MCS CEO on the strategic acquisition of Five Brothers

Craig Torrance: First, you need to know and understand the company. Five Brothers is well known in our area and has been around for over 50 years. They were always one of the companies that made sense for us. Second, you dive into finances with what I call a “one plus one equals three” approach. You think it attracts a competitor and its market share, increases efficiency, takes talent from both organizations that we can combine. Number three is culture – will it fit or will the body reject the organ? To do this, you need to sniff and dig deeper. Ultimately, you roll the dice a bit and hope that you can make both companies better than they were on their own.

MME: Can you share some information about your plans to incorporate Five Brothers into your business?

CT: The first element, which I think is the most difficult, is the technology platforms. When you have different technology platforms, you either try to take all the information from one and put it into the other, or you try to do what we try to do, which is keep the best parts of each. The second element is processes and workflows. In long-established companies, it takes 50 years of learning and process refinement, and you need to understand that, not just dismiss the process. There’s been a thorough analysis of why you’re doing it today and whether the process is still a fit for the new combined entity. The final element is putting great people in the right places. You have great people in both organizations, but sometimes you have to move around a bit and hope that you find the right candidate and they can be successful.

MME: What type of growth strategy will you pursue? Are you planning similar acquisitions in the future?

CT: We have a five-year growth plan – we will always look for acquisitions that are the right value and fit for the business, but I would say the bulk of it is an organic growth plan. When you look at the organic growth drivers in any market, you look at the addressable market, the problems you’re trying to solve in that market, the competition, the value drivers, and then the actual sales and operational realization of that value once you get the customers. We entered the market of space for rent for single-family houses (SFR) two years ago without clients, only with an idea, and today we cooperate with 28 of the 30 largest SFR owners in the country. We looked for unlocked opportunities and then built a solution around them, and this organic growth factor creates more value for the company than the M&A element. There is a third part, which is efficiency, increasing margins, managing costs, etc., but organic growth and M&A growth are the two main elements of our plan.

We looked for unlocked opportunities and then built a solution around them, and this organic growth factor creates more value for the company than the M&A element.

Craig Torrance

MCS

MME: Where do you hope to grow?

CT: Each business segment has its own development plan. Take SFR for example: we have 25 service centers and 25 markets that we serve. We could have 50. So the geographic expansion of the company is an area where we can grow. There are also completely new industries that we have reached. One of them offers real estate services to the federal government and we have won several contracts in this area. Last year, the U.S. government spent $35 billion on building maintenance, so the opportunity to leverage that money is huge. Another is a direct-to-consumer model that we piloted in Arizona and is expanding to multiple markets this year where we do remodeling, home maintenance, small additions and residential homes. Homeowners today are looking for such services, and the only places they can go are bulk websites or contacting contractors through word of mouth. We approach this as a national provider of these services, keeping our word and having service centers throughout the country. There are other industries we are looking at – student housing, for example. Wherever there is a building, we see opportunity.

MME: What challenges do you face in the real estate services industry and how do you plan to drive growth despite them?

CT: Labor is still hard to find in some industries – things are certainly improving, but things are still not where they should be. We work on this through referral programs and our service centers can source people locally, unlike the campaigns we have run in the past where we have tried a more national approach. The rapid development of technology is also a challenge. In each plant where we work, there are different technological needs and different levels of technological maturity. We work with financial institutions and US government clients who are very conservative and have very stringent processes and legacy systems; SFRs, which are a very new market with undeveloped systems; and large commercial entities such as Starbucks and Best Buy, which are growing rapidly thanks to technology. Being able to have a single platform that does everything for all of these customers is a challenge, and we are getting closer to it by increasing our investment in technology. I think this will bring significant returns over the next five years and will determine our future.

This conversation has been edited and condensed for clarity.

Hillary Collins is deputy editor of ACG.

The Middle Market Growth program is created by the Association for Corporate Growth. To learn more about the organization and how to become a member, visit www.acg.org.