Moyer Topczewski says. "If you’re on the right path, OK. If not, you need to reengineer."
Mercury Communication Partners recently went through one of those reviews, recommitting itself to its Mercury ideals.
And Moyer Topczewski recommitted to having the right people on the bus. She says her core group "has been around the block" at other, sometimes larger agencies. "They’ve done the big agencies; they’ve done the multiple agencies."
Moyer Topczewski first worked for the former agency run by John Owens and Bob Darr. "I was afforded a lot of opportunity to learn. John taught me how to let people do their jobs and to hire people smarter than yourself and to give those people what they need to get their jobs done."
She later worked for John Lincoln, where she continued to learn about partnering and about going after business. "John really allowed me to run with a lot of business," she said. "And he taught me the value of collaboration and how to really explore those opportunities."
Besides leadership and management experience from those two, she culls "bits and pieces" from books by and about other agency moguls. "You can always extrapolate something that’s good," she says.
Another source of good ideas has been the Council of Small Business Executives roundtable at the Metropolitan Milwaukee Association of Commerce. "It’s a good group to bounce ideas off of," she says.

Bonnie Moyer Topczewski
President: Mercury
Education: Marquette University, B.A.
Leadership Philosophy: Surround yourself with smart people that have courage, commitment and passion — and aren’t afraid to use it.

May 30, 2003 Small Business Times, Milwaukee

Equity firms shift more investments to health care industry

Middle-market private equity firms are shifting some of their investment focus away from the manufacturing and telecommunications sectors to the health care and service industries, according to a new survey by Robert W. Baird & Co.
Baird released its first annual middle-market private equity firm survey earlier this month.
The Milwaukee-based company’s Investment Banking Department contacted 390 firms for the survey and received 190 responses.
"Based on our review of the data, it appears that private equity will be greater in 2003 than in 2002," Baird said of the survey in its May "Merger Monthly" report compiled by Steven Bernard, director of merger and acquisition research, and Marisa Thompson, M&A research analyst.
Highlights of the survey included:
— Despite expectations that the economy and financing environment will not improve significantly in the next 6-12 months, private equity firms plan to increase their buy-side and sell-side activities in the next 12 months.
— Many firms have altered their investment focus, moving away from capital-intensive sectors such as technology/telecom and manufacturing and focusing more on health care and service-related industries. Many firms also indicated an increased focus on public companies.
— Private equity firms have a significant amount of capital available to invest. Results from the survey indicate that the average middle-market firm has invested just 38% of its current fund.
— Baird calculated the average investment age of the portfolio companies to be just over three years, indicating an increased backlog of pending exits.
— The average number of investments that middle-market firms expect to make over the next 12 months is more than 50% higher than the average number of investments made in 2002.
— Nearly one-quarter of the responses indicated that they have lowered their investment return requirements.
— Most firms indicated a significant number of investment exits will occur over the next 12 to 36 months, with 75% of these exits expected to be through an M&A transaction.
"The majority of the firms focus their investments in traditional, old-economy industries. The industrial sector was the industry which had the most investment interest, followed closely by business services, distribution and consumer," the report stated.
However, that "old-economy" focus is changing, according to the survey.
"Almost 25% of the respondents indicated that they had changed their industry focus over the past 12 months. Although we received a variety of responses, the two major themes that dominated the list were: (1) an increased focus on service industries; and (2) less focus on manufacturing, as well as telecom and software. The most often cited industries for increased focus were business and consumer services and healthcare/medical devices. Also listed in the responses was a greater focus on larger companies, as well as public companies," the report stated.
Some other findings of the survey included: more than 90% of the firms responding indicated they would consider a leveraged buyout offer (LBO); 86% would consider recapitalization; and 78% would consider a going-private transaction.
"We expect that private equity firms will be active buyers in 2003, given the amount of money that remains uninvested," the report stated. "The firms in our survey have an average of just 38% of their current fund invested."
Approximately two-thirds of the respondents’ available funds are expected to be used for new platform acquisitions, with the balance to be used for add-on acquisitions, the survey indicated.
"The current market environment has led many firms to hold off exiting their investments in 2002, hoping for an improvement in both valuation multiples and the financial performance of their portfolio companies," the report stated. "This has led to a growing backlog of portfolio companies that must eventually come to market. We calculated the median age of a portfolio to be about three years, indicating that many portfolios are becoming mature. As the holding period of the companies in the portfolio increases, private equity firms will be looking to realize portfolio returns, especially as they plan future fund raising."
The pent-up demand would be welcome news for the economy.
"Last month, we asked, ‘Can it get any worse?’ and the answer seems to be, ‘Yes it can,’" the report stated. "Distracted by the events in Iraq and the economy, M&A activity fell sharply in the month of April."
The total value of worldwide transactions for the month of April $76.3 billion, down 19.1% for the same period a year earlier, according to Thomson Financial. The total number of worldwide transactions for the month was 1,407, a 23.6% decline from a year ago.
Monthly global activity has not shown a positive year-over-year comparison since 2001.
However, one recent report suggests that the market may have finally bottomed out. The US default rate for corporate bonds fell 75% in the first quarter to $6.5 billion from 26 issuers, compared with $26.3 billion from 55 issuers in the same period a year ago, according to Fitch Inc.

