AmSan On the Record: An Interview with Michael Mulhern
When AmSan LLC arrived on the jan/san scene in the late 1990s and began buying up independent jan/san distributors at a stunning pace, industry observers were skeptical. They wondered whether the newly formed conglomerate — the first and only national jan/san player — had what it takes to survive in a jan/san marketplace dominated by local and regional independents. Similarly, was it even possible to successfully mesh the cultures and logistics of 44 drastically different companies?
The company — which personified the consolidation frenzy of the time — has since been a continuing source of interest and speculation within the industry. In spite of the rumors and hearsay that have surrounded its financial health, industry observers — and AmSan’s competitors — know very little about the company, or its successes and stumbling blocks.
AmSan executives are ready to break their silence and tell the public what it wants to know about the events that shaped the past eight years. SM recently sat down with AmSan’s CEO, Michael Mulhern, for an enlightening look at the strategy — and the brains — behind the company’s recent remarkable turnaround and ambitious growth plan.
A National Player is Born
AmSan’s journey hasn’t always been smooth. There are inherent “growing pains” in building a company like this, but, company executives say, the company has surmounted the struggles associated with consolidation and integration. Now, executives of the $300-million company are confident that AmSan has hit its stride and is poised for record growth.
But before getting in to how they did it, let’s look at how the company came to be. In 1997, GTCR, a private equity firm, recruited John Muthe to spearhead the “roll-up” consolidation of the highly fragmented jan/san market, and to build a national platform — AmSan. Five years later, and after acquiring 44 companies, Muthe retired, and GTCR approached Michael Mulhern, a 20-year distribution veteran, about taking the reins of the fledgling company. Mulhern accepted, moved the company’s headquarters from Raleigh, N.C., to Chicago, and began devising a plan to put the company on a course toward rapid improvement.
In 2003, Mulhern launched his plan into action.
His first problem: many AmSan locations were still operating autonomously. Because of this, the company was not operating to its full potential.
Still, the situation was far from bleak, Mulhern notes. In 2002, the company was as profitable as the average industry distributor, according to numbers published in the SM/ISSA Distributor Profitability Report. But that wasn’t good enough for Mulhern.
“Here’s the problem with that. The average distributor back in 2002 had revenues of $3.5 million. We were almost 100 times larger than that, and we were performing at the same profit levels. That is mediocre performance,” Mulhern says.
Reform started at the top. The company turned over 40 percent of its top 35 executives.
“I had to make sure we had the best talent on the field to win this game — [people who] believed in the vision, shared our values and who were committed to making this a great company.”
Once those personnel changes were in place, Mulhern looked at implementing strategies to improve customer satisfaction and achieve optimal financial performance. Within a single 120-day span, the company downsized by consolidating back-office functions, divested or closed unprofitable locations, rationalized its customer base, and virtually restructured the entire company.
After making these difficult changes, AmSan is now looking forward to continuous improvement.
“We’re not there yet,” Mulhern says. “I see so much opportunity in front of us that we’re not at the point of incremental improvement. We’re still executing our game plan, and I love where we’re at.”
How They Did It
Following its 44 acquisitions, AmSan was challenged with integrating these companies. This was a period of vigorous change for the locations, for the corporate culture and for the company’s customers and vendors. When all was said and done, AmSan had divided its acquisitions into divisions — 23 in all.
One of the most significant productivity-enhancing changes resulted from examining the company’s expansive resources and creating benchmarks based on the best practices documented among the divisions.
“We looked at each department and evaluated productivity across all 23 divisions to find the best-performing divisions in terms of productivity,” Mulhern explains. “From that information, we made decisions on how we would restructure the company.” Some of this reorganization included eliminating operational redundancies.
Downsizing involved taking duplicate back-office functions such as accounting, payroll and finance and consolidating those efforts into one location. The company also analyzed its customer base, identified unprofitable customers, and either made them profitable, or cut them loose.
Locations were rated on their performance, and AmSan divested or closed four locations. It rationalized its vendor base, reducing it from 1,200 to 700, and integrated its IT systems.
Finally, to unite its team and message, the company merged all legal entities into AmSan LLC and dissolved the legal names of former companies.
As for industry misconceptions during the tumultuous times? “People, early on, perceived all the changes we’ve gone through as chaos in the absence of clear communication,” Mulhern says. “All the changes we implemented were part of a very specific game plan that was laid out to turn AmSan into a terrific company.”
More change was to come, much of it involving a unification of the company’s sales message. The company reengineered its go-to-market strategy with a revolutionary marketing plan — one that is propelling the company’s current success.
“Back in 2002, we belonged to Triple S,” Mulhern explains. “Some locations supported it [and its products] and some did not. I couldn’t understand why we didn’t have our own brand.” A private brand offers numerous advantages, and a $300 million company has the marketing infrastructure necessary to support such a brand, Mulhern contends. So AmSan created and launched its own line of private-label products, Renown, a category that now represents 20 percent of the company’s total revenue.
The company then produced 23 versions of a four-color product catalog containing products unique to each distribution facility — a formidable and costly task, says Mulhern.
Company executives also developed the Proforma Cost Management Program, a sales method that allows AmSan salespeople to analyze customers’ buying patterns and streamline product purchases and related costs.
In March, the company launched its customer online-ordering Web site, e-Access. Since its launch, 5 percent of revenues are going through the system. “We anticipate it will be 15 percent by the end of the year,” Mulhern adds.
