Business is booming at Atlanta-based Birch Communications, a provider of telecommunications services to small and midsized companies.
The privately held firm, founded in 1996, has grown 350 percent over the last six years, with 2012 revenues pushing $200 million, and it has more than 100,000 business customers in 38 states. It was named by Inc. magazine as one of America’s fastest-growing private companies in 2004, 2009, 2010, 2011 and 2012.
Part of the company’s expansion can be attributed to organic growth, business generated internally by the company. Birch President and CEO Vincent Oddo said organic growth has been less than 10 percent a year, although in July Birch reported its best organic sales quarter ever, an 18 percent gain compared with the same period the year before.
But a key factor in the company’s growth has been acquisitions — Birch buying out other companies.
The firm has made 16 acquisitions in the last six years, and it is on the lookout for more.
“We can grow much more rapidly through acquisitions,” Oddo explained.
Other companies can, too. Those that have a strong core business, a capable management team and the financial capability to make acquisitions are finding a target-rich environment. Some targets are growing, profitable companies themselves, while others, damaged by the post-recession economy or swept up in an industry’s consolidation, are looking to sell out and move on.
Tom Stallings, who was CEO of a prosperous firm, Atlanta-based EasyLink Services International, said his company made eight acquisitions in eight years. Then, this year, it was bought by OpenText, a larger Canadian company, in a $310 million transaction. Stallings said public companies like his need to show recurring growth to satisfy shareholders. In the current economy it can be difficult to grow organically, he noted, making acquisition an option.
In addition, medium to large companies with cash to deploy are looking to make acquisitions. EasyLink drew interest from more than a dozen companies, he said.
Another local company growing in part through acquisition is Atlanta-based Arrow Exterminators.
Chief Operating Officer Tim Pollard said the privately held, third-generation family-operated firm is a $112 million company that wants to grow to be a $200 million company.
One way it’s getting there is by buying other firms. This year, Arrow, which was founded in 1964, has made four acquisitions totaling $5 million. Having made 97 acquisitions in 25 years, Pollard said, “We know a little bit about it.”
The acquisitions haven’t only boosted company revenues, they have expanded Arrow’s geographic footprint. Purchases of smaller pest control companies this year in North Carolina and Florida, for example, took Arrow into markets where it previously did not do business.
Arrow now has 70 locations in nine states.
As bullish as Pollard is on acquisitions, he, like other acquirers, said the strategy is no guarantee of success and that there are many cautions.
For one thing, Pollard said, an acquiring company must be mindful of its own internal growth. “We want to make sure we are healthy and growing [organically] and not just covering things up with acquisitions.”
It’s also critical to buy a company that is a good fit, and to first do the due diligence to assure that the acquired company’s management and employees are on board with the goals of the new ownership.
In its acquisitions, Birch Communications integrates its systems, customers and personnel with those of the acquired company even before the deal is formally closed. Oddo calls that a key to the company’s success.
He also said that, when making an acquisition, it’s important to act decisively and swiftly.
One mistake acquiring companies can make, Oddo said, is “trying to tiptoe through” during the early stages of a deal, thinking, “Let’s see how this works.”
He called that method “complete death in terms of successful integration.”
One word that inevitably comes up in discussing acquisitions is culture. Making sure that the two firms coming together have a cultural fit is critical, business owners and brokers agree.
“It’s more than the economics that make a deal a success or failure,” said Vince Sbarra, president of StreetCapital, a Roswell-based investment banking firm. Acquisitions, he said, are “almost like a marriage.”
Jim Rubright, CEO of RockTenn, a Fortune 500 Norcross-based packaging manufacturer that has grown significantly through acquisitions, noted how in one deal he eventually decided he had to replace the leadership of the acquired company because of clashing company cultures.
“Let’s be real,” Arrow’s Pollard said. “It’s not always going to be a great fit.” Executives at other acquiring companies agree that not every deal works out perfectly from the start.
For Arrow, Pollard said, finding a cultural fit means finding companies with a “family mindset” — businesses that focus on their employees and give back to the community.
Done right, acquisitions can drive a company’s growth.
Said Oddo, “It’s definitely been a good strategy for us.”
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