May 30, 2003 Small Business Times, Milwaukee

Extermination company thrives in third generation
Quarterly planning keeps Batzner on track

According to studies of family businesses, most don’t survive to be passed onto the second generation. And of those that do, only 10% are still operating after the third generation. That’s why the success of Batzner Pest Management, New Berlin, is so remarkable. President Jerry Batzner, who bought the company from his parents in 1990, ramped up sales by 10% last year alone. The firm’s 2002 revenue figure of $3.4 million landed the company on the 91st rung of Pest Control Technology magazine’s list of Top 100 extermination firms nationwide in May.
The company’s service mix differs from national extermination giants such as Orkin and Terminix in that 85% of Batzner’s work is for commercial accounts. Batzner Pest Management has a fleet of 36 vehicles that cruise southeastern Wisconsin and portions of lake country, zapping miniature livestock as they go.
However, unlike the pests his company persecutes, Batzner is not one to roll over and play dead.
"A lot of times, people look for the easy way to stay at the status quo," Batzner says. "But success is not going to happen on its own. You can’t spend a lot of time on the golf course unless you are selling golf clubs. Without hard work, you will float and keep your head above water — or perhaps sink a little."
Since taking over the company, Batzner has focused on taking the firm up to the next level. He has implemented an integrated marketing communications campaign, and three years ago Service-Marked a name for the company’s approach to pest elimination – Balanced As Nature (BAN).
In a small company, staying focused on big-picture goals amid the realities and challenges of day-to-day business is a struggle. And that’s why Batzner began working with consultant Phil Mydlach to facilitate quarterly planning sessions.
Like business-book author Jim Collins, Batzner recognized the need to keep himself and his team focused and working vigorously toward big-picture goals — and avoid sinking into complacency.
Collins compares successful companies to a flywheel, where, as Collins describes in his book Good to Great, a sustained momentum accelerates the energy, allowing an enterprise to move farther and farther ahead.
"With Jerry’s business, one of the objectives is to improve follow-through in execution," Mydlach says. "In so many organizations, people know what to do. But one of the killers is that there is a lack of sense of urgency. One of the things Jerry wanted to do was improve the execution and the follow-through."
Batzner says that his goal is to take the foundation that his parents laid and build a machine on top of it that would continue to serve customers consistently and deliver growth and profits.
"I think they laid the groundwork that the customer is king and that if you take care of the customer, you will be rewarded," Batzner says. "But we can’t just leave it there. You can never rest on your laurels. Every day is a new day, and you are only as good as you are today."
Batzner and Mydlach work to infuse Batzner’s enthusiasm company-wide.
"Some organizations know what their issues are, but they don’t understand the relationship between those issues and the financial results," Mydlach says.
An outside presence, such as a consultant, can help a small company articulate its mission, Batzner says.
"That is where our quarterly operational planning process comes in," Batzner says. "We meet offsite with all the managers and set up goals for the next quarter."
The company’s progress toward its goals are reviewed at each meeting, and according to Batzner and Mydlach, the resulting peer pressure helps nudge managers along.
"Just the fact that you have to reconcile with your peers – it gets people to sit up a little straighter in their chairs," Mydlach says. "Their team did a good job. They did a wonderful job in their follow-through. But when people know they have to review their progress in front of a dozen folks, we want them to understand that if there are any missed goals, they will have to explain what happened, what they are going to do differently, what support they can get from others."

