Near-Death by Acquisition
By Hanson Ansary, CEO, The Maxxus Group, Chicago, Ill.
I own the Maxxus Group, a $10 million company that operates five subsidiary firms. Our primary business is Global Management Services (GMS), an event management services business catering to executives. I acquired that business in 2002, and soon began looking for complementary businesses to purchase.
When I shop for acquisitions, I focus on the value they will add to my existing companies -- two plus two should equal more than four. But, as I've learned the hard way, it's much more difficult than it seems to make sure you don't end up with something that adds up more like two plus two equals three.
Culture clash
I acquired the travel agency Ultimate Travel, Inc. in 2008 because I thought it looked very attractive on paper: The revenue was high, it had been around for 17 years, and it had a large client book. I also thought that adding a travel agency to my hospitality-focused holdings would help both businesses grow. But I didn't do my due diligence in researching the company before buying it.
The company's owner misrepresented how well it was doing, and led me to believe that the transition would be much easier than it ultimately was. And I didn't dig deep enough. The business model was obsolete for the industry: While most travel agencies were focused on Web services, this company had a brick-and-mortar focus. That meant it had more overhead than its competitors, and wasn't set up to take advantage of online sales growth.
I'd believed that because GMS hosted corporate events, we would be more profitable if we could also help our executive clients travel to the events. It seemed like the two businesses had a natural synergy, but the travel company's structure tied my hands more than I expected.
I also didn't realize how difficult it would be to shift the company's clientele. Ultimate Travel's consumer base was primarily focused on leisure travel when I bought it. For it to work with my other businesses, I needed it to specialize in business travel. I encountered a lot of resistance when I tried to implement that shift, particularly from the company's existing staff.
For instance, if a customer called to book a leisure trip, I would tell an employee not to work with him as I wanted to focus exclusively on the corporate market. The employee would complain, "But he's been loyal to us for 17 years!" The entire staff had great difficulties adjusting to the business's new direction. The culture simply wasn't the right fit.
Plugging a sink hole
The acquisition caused immediate problems. Putting out the various fires and trying to deal with the culture clash monopolized most of my time, causing the other businesses to lose focus. Even worse, the travel agency's operating costs were so high that it was draining money from the other businesses as well.
Attempting to shift the client focus cut the agency's revenues substantially, creating an even bigger money sink. This acquisition had the potential to derail my entire company, and I knew it would take drastic measures to right the ship.
In the end, I decided to lay off all of the employees at Ultimate Travel. The entire staff is new, and consequently, they're committed to a new philosophy that's focused only on serving the interests of the parent company, which is the aim of all of my acquisitions.
To fulfill our goal of serving only corporate clients, we've raised our booking rates for individual fares substantially. Previously, if an individual wanted to book a leisure trip through the agency, we charged just $25. Now, we charge $200 to book an individual airfare, which has successfully driven our previous customers to find cheaper alternatives. If they do insist on booking through us, it's profitable enough to be worthwhile.
In hindsight
I've finally managed to integrate Ultimate Travel with GMS, but it's taken a considerable effort to align the interests of these two very different businesses.
After two years of hard work, Ultimate Travel has finally turned a profit, and I'm hopeful it will stay that way. I fell into the trap of looking only at the business's revenues, rather than the overall financial picture. I should have taken a closer look at how well the company's culture would integrate with the parent company, and asked the owner more questions before signing the contract. In retrospect, I never would have purchased that company.
Hanson Ansary is the former President and CEO of the Chicago-based video production and entertainment company CVi. Prior to that he was, respectively, the CEO of a national occupational health company in Wyoming and the CEO of Ameri-Comm Enterprises, an Ohio-based telecommunications company.
-- As told to Kathryn Hawkins
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