Companies feel the ups and downs of mergers and acquisitions -- Gazette.Net


When it comes to corporate acquisitions, Ruppert Landscape has been on both sides of the deal.

In 1998, the Laytonsville landscaping company sold its services, customer lists and equipment to ServiceMaster/TruGreen. Ruppert retained the properties that it had developed on the way to building a then-$47 million company with 14 branches from its origins as a Chevy Chase lawn-cutting startup in 1971.

In 2003, Ruppert re-entered the commercial landscape market after a non-compete clause with TruGreen expired and made several acquisitions of its own, including two this year of businesses in North Carolina. Sales at the 700-employee company reached about $64 million last year.

“We picked a company [to sell to in 1998] that we thought aligned with us beautifully,” said Chris Davitt, president of Ruppert Landscape, who started working for the business in 1973 at the age of 12. “But we found that the match we thought we had wasn’t a perfect match. ... We learned from that. It helped us with the process when we acquired companies ourselves.”

This year has seen more big acquisitions involving Maryland companies than in recent years. In fact, the value of mergers and acquisitions involving Maryland businesses that publicly disclosed purchase prices that have been completed through August hit $27.8 billion, more than in the entire two previous years combined, according to Norwalk, Conn., financial data company FactSet Research Systems. The total also is more than pre-Great Recession years, including 2005, when the value was $26.8 billion.

And this year’s total doesn’t include deals that have yet to close, such as the $5.7 billion planned sale of Bethesda medical insurance company Coventry Health Care to health insurance giant Aetna of Hartford, Conn., announced last month. Coventry would be the third Fortune 500 company in Maryland to be acquired in a year or so, with Constellation Energy Group of Baltimore and Rockville pharmacy benefits manager Catalyst Health Solutions being bought in purchases completed this year.

Four acquisitions involving Maryland companies valued at more than $1 billion have been completed so far this year, one fewer than last year and three more than in 2010.

Key factors driving the increase are deep-pocketed investors and the relatively low prices of target companies, said Anil K. Gupta, the Michael Dingman chairman in global strategy and entrepreneurship at the University of Maryland, College Park.

“Investors are sitting on a lot of money,” Gupta said. “Asset prices are low compared to what they once were. The economy is slowly getting better, but it’s not a robust economy.”

Not all lead to layoffs

Recent studies have yielded conflicting conclusions on whether most acquisitions and mergers lead to employee layoffs and reduced sales, particularly at the target company.

Market-extension acquisitions, in which a business extends into a new market by buying another, generally do not result in many employee layoffs or consolidations because the acquiring company is entering a new geographic market, Gupta said.

“The acquiring company will likely make more investments in the target company. The acquisition is only the first step,” he said.

That was the case at MedImmune, the Gaithersburg biotech that was bought for $15.6 billion in 2007 by AstraZeneca of London. Since then, MedImmune has kept its base in Gaithersburg under a new division and bills itself as the “global biologics arm” of AstraZeneca.

MedImmune, which produces Synagis, a drug targeting respiratory infections in children, and the nasal spray influenza vaccine FluMist, now has some 3,500 employees worldwide. That’s about 1,100 more scientists and other workers than in 2007, with employment in Maryland rising from 1,400 in 2007 to 2,400 currently, said Tracy Rossin, a company spokeswoman.

Since it was acquired, MedImmune has greatly expanded its Frederick manufacturing facility and recently opened a new 308,000-square-foot research and development laboratory in Gaithersburg that achieved the U.S. Green Building Council’s Leadership in Energy and Environmental Design Gold certification. Some key employees, including former CEO David M. Mott, since have moved on to other businesses.

Some do involve staffing cuts

Some market-extension purchases still can involve staffing cuts, especially if there are cross functions such as in accounting and human resources, Gupta said. Rockville biotech Human Genome Sciences, which was bought this summer by GlaxoSmithKline of London for $3.6 billion, last week filed notice with the state of 114 layoffs in Rockville by Oct. 30.

Executives with Constellation and its new parent, Exelon of Chicago, told state regulators last year that there could be as many as 600 job cuts after the $7.9 billion sale was completed. That deal was finalized in March.

But it’s the acquisitions that involve similar employers in the same market that can lead to significant layoffs, Gupta said.