Gerald Batzner
President
Batzner Pest Management, Inc.
New Berlin

Age:46
Education: Bachelors in business administration, University of Wisconsin-Milwaukee
Company’s annual revenues: $3.5 million
Employees: 45
Role model: Parents, Al and Gloria Batzner
Leadership philosophy: "Treat others how you would like to be treated, and never rest on your laurels, because you are only as good as you are today."

May 30, 2003 Small Business Times, Milwaukee

Harley dealers’ event moves to Milwaukee Mile to accommodate bigger crowd

Motorcycles will roam Milwaukee streets en masse next week as the four Harley-Davidson Dealers of Metro Milwaukee host the Milwaukee Rally for the second year in a row, but this time at a new location.
Based on the success of last year’s event, which organizers say attracted more than 30,000 people, this year’s rally was moved from Veterans Park at the Lakefront to the Milwaukee Mile at State Fair Park, which can accommodate a bigger crowd, more activities and more vendors. Up to 50,000 people are expected this year.
"This year the rally is really known," said John Schaller, president of the House of Harley-Davison dealership and also president of the Harley-Davidson Dealers of Metro Milwaukee. "We expanded our advertising this year, and we will do more in the future as this event grows."
The move also recognizes the 100th anniversary of the Milwaukee Mile – the nation’s oldest continually operating major speedway, which boasts a new $25 million grandstand.
The June 5-8 rally will include a variety of events, most of them at the Milwaukee Mile grounds. Those events include performances by national and regional bands, a "Ms. Milwaukee Rally" bikini contest (with preliminary rounds at local bars), Nitro Extreme Trials Team performances, virtual drag racing, other entertainment and an attempt at serving "the world’s largest fish fry."
The attempt to assemble the world’s largest fish fry will be based on the invitation to the community as well as rally attendees. Last year, more than 6,500 people were at the Friday portion of the rally.
Port Washington now lays claim to "the world’s largest outdoor fish fry" for its annual Port Fish Day festival. That event is set this year for Saturday, July 19.
The national acts for the Milwaukee Rally include The Marshall Tucker Band, Eddie Money, John Kay and Steppenwolf and The Yardbirds.
Away from the grounds, tours will be offered at Harley-Davidson Motor Co.’s power train plant in Wauwatosa. That plant also will be the assembly point for a motorcycle parade on Sunday the 8th. It will depart the facility, near 124th Street and Capitol Drive, at 11:40 a.m., heading to the Milwaukee Mile grounds.
There will be no charge for admission to the Milwaukee Mile grounds, but a $20 "passport" is being sold. The passport includes motorcycle parking inside the Milwaukee Mile oval, special-offer coupons and souvenirs.
The motorcycle dealers that are producing the event are the independently owned Hal’s Harley-Davidson/Buell, House of Harley-Davidson, Milwaukee Harley-Davidson/Buell and Suburban Harley-Davidson/Buell.
The four dealers started talking about a Milwaukee rally about 2-1/2 years ago. "We deeply felt there ought to be a bike rally in the center of the motorcycling universe," said Schaller, who notes that, along with Milwaukee having Harley-Davidson Motor Co.’s headquarters, the Chicago-Milwaukee area has the greatest density of motorcycle ridership in the world. "But for each dealer, there wasn’t anything we could have done individually to make this happen."
The event isn’t just for fun; it’s also good for sales. "It’s certainly good for business," Schaller said. "A lot of these riders come from outside the area." They spend at the dealerships, and they spend at the rally. Schaller said that 90% of the vendors at last year’s event asked to return this year because business was so good at the inaugural event.
The majority of the riders will come from within a 75-mile radius, but others will come from much farther away.
While the Harley dealers are coordinating the rally, they are inviting riders of any make of motorcycle to participate.
The rally is not connected with Harley-Davidson Motor Co., which later this year will bring thousands more motorcycles to Milwaukee at the end of August to celebrate its 100th anniversary.
More information on the Milwaukee Rally is available on the Web at www.milwaukeerally.com.

