A Cutting-Edge Merger Abroad

By Shu Shu Costa

It was love at first sight. But Wahl Clipper, a 78-year-old manufacturer of hair trimming products, did a full-blown due diligence before acquiring Moser, a 100-year-old German competitor.

Some of the best marriages begin with a surprise proposal. On a cold February day in 1996, at a Paris trade show, Greg Wahl, 45, received an astounding proposition. The third-generation chief operating officer of Wahl Clipper Corp., an international manufacturer of personal care products based in Sterling, Illinois, was minding his own booth when one of his European competitors offered to drive Wahl eight hours to Germany to show him his factory. “His factory,” says Wahl, still shaking his head, “not his office. It was unheard of.” Wahl hemmed and hawed. He had more discussions with the German company, a few of which included his 70-year-old father, Jack Wahl, the president and CEO. Jack is more direct than his son. He came right out and said to his competitor, “Are you telling us you're for sale?”

He was. Jack, for one, was skeptical. “I didn't think it would amount to much,” he recalled in an interview. “From what I'd read, Germany was a terrible place to manufacture. I guess I just didn't think Greg would find such a perfect match.”

“Come on,” says Greg. “It was a once-in-a-career chance to have a shot like this. To get the opportunity to tour the factory; that alone was worth it.”

Eight months later, on October 16, Wahl announced the acquisition of Moser Electrogerate GmbH, an international manufacturer based in Unterkirnach-Schwarzwald, Germany. The two seemed right for each other from the start. Both are long-time makers of grooming gadgets for consumers and professionals, from electric hair clippers and trimmers to massagers, shavers, and animal haircut products. Wahl, with 1,600 employees worldwide and sales over $110 million, and Moser, with 350 employees and sales of $35 million, are both family owned businesses strongly committed to their values and their employees.

The two had even done some business together in the past. Three years ago Moser had approached Wahl to sell its top-of-the-line shavers to a U.S. department store, but the deal never worked out. Now, the timing seemed right. Albert Ebner, president of Moser, was looking to retire. His three daughters were not interested in the business, and the one son-in-law who worked there did not have the right professional background for managing the company.

In the end, as in any marriage, it came down to chemistry. Ebner was looking for another family business owner, someone who would respect the traditions of his company. All three men were educated as engineers, with a keen appreciation of the efficiency and organization of an operation. Both families valued their products and prided themselves on their love and understanding of the manufacturing process. Both families also felt a similar sense of dedication to their employees and to their own work. “We have an intensity about us,” Jack says.

Greg adds that “The key reason why this man decided to sell his company to us is our common family values. He certainly could have put the company on the blocks; a large German company could have easily snatched it up. But he saw us as a good match.”

Reaching across national borders to find a suitable business partner is not unusual—in the rest of the world. But in the United States the domestic market is so large that relatively few companies are compelled to look overseas. Smaller family companies are even more bashful to venture abroad, concerned about the many risks involved.

But Jack says, “We realized a long time ago that the market outside the United States is a lot bigger than inside the United States. We went into China because there are 1.2 billion people over there. All of them have hair, and a lot of it needs to be cut.”

Wahl began selling overseas almost from the start. In 1919, when Leo Wahl, an engineering student from Sterling, started selling his invention, the electro-magnetic hair clipper, he asked his college roommate if he'd be interested in going to Canada and starting an exclusive business. He was, and began selling shavers in Canada. To this day, Wahl still has a presence in Canada. When Jack was a child, his father would receive visitors into their home from Germany and England. Export sales, however, remained an incidental portion of the business.

When Jack took the helm in 1977 from his older brother, Warren, he expanded Wahl's consumer division. Beginning in the 1980s, Jack Wahl began to be more aggressive internationally, subdividing the company into domestic and international departments. Wahl established distributorships in country after country, until international sales grew from $3 million to $27 million.

In 1985, Wahl went a step further and purchased its English distributor, setting up an operation there with sales and service. It added a bonded warehouse and began to ship product in bulk for the local market. The English operation now has 50 employees and distributes across Europe.

For Wahl, the greatest success has come when it has established a local presence overseas. Even the best distributors can't beat a dedicated local staff. For example, says Greg, “The distributor we bought out in the U.K. opened doors that weren't available until then, simply because we weren't operating on the scene. A lot of times, your distributor may not build enough of a volume. Years ago, in Cologne, Germany, I saw our product in a store selling for the equivalent of $105 when it retailed for $29.99. We just didn't realize what was happening.”

In 1992, Wahl Clipper Corp. took another step: It invested in a joint venture with an Australian company, sending marketing and sales people Down Under. Three years later, it began manufacturing its products through a joint venture in China; it now has 400 employees there. A sales and service office in Japan opened the same year. On two separate occasions, Wahl Clipper Corp. has won the U.S. Government's highest award for exporting.