“There is a huge difference between those two types of acquisitions,” Gupta said.

For example, the banking and financial industry has seen significant consolidation and employee cuts in Maryland in recent years, losing about 20,000 jobs in the state in the past six years, according to federal labor figures. Although many cuts were fueled by the Great Recession and related changes, new technology with more people banking online also has contributed.

Capital One Financial of McLean, Va., completed its purchase of the former Chevy Chase Bank of Bethesda in 2009. Chevy Chase had 153 branches in Maryland in 2008, according to the Federal Deposit Insurance Corp. Capital One was down to 129 offices in the state in 2011 and filed notice that it plans to lay off 80 employees at a home loan office in Bethesda by early November.

The banking giant is making operations more efficient, such as consolidating home loan functions, said Julie Rakes, a spokeswoman for Capital One.

Other banks have trimmed branches in the state. M&T Bank of Buffalo, N.Y., saw Maryland branches drop from 255 in 2009 to 211 in 2011 after it bought the former Provident Bankshares of Baltimore in 2009. Bank of America of Charlotte, N.C., went from 195 offices in 2008 to 192 in 2011. First Mariner Bank of Baltimore dropped from 26 in 2008 to 23 in 2011.

M&T’s branch network “evolves constantly,” said Philip Hosmer, a bank spokesman. The bank has made several other purchases since the Provident deal.

“It changes whenever we complete acquisitions, when we build new branches and move or consolidate others, and when we add new technologies,” Hosmer said.

M&T does have numerous job openings in Maryland, with more than 100 listed on its website.

Tech, banking ripe for deals

Then there are mergers, which involves companies of roughly equal size that usually form a new entity in a symmetrical relationship. A merger does not tend to include a premium price paid for one company, unlike many acquisitions, Gupta said.

Some industries are riper by nature for mergers and acquisitions, such as high-tech, manufacturing, banking and airlines, Gupta said. Tech giant Google completed about one purchase per week in 2010 and 2011.

The health care field also is seeing its share of deals, with some worrying that such consolidation will reduce the potential for greater competition in the sector at the very time that officials hope competition improves quality of care and keeps prices down. Although that may be true, consolidation can make an industry more efficient and eventually benefit consumers, Gupta said.

“That leads to economies of scale,” he said. “Efficiencies are good for the economy and the customer.”

Careful approach

Ruppert Landscape employs a careful approach when working on a potential purchase, Davitt said.

“You have to remember that every employee and customer has a choice of who to work with,” he said. “You have to work hard to make sure they know we understand that and we earn their respect.”

Ruppert has tended to keep local employees, especially in new markets such as North Carolina where they have the experience, knowledge and contacts. In the recent purchase of New River Landscape of Raleigh, N.C., Ruppert plans to retain those 24 employees, Davitt said. Besides having a series of talks with employees there, the company hosted a more informal barbecue to get better acquainted.

“We want to take what they do well and ... meld it together,” Davitt said. “We have to grow together.”

In 2006, Ruppert purchased Rosetta Landscape of Rockville, and many of those roughly 20 employees still are with Ruppert, Davitt said. While Ruppert has made some nine acquisitions in its roughly four-decade history, most of its growth in revenues has come organically, he said.

“You don’t want to bite off more than you can chew,” Davitt said. “You don’t want acquisitions to be the majority of your growth.”

Although some purchases have been more challenging, they have worked out well, he said.

“I can’t think of one I wouldn’t do again,” Davitt said.

In the large majority of acquisitions, the former owner or owners of the target business does not remain with the new one for long. That has been the case in most of Ruppert’s purchases, Davitt said.

“They have chosen to pursue other opportunities,” he said. “They are entrepreneurs who like that role.”

The purchases particularly work well in new markets such as North Carolina, where Ruppert is not established, Davitt said.

“The early years are usually not profitable,” he said. “The sooner we can get to a certain size, the better. That’s one reason acquisitions are better for us in a new market. They already give us a portfolio.”

Surveys show that in a majority of mergers and acquisitions, the new owners do not follow through on what they said they would do, said Jim Finkelstein, president and CEO of San Rafael, Calif., management advisory and consulting firm FutureSense. That can create a nonproductive environment that breeds mistrust and finger-pointing, he said.

“A successful integration comes down to people and how they communicate,” Finkelstein said.