May 30, 2003 Small Business Times, Milwaukee

Paul Grunau sees leadership role as one of a mentor, coach to employees

By John L. Campbell, for SBT

Paul Grunau may be the president of the company his great-grandfather founded in 1920. And his last name may be emblazoned across company trucks. But the Grunau Co. management is a team effort – and must be if the company is to attain greatness, says Grunau, an advocate of leadership principles espoused in Jim Collins’ Good to Great business book.
"My principal task is being a mentor and coaching people," Grunau says. "We have a flat management structure. There’s me and 15 other guys. We will only be as good as the job we do in developing that team."
Grunau is uncomfortable being seen in the forefront of his heating, ventilating and air-conditioning company. He’d rather function behind the scenes, coaching his players to do what has to be done.
"We’re only going to be as good as we are in developing our value concepts," Grunau says, emphasizing that he wants his managers to be as able as he is in presenting the Grunau Co. to potential customers. "I’d rather be in the background, pushing them forward, than standing in the forefront," which is precisely the role of a Level 5 manager as outlined in Good to Great.
"The Level 5 leadership is a contrast to the TV, movie, magazine CEO, who is highly visible, the leader on whom all success depends," said Grunau. "The entrepreneur and the Level 5 leader have substantial differences."
Grunau understands those differences, and he’s grooming for that Level 5 leadership position, constantly reminding himself, "You’ve got to put the best interests of the company ahead of your personal agenda."
Grunau Co.’s total employment is about 400. Of those, 90 are salaried employees. Paul Grunau has been president of the company since 1990.
At its Oak Creek facilities, Grunau Co. operates three separate divisions, a fabricating shop, a mechanical department and a service facility. The company has invested heavily in its service and maintenance departments – a decision that keeps its name in front of its customers.
Grunau says that servicing equipment regularly keeps customers off the market when new projects come up. Based on current relationships, they contact Grunau Co.
"On any given day, we’ll have 50 people on the road servicing our customers," Paul explains. "In Ohio, Indiana, Pennsylvania and Florida, our plants are only single-purpose facilities, servicing and installing our fire prevention equipment."
Grunau has a reputation for its fire prevention sprinkler systems.
"We use the single trade concept in remote locations. Construction work is a very local business, based on close customer relationships," Grunau notes.
How does Grunau Co. train managers? Some have been sent to graduate school, paid for by the company. Grunau believes in training and education, much of it in-house. In the company lobby behind the reception desk, Grunau has framed a statement of values and the company’s mission. Top management seeks to create an environment within the company where employees feel appreciated and valuable.
"That (confidence) rubs off when they’re out there in front of a customer," Grunau says.
At the core of its value system are intangibles such as honesty and integrity. Conscious of listening skills, employees strive to understand their customers’ business objectives and what the customers are trying to accomplish.
"Individuals who are given responsibilities and treated with respect will give their best," Grunau said "We look for people who have the right attitude and who share our values along with technical capabilities. We’re in a business where the customer can’t test drive what we have to offer, meaning that the company-customer relationship is one of trust."
Grunau elaborates on "selling to the left," a concept that pursues establishing a rapport with project architects at the initiation of a new project, rather than waiting until competitive footprints have encroached on the scene and the project reaches the time-line stage – when it’s up for bid. Without effectively selling to the left to engage a client’s confidence, the lowest bid will often take the job.
"Back in the 1970s and 1980, our sales volume was about $250 million," said Grunau, noting a different business philosophy followed at the time. Grunau Co. followed the Phillip Morris’ expansion program for Miller Brewery throughout the country, where it was involved in the construction of six breweries.
"It caused a lot of turmoil in the ’80s," Grunau admitted. "We just didn’t have enough people on the bus and the right people in the right seats."
Today, the more-focused company has about $80 million in annual sales.
The current thinking at the Grunau Co. precludes the pursuit of major projects like a Miller Park or a Midwest Express Center. Grunau holds strong opinions on the practice of "elephant hunting," targeting mammoth-sized projects.
"What happens is that you tie up your best people on those major projects in order to insulate yourself against the risks involved. The jobs are one-shot deals. As a result, you lose opportunities and long-term relationships to advance the interests of current customers."

