MCS’ CEO on His Strategic Acquisition of Five Brothers

Craig Torrance: Number one, you have to know and understand the company. Five Brothers is well known in the space that we’re in, and they’ve been around for 50-plus years. They’ve always been one of the companies that made sense for us. Number two, you dig into the financials with what I call the “one plus one equals three” mindset. You think, this is bringing in a competitor and its market share, it’s leveraging efficiencies, it’s taking the talent from both organizations that we can overlay together. Number three is culture—will it fit, or will the body reject the organ? For that, you have to sniff around and dig deeper. Ultimately, you’re rolling the dice a bit and hoping that you can make both businesses better than they were standing alone.

MME: Can you share a bit about your plans for integrating Five Brothers into your operations?

CT: The first piece, which I think is the hardest one, is the technology platforms. When you’ve got different technology platforms, you’re either trying to grab all the information from one and put it in the other, or you’re trying to do what we’re trying to do, which is keep the best parts from each. The second piece is processes and workflows. In these long-tenured businesses, there are 50 years of learning and finetuning the process, and you need to understand that and not just throw the process away. There’s careful dissection of why you do that today and if that process still fits the new, combined entity. The final piece is putting great people in the right seats. You have great people in both organizations, but sometimes you have to move the seats around a bit and hope that you can find a great fit and they can excel.

MME: What type of growth strategy will you be pursuing? Do you have plans for similar acquisitions going forward?

CT: We have a five-year growth plan—we’ll always be looking for acquisitions at the right value that fit the business, but I would say the bigger part of it is the organic growth plan. When you look at organic growth drivers within each market, you’re looking at the addressable market, the pain points you’re trying to solve within that market, your competitors, your value drivers, and then the actual sales and operational execution of that value once you have customers. We went into the single-family rental (SFR) space two years ago with no customers, just an idea, and today we work with 28 of the top 30 SFR owners in the country. We looked for an unlocked opportunity and then built a solution around that, and that organic growth driver creates greater value for the business than the M&A piece. There’s a third part, which is efficiency, margin expansion, cost management, etc., but organic growth and M&A growth are the two main pieces of our plan.

We looked for an unlocked opportunity and then built a solution around that, and that organic growth driver creates greater value for the business than the M&A piece.

Craig Torrance

MCS

MME: Where do you hope to expand?

CT: Each segment of the business has its own growth plan. Take SFRs: We have 25 service centers and 25 markets that we serve. We could have 50. So growing the business geographically is an area where we can expand. There are also completely new verticals that we’ve approached. One is offering property services to the federal government, and we’ve won some contracts in that space. The U.S. government spent $35 billion on building maintenance last year, so being able to tap into that is huge. Another is a direct-to-consumer model that we piloted in Arizona that we’re expanding into a lot of markets this year, where we do remodels, home maintenance, small additions and casitas. There are homeowners today looking for these services, and the only places they can go are aggregated websites or to contractors via word of mouth. We’re coming at this as a national provider of these services, standing behind our word, with service centers across the country. There are other verticals we’re looking at—student housing, for instance. Anywhere there’s a building, we see an opportunity.

MME: What challenges are you facing in the property services space and how are you planning to drive growth despite those?

CT: Labor is still hard to find in certain trades—it’s certainly easing up but still nowhere near where it needs to be. We’re working through that with referral programs, and our service center markets can source people locally versus the campaigns we’ve had in the past where we’ve tried more of a national approach. There’s also a challenge in how rapidly technology evolves. At every site we work in, there are different technology needs and different levels of technological maturity. We work with financial institutions and U.S. government clients that are very conservative and have very strict processes and older systems; SFRs, which are a very new market with unevolved systems; and big commercial entities like Starbucks and Best Buy that are moving very quickly with technology. Being able to have a singular platform that does it all for all these clients is a challenge, and we’re approaching that by increasing our investment in technology. I think that will yield significant returns in the next five years and will drive our future.

This conversation has been edited and condensed for clarity.

Hilary Collins is ACG’s associate editor.

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