Of course, there is more risk and complexity when working overseas. In most places the language, culture, and politics are unfamiliar. Management styles and labor laws differ. The value of the currency may change overnight. Worries of extra financing, managing from afar, and travel costs dampen even the best deals.

And yet, the biggest barriers exist in an owner's head, says Hermann Simon, a business consultant with offices in Bonn, Germany, and Boston, and author of “Hidden Champions: Lessons from 500 of the World's Best Unknown Companies” (Harvard Business Press). “Your company is ready to go international the first day it comes into being,” he says. “The earlier the better.”

In the past few years, adds Ernesto J. Poza, an international consultant and professor at Case Western University's Weatherhead School of Management, risk assessment by institutions such as banks and investment houses has become much more sophisticated. And with the increased use of technology such as e-mail, the Internet, and video conferencing, managing far-flung enterprises has become easier. Technology also can link research and development efforts in different countries, allowing work to continue on a project 24 hours a day, dramatically decreasing the time it takes for a product to go from the idea stage to the market shelves.

For family businesses seeking a company with common values and a strong sense of tradition, going overseas may be the best option. “Often,” Simon says, “there are more similarities between family companies in two different countries, than between a larger company and a family company in the same country. The corporate cultures are much closer together, more compatible.”

Overseas alliances among family businesses tend to have a history behind them, a relationship already in place—someone you met at a conference or a trade show. Poza cites an American paper company that linked up with a Chilean paper company to experiment growing a certain tree. Over the years, a friendship developed between the two families. Thirty years later, the two companies formed a joint venture. To cement the bond, the son of the U.S. family, who happened to be born in Chile during a family trip, was sent back to represent the U.S. branch of the company.

“These two companies share a family affinity," Poza says. “They have compatible values and value sets.” If the finances make sense, he says, then the family values will make this marriage that much stronger.”

Family values were uppermost on Greg's mind as he toured Moser's factory. What he saw got him so excited he couldn't sleep the next night. “I guess it's something in your blood," he says, with a chuckle. “I mean, here is a place with a 100-year history of making hand clippers. When I saw the looks on the people's faces...at that point I became very interested.” What Greg saw was the same intensity and organization that Wahl values, the same pride in manufacturing that he himself feels.

“I guess that's the difference with a family company, what keeps you working 24 hours a day, through Christmas Eve and New Year's Day. When something represents your family's tradition and values, it becomes much more attractive. That emotional approach is very different than with publicly held companies.”

Careful not to let his emotions sweep away his good sense, Greg created a six-page, single-spaced list of Moser's strengths and weaknesses on the plane ride home. Before Greg's visit, Jack had done that with their own company, and he asked Moser to do the same. On paper, the two companies looked compatible; strengths and weaknesses balanced out. Moser needed wider distribution and access to lower-cost and stronger supplier relationships. Wahl wanted access to loyal German customers it couldn't reach with its offices in England. The acquisition of Moser would strengthen Wahl's position against its competition: Sunbeam-Oster in the professional and animal clipper product lines; Panasonic in the professional and electric shavers; Braun and Phillips in electric shavers. “It was a bit scary to be so honest with a competitor,” Jack says, “but there were never any games between us.”

By the time Jack flew over for a visit and tour, serious negotiations had already begun. Greg was becoming more and more committed to the deal. “I was concerned about that,” Jack says. “I was afraid he was so committed to the deal he wouldn't get the best price.”

Greg smiles. “And I was afraid he would renege and walk away.”

Wahl, for the first time in its history, requested a full-blown due diligence. “This acquisition,” says Jack, “would be bigger than 25 percent of our corporation. Everything we had done up to then was only about 2 to 3 percent. We had to spend the money with the accountants and the lawyers to go through everything.”

The deal was contingent upon a mutually acceptable contract, Jack's approval, and an okay from Wahl's eight-person board of directors. The board is composed of two outsiders and six family members, mostly from Jack's generation. Ebner did have one request: that Wahl keep his son-in-law, whom Ebner adopted as a child, as an employee. "He knew we'd understand," says Greg.

Jack, however, was the harder sell. He was concerned about the manufacturing conditions in Germany—its high cost of labor, its complicated laws, the countrywide strains from its recent reunification. He worried that the acquisition would stretch Wahl's human and financial resources too thin.

A few months into the negotiation, another roadblock developed. The contract did not guarantee Moser's financial performance, and the German company began falling far short of its own goals. “Their planning method is different from ours,” says Greg, "and they had made heavy investments in new product tooling. But, since coming out of the plan, they've been reaping the benefits of the investments they made. They've become profitable quickly. But I tell you, those few months really shook our confidence in their management.”