Name: Paul Grunau
Title: President
Company: Grunau Co.
City: Oak Creek
Age: 37
Education: Brown University, 1987; MBA from Northwestern University, 1990
Company Revenue: $80 million
Employees: 400
Role Model: great sports coaches
Leadership philosophy: The best leaders are those who help make those around them better.

May 30, 2003 Small Business Times, Milwaukee

Facilities projects
Beaver Dam Community Hospital has hired Kahler Slater Architects, Milwaukee, for the transformation of its existing hospital campus, to include a $50-60 million major expansion and renovation project.
The existing facility has expanded several times over the past 80 years. Changes in health care delivery methods, staff shortages, changing patient demographics and changes in technology require that the facility be modernized to meet future needs. The modernization will be based around a hospitality model that creates a healing environment for the patient and family. The hospital will move from semi-private to private patient rooms with space for family members and nursing staff. The project also will include an expanded surgery department and outpatient services, centralized registration, meeting areas, medical office space and additional parking at a new main entry.
“A new, modern design is necessary to focus on the patient, staff and visitor experience,” said Dan Morgan, principal, Kahler Slater.
Briohn Building Corp., Pewaukee, has completed a 30,000-square-foot retail improvement for Always 99¢ in the New Berlin Plaza at 3350 S. Moorland Blvd., New Berlin.
Briohn also has completed a 4,350-square-foot private banking center for Merchants & Manufacturers BanCorp. with a retail office for the corporation’s Lincoln State Bank in the 1000 North Water Building in downtown Milwaukee.
The First National Bank of Barron has selected McCloud Financial Facilities, New Berlin, and HTG Architects, Eden Prairies, Minn., to design and construct its new 11,000-square-foot branch facility in Rice Lake. The design will incorporate the bank’s brand and image reflecting “Friendly Old Time Banking with a Modern Approach.” The new facility will offer a blend in materials by combining historic charm along with modern technology and retail synergy, along with five drive-through lanes. Construction will commence in June and is scheduled for completion in December.
McCloud Construction, New Berlin, is the general contractor for the new downtown Milwaukee nightclub Wet, being built on the 1100 block of North Water Street. The facility will feature a contemporary design with glass facade and a rooftop lounge. The first level will open to the sidewalk for outdoor seating. Construction is expected to be completed in August. The building is being constructed on a vacant lot between Fitzgibbons bar and McGillicuddy’s tavern.
The downtown Milwaukee design/build firm of La Macchia Group has been selected by First Security Credit Union to design and build a new office in Brookfield. The office will be located at 136th Street and Greenfield Avenue. Construction began the first week in May and will take several months to complete, said Ralph La Macchia, president of La Macchia Group. First Security Credit Union is currently located on Bluemound Road in Brookfield. The new office will be almost 6,500 square feet. The
current office will remain open until the new one is complete in early autumn.
Riley Construction Co., Kenosha, is in the final stages of completing the Union Grove K-8, Union Grove, school project. The 92,000-square-foot addition and remodeling of the existing school includes a one-story facility that will include a gymnasium, locker rooms, cafeteria, common area, offices, media center and 20 elementary classrooms. The project began in the spring of 2002 and will be dedicated in September.
The Milwaukee County Department of Public Works has awarded Riley Construction Co. the general contractor contract for the House of Corrections Industries Building addition in Franklin. The 10,000-square-foot addition to the House of Corrections Lotter Dormitory building will be used for a welding shop and painting shop, an industrial training facility for inmates. The project will be run by Riley’s Milwaukee office and will completed in November.
Riley Construction recently completed the design/build contract for the construction of a new warehouse building in the Lakeview Corporate Center, Pleasant Prairie, for Volkswagen of America. The facility is VW’s Parts Distribution Center for the Midwest region. The 250,000-square-foot warehouse/distribution center has 32 dock doors in a precast concrete building with a curtain wall glass front entrance which houses the office mezzanine. The project began in August 2002 and completed in April 2003.
KVG Building, Pewaukee, is the general contractor for a Jimmy John’s Gourmet Sandwiches restaurant at 767 N., Water St., Milwaukee
KPH Construction, Milwaukee, recently completed an upgrade of the life safety and fire prevention systems at Clement J. Zablocki Veterans Administration Hospital, Milwaukee. The construction company mentoed Bloch Construction, a woman-owned company, through the project. KPH earlier collaborated with minority-owned Kingman Construction as part of a project to provide sound dampening to houses near Mitchell International Airport. At Zablocki, the project entailed fire prevention updating in 22,000 square feet of space.
R.A. Smith & Associates, Brookfield, is providing construction services to the Wisconsin Department of Transportation for a $3.5-million interchange reconstruction at Highway 45 and Highway 167 in Germantown. The scope of work that R.A. Smith is overseeing includes raising the existing bridges two feet; widening the bridges and reconstructing a new bridge between the two existing bridges; widening Highway 167; adding left turn lanes at the approaches to the highway; and signalizing the north and southbound entrance and exit ramps. The project began in October 2002 and is expected to be complete by November.
May 30, 2003 Small Business Times, Milwaukee