While AmSan executives admit there were some initial rough patches during the company’s infancy, they say that’s attributable to normal “growing pains” associated with any aggressive acquisition strategy. Moreover, they’re confident about the company’s future.
“In 2006 and beyond, I’m really bullish about the growth of this company,” says Mulhern. “I think we’re incredibly well poised; 2005 is the first year in our strategic growth phase and 2006 is when we really start to take off. I anticipate in 2006 and beyond we’re well positioned for double-digit growth each year.”
The company may be well on its way. According to company estimates, 2005 will represent the third consecutive year operating profit increased by more than 25 percent.
How will the company sustain such growth? While the company has no immediate plans to take the company public, acquisitions are a strong possibility, in addition to the organic growth the company anticipates.
“We are pursuing a consolidation strategy,” affirms Mulhern. “We love the concept of the fold-ins or tuck-ins. To take smaller companies — $1-$3 million in size that are looking for an exit — and to tuck them into existing warehouse operations.”
Mulhern would not elaborate on a timeline for acquisitions, but says: “We’re also looking at regional acquisitions, but in a very selective way. We’re looking at a couple right now, and where we see the right cultural fit and the right go-to-market strategy that’s complementary to ours, we’ll invest in regional companies.
“We have a proven acquisition model with the ability to successfully integrate,” he continues. “We’ve learned a lot. We’ve done some things well, and we’ve made some mistakes. As you integrate companies, as you go through and gain experience, it really helps you on a move-forward basis.”
Legs To Stand On
Mulhern believes the foundation is now in place to reach new heights in terms of company performance.
AmSan’s position as the only national distributor specific to the jan/san industry puts the company at a strategic advantage, Mulhern says, partly because AmSan can service local, regional and national accounts.
“There are several regional jan/san companies, but by and large, this industry is comprised of individual, independent companies. When it comes to being a jan/san-core company with a national platform, we’re it.”
The biggest advantage of a company of such scale is its ability to develop meaningful benchmarks.
“We have the ability to leverage best practices across all divisions. I can look across 23 divisions and look at inventory management, and look at who rotates their inventory the fastest.” Executives can then figure out ways to apply those methods to the rest of the branches.
AmSan’s investment capability has also spurred its growth.
“We have the ability to invest millions of dollars in the company to create competitive advantage.” Mulhern cites the product catalogs, private-label brand and Proforma strategy. “A smaller independent doesn’t have the ability to do that,” he says.
Mulhern attributes some of AmSan’s success to its ability to grow and change.
“Businesses constantly have to be in a state of transformation,” Mulhern says. “If you don’t, you get stale and you lose. That’s why we’re beginning to win. We’re changing faster than our competitors.”
AmSan’s current success, according to those closest to it, was a function of time — a necessary component in aligning so many acquisitions — and its strong leadership team.
“All the answers to this company existed before I got here,” says Mulhern. “The answers were there; it’s just how to find them, and how to get the team to execute them.”
|The players |
AmSan’s employees deserve the credit for making the company the success it is today, says AmSan CEO Michael Mulhern. Much of that credit goes to his team of six regional presidents — called the corporate executive council (CEC) — who oversee the day-to-day business of their own operations, and who are also responsible for the rest of the locations within their given region.
Four of the six CEC members are former owners of their companies, which helped foster continuity during the transition period after AmSan acquired them (some also were involved in some of AmSan’s strategic acquisitions after selling their own businesses).
Shelley Riha is region president for the central and northwest AmSan divisions. She also manages AmSan Nogg Chemical & Paper in Omaha, Neb.
The benefits of working for a large company are the resources available, says Riha, but she also appreciates that she can still function somewhat autonomously.
“We’ve tried to maintain local flexibility,” she says. “I feel that I have the ability, as a region president, to do some of the things at a local level that I would do as a business owner.”
The company’s leadership is “flat,” she says, meaning there isn’t a lot of bureaucracy or levels of management.
AmSan executive leadership includes the CEO, CIO, CFO and senior vice presidents of human resources, corporate sales, and operations. After that, there are the six region presidents who oversee regional managers at the locations within the region.
Matt Vonachen, region president for the Midwest, runs AmSan Vonachen-Elton in Peoria, Ill. His company was family owned since 1947; AmSan acquired the company in 1999.
He agrees that the road has been rocky at times, but that the company is now on a winning course.
“It takes time when you buy that many companies,” he says. “We sought to buy the premier jan/san companies in these markets, and it’s hard to build that culture. It took us several years to do that,” Vonachen says.
David Eve, region president for the southwest, heads up AmSan Eve in Tulsa, Okla. His company was AmSan’s second acquisition, and Eve then took part in AmSan’s subsequent acquisitions.
Eve says getting over the nostalgia and ego involved in selling a family business was his greatest concern, but once he became part of AmSan, he didn’t miss a beat. He had a new mission, and that was to build the company from the ground up. It wasn’t always easy.
“I think that the truth is that two years ago, we were underperforming from the standpoint of an outside investment group,” he says. “That’s no longer the case whatsoever.”
Riha has no regrets about her decision to sell, even though she acknowledges it was a risky move.
“What you don’t understand, you become fearful of,” she says of AmSan’s critics. “Was it a high-risk thing to do? Certainly, it was. But honestly, it was the best thing we could have done … In hindsight, it was an excellent decision for us,” she adds.
Talking with AmSan’s regional presidents, one gets the sense that each is happy with the decision they made to be part of a bigger team. But each also appreciates the level of autonomy they retain. — S.S.
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