It was a huge test for Greg. Jack had placed Greg in charge of the acquisition because of the time, effort, and vision he had shown. “This was Greg's baby,” Jack says. “He was the obvious choice.” International ventures are good places for family members to test their wings a bit and Greg had no wish to fail.

“I have my father's track record to live up to,” the son says. He has made several trips to Germany, sometimes bringing different advisers with him. (He'll continue to visit about four or five times a year.) He's even attempting to learn the language. “Each time I go, I try to learn a little bit more German,” Greg says with a laugh. “The point that I'm at, though, I can't speak a word of German. But if you speak English with a German accent, I'm good.”

His excitement, though, has proved to be contagious. Jack was convinced, especially after Moser's success selling electric shavers for consumers in Europe, which had taken a back seat to sales to professional barbers in the United States. The board was convinced, too, and in early October 1996 the wedding was announced.

In a farewell dinner for Ebner, Greg talked about his family's ancestor, who 150 years ago, as a boy of 16, ventured out of Germany to America to find his fortune. “Now his descendants are back,” said Greg. “We've forgotten how to speak German, but we're hoping you'll help us remember.”

He then turned to Ebner and thanked him for entrusting his precious legacy to the Wahl family. “And I promised him,” says Greg, “that my goal is to make him proud of what happened to his company. That kind of value runs past any quarterly statement.”

 

Shu Shu Costa is a freelance business writer in Lawrenceville, NJ.

 

 

How to choose the right mate abroad

Finding a good international business partner is a lot like planning to marry. You have to keep a clear head and not be blinded by love. Here's some advice from the experts:

Know thyself. Jack and Greg Wahl had a very clear idea of where their own company was weak and where it was strong. Then the search for a suitable mate became an issue of matching strengths and needs, not emotion.

Know thy partner. At some point in any relationship, you have to bring your head into it. “That's the difference between falling in love and staying in love,” says Weatherhead School of Management's Ernesto J. Poza. “The parties need time to check the financials, kick the tires, see the operations, and talk to the customers. You have to learn who they are and what they are like.”

Stick to what you know. Don't purchase a company in a field you know nothing about. Work with your strengths and competences. “If you are very good in the demanding U.S. market, it is likely that you will be competitive in other markets,” says consultant Hermann Simon.

Do your research. Most companies, says Simon, don't prepare their market entry carefully enough. Before he enters an unknown market, he looks at four target industries and calls 10 customers in each of the industries. He asks them about purchasing his client’s product and finds out about the best agents in the business. Simon puts his toe in the water for three or four months before even considering moving into a market.

The Wahls took every opportunity to learn about new markets. Each time an order came in from a different country, they would study how to package the product, how to sell it, and how to establish a customer base. The Wahls also learned from their mistakes: When they first began distributing to Germany, they had their packaging translated literally. One product read, “The small black devil that eats the hair from your neck.”

Put someone in charge. You need to have solid accountability in any foreign acquisition, someone who is in charge of the bottom line, says Poza. Ideally, that's someone from the new owning family, who immerses himself or herself in the details of the merger. If you're hiring someone from that country, be aware that it's extremely difficult to judge others from a different culture. “That's why most companies have so many problems with new managers, exchanging them once, twice, until they find the right ones,” says Simon. Instead of calling the shots from headquarters, rely on the judgment of native people whom you trust to make your decision.

Don't stretch your managerial resources too thin. Companies sometimes make the mistake of tackling too many countries at once, says Simon. That's a problem, especially for smaller companies. Slow down and take the countries one or two at a time.

Build trust. Trust is built on competence, says Poza. The acquiring company has to be reliable and true to its word. The acquired company has to honor deadlines, stay committed to budgets and performance standards. Be prepared to travel often, to show trust by your presence—especially in the first few years. Managing by remote control builds distrust.

Invest also in the surrounding community, much as you do at home. Become an active citizen, whether in the local U.S. Chamber of Commerce, the Rotary, or other civic groups. Be respectful of different management styles. Learn the language and the culture. It's a long process, says Poza, but you must begin.

-- S.S.C.

 

Wahl Clipper

Business: International manufacturers of hair clippers and trimmers for professional and consumer uses.

Location: Sterling, IL.

Employees: 1,600.

Sales: Over $110 million.

Founded: 1919, by Leo J. Wahl.

Ownership: Divided among John F. (Jack) Wahl, president and CEO, his two brothers, one sister, and a nephew.

Family employees: Second generation, John F. Wahl. Third generation, Gregory S. Wahl, vice president, and COO; James O. Wahl, vice president of professional sales division; Leo T. Wahl, corporate secretary and director of Asian exports; Mark C. Wahl, general manager of animal products; and David C. Wahl, materials planner.

Claim to fame: Has steadily expanded into foreign markets (it is now in 149 countries) and recently made its largest acquisition, buying a German competitor.

-- S.S.C.

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Winter 1997

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