Racine’s Vince Ruffolo promotes a culture of ownership at Superior

The first thing Vince Ruffolo does when he gets to work in the morning is hit the shop room floor. He doesn’t have to, really, given the fact that he’s president of his Racine-based company, Superior Industrial Coating Inc.
But Ruffolo does not believe in workplace class division. As far as he is concerned, all employees – whether management or floor crew – are vital to a company’s success. He has worked to create a culture in which all employees experience a sense of ownership in Superior, and that culture continues to foster business growth even in tough economic times.
"I wouldn’t ask my employees to do anything I wouldn’t do myself," Ruffolo said. "In order to get your employees to respond to business needs, you need to work shoulder-to-shoulder with them. You need to create an environment you would want to work in."
Superior Industrial Coating was founded in 1958 in Racine. It provides metal coating services to the automotive, electronic and hardware industries and counts Motorola, General Motors, Chrysler and Black and Decker among its customers. Ruffalo bought the company in 1990 in a move to make his entrepreneurial dreams come true.
Prior to joining Superior, Ruffolo had worked for big-name corporations – Nabisco, PepsiCo, Frito-Lay. But southeastern Wisconsin was part of his life; he’s native of the Kenosha area, and his wife is from Racine.
The Ruffolos were tired of moving around the country for Vince’s job, and Vince had always wanted to be an entrepreneur. So he did some research and found Superior.
"I knew the industry was growing and I thought this company would be a good fit for the long haul," Ruffalo said.
When Ruffolo bought the company, it contained 12 employees and was housed in a 30,000-square-foot facility. Today, Superior employs 65 workers and has expanded its facility to more than 80,000 square feet.
The company operates according to the principle of investing for the future. Investments may not produce immediate returns, but business owners must have a vision for what investments will pay off down the road, Ruffolo said.
That philosophy has helped Superior stay afloat against the current of international competition. Superior depends on products made in the United States, but business is being moved overseas to Third World countries where the labor is cheaper. For Superior to compete, Ruffolo invested in diversification, with the goal of making Superior a one-stop shop for its customers.
Since Ruffolo came on board, the company has added an in-house lab, increased the types of coatings it provides and added polishing and grinding services. The way Ruffolo sees it, it’s a better deal for customers to get a variety of services from one place.
Once the investment is made, it again is up to the employees to help make the investment worthwhile.
Ruffolo believes in keeping all employees in the loop of the inner workings of the company. Communication is key. Company-wide meetings are held regularly, and all employees are given radios so that they can communicate with each other throughout departments.
"We’ve been very successful in retaining employees because we’ve built a sense of ownership among them," Ruffolo said. "We want them to participate, know the customers’ demands and expectations, know what is going on in the business, both good and bad."
Employee communication has a party element to it at Superior as well. On employees’ birthdays, work stops for a time, and cake is brought in so that everyone can celebrate.
"It’s about showing that we care and appreciate our people," Ruffalo said.
Ruffolo sums up his philosophy toward employee relations by giving a nod to one of his business role models, Walter Cherry of the Cherry Corp., a Waukegan, Ill., supplier of electronic products to the automotive and computer industries.
"It’s not machines, not technology that makes a company tick. It’s people that make a company tick," Ruffalo said.

Vince Ruffolo, president
Superior Industrial Coating Inc.
Racine
Age: 48
Education: Bachelor’s degree, University of Wisconsin-Parkside; completed graduate courses at University of Wisconsin-Milwaukee
Employees: 65
Role model: Walter Cherry, Cherry Corp. (Waukegan, Ill.)
Leadership philosophy: "Create an environment for your employees that you would want to work in. Be willing to invest in your business for the long run."

May 30, 2003 Small Business Times, Milwaukee

St. Francis Bank absorbed by $5 billion Illinois bank

The Milwaukee bank that promotes itself as "small enough to care but big enough to get you there" may have to change the content of its advertising program. St. Francis Capital Corp. — parent to St. Francis Bank — is being acquired by MAF Bancorp Inc. of Clarendon Hills, Ill.
Bankers serving southeastern Wisconsin say the absorption of St. Francis will present pluses and minuses to those seeking commercial loans.
While the legal lending limit of the combined institutions will allow for financing of larger deals, local lending decisions may have to be made elsewhere, depending on how MAF manages its acquisition.
MAF, parent to Mid America Bank, will acquire St. Francis in an all-stock, strategic alliance. The transaction — which will expand MAF’s market presence into the Milwaukee area — should be completed by the fourth quarter of this year. St. Francis has assets of about $2.3 billion and 22 branch offices in Milwaukee and its surrounding areas.
Each share of St. Francis common stock will be converted into 0.79 shares of MAF common stock. Following the completion of the St. Francis acquisition and a previously announced acquisition of Chicago-based Fidelity Bancorp, MAF will have total assets of more than $9 billion and a market capitalization of approximately $1.1 billion.
Both banks are organized as savings banks and are focused heavily on real estate.
According to Wisconsin Business Bank chairman Russ Schuler, the merger will present advantages and disadvantages in the market.
"Nationally, any time there is a transaction like this, on the positive side it gives them a large legal lending limit," Schuler, whose organization has locations in Sheboygan and Green Bay, said. "In terms of the decision making, the decision making is left alone for a year or two and after that it is more centralized and disciplined."
Conrad Kaminski, president, Merchants & Manufacturers Bancorporation, Milwaukee, said that while St. Francis Bank will continue to operate under its own nameplate, some elements of the consolidation could result in the loss of local control.
"It depends on how MAF is going to treat them," Kaminski said. "In our organization, when we purchase a bank, we leave the name in place. We leave the board in place. We keep the charter in place. Each one has its own charter, its own $100,000 of FDIC deposit insurance."
Jon Sorenson, executive vice president and chief financial officer at St. Francis Bank, said his bank will operate under MAF’s charter. St. Francis Bank’s board will eventually be dissolved.
"Our full board will be an advisory board for one year," Sorenson said. "Our bank will merge into their bank."
But Sorenson stressed that St. Francis Bank’s commercial bankers and lending decisions would stay in the Milwaukee area – at least until a deal to be financed gets big enough to require involvement of the Chicago office. Sorenson could not identify how large a deal would be before the decision would be kicked upstairs to MAF.

May 30, 2003 Small Business Times, Milwaukee