Just Sell High, Buy Back Low, and Watch Your Sales Triple
It's a neat trick if you can pull it off. The Hansbergers did, selling their golf equipment company to Colgate-Palmolive, then buying it back and reaping a bonanza.
Like many other family businesses, Ram Golf Corporation arrived in 1974 at a seemingly inescapable fork in the road. For 26 years, under the direction of three Hansberger brothers, the suburban Chicago company had produced a broad line of golf clubs, balls, and bags without making much of a dent in the market for any of its products. The post-World War 11 golf boom had leveled off, and so had Ram's sales volume, at $16.4 million a year. The Hansbergers — founder Lyle and his younger brothers Al and Jim — were former Minnesota farm boys with engineering backgrounds. They enjoyed designing technical innovations and schmoozing with customers, but lacked the resources or expertise to create a sophisticated global marketing network. What's more, in middle age the brothers' savings were still tied up in the company, a totally nonliquid asset that paid no dividends.
"It was the usual problem for a family business," says youngest brother Jim, Ram's president and CEO, now 56. "We saw a lot of opportunity for growth, but we lacked the money to finance it."
At precisely that moment Colgate-Palmolive, the personal-care products giant, arrived at an equally inescapable fork in a different road. Exhausted from butting heads unsuccessfully with entrenched domestic rivals like Procter & Gamble and Unilever, Colgate chairman, David Foster, resolved to strike out in new directions: Colgate, at that time a $2 billion company, would go multinational, he decided, and would diversify into food, medical products, and leisure-time equipment.
Since Foster was himself an avid golfer, he seized on the sport as a symbol of his synergistic vision: Colgate would acquire a handful of small golf equipment manufacturers and invest heavily in golf- related promotions — especially the Ladies PGA tour. The resulting publicity, he theorized, wouldn't merely sell clubs and balls for Colgate's golf subsidiaries; it would also boost female consumers' awareness of all Colgate products.
Such flimsy logic has shattered many a once solid family company, and when Colgate acquired Ram Golf in 1974 — for Colgate stock worth some $20 million — skeptics assumed the merger wouldn't last and that the Hansbergers would leave the company before long. The skeptics were right, but only in the short run. They overlooked an often forgotten fact of life: In business, unlike literature, there's no such thing as a final chapter.
Colgate brought tremendous global marketing expertise and resources to Ram, while the Hansbergers continued to hold at least two equally important cards of their own. Their emotions, unlike their capital, weren't tied up in Ram Golf. Such was the brothers' faith in their skills and in their relationship with each other that they didn't need to cling to Ram at all costs.
Their hidden asset was the experience and insight of their oldest brother and silent partner, Robert V. Hansberger, of Boise, Idaho. Bob, now 69, was himself a big-time conglomerateur who had parlayed a string of seemingly unrelated acquisitions into the giant Boise Cascade Corp. and had subsequently repeated the process with his Futura Corp., a holding company. Synergy, Bob warned his brothers, usually works better for the acquirer than the acquiree (see below).
Thus forewarned, the brothers declined Colgate's offer of long-term employment contracts with non-compete clauses and instead, committed themselves to staying only two years under the new ownership.
"We went in with our eyes open," Jim says. "We said, 'We'll just see what happens.' "
Uncomfortable with Colgate's bureaucratic style and its preoccupation with the bottom line, Al and Jim left Ram after four years to start their own golf components wholesale company, leaving Lyle as the sole remaining Hansberger at the company he had founded — and Lyle had long since removed himself to Ram's golf ball plant in Pontotoc, Mississippi. But a year later, with David Foster's retirement, Colgate scrapped its golf strategy and went into a divestiture phase. In what was in 1979 a buyer's market, the Hansbergers bought Ram back for less than the $20 million they'd sold it for in 1974. (They later folded the wholesale company.)
"We certainly never expected it to work this way," Jim says.
To be sure, the Colgate-Ram divorce was hardly a unique phenomenon. In an age of rapid business change, many corporate marriages have come unglued. Charles Schwab sold his discount brokerage concern to BankAmerica Corp., then bought it back. The Haas family of Levi Strauss and the Miller family of Cummins Engine bought out their public shareholders, they (perhaps ingenuously) suggested, to protect their companies from the vagaries of corporate raiders. But few buy-backs have turned into such a clear bonanza for its owners as Ram became for the Hansbergers.
Thanks to Colgate, the Hansbergers reacquired a company newly endowed with international marketing expertise — so much so that Ram is now one of the leading golf equipment exporters, with outlets in more than 30 countries. But the buyback also lifted the burdens of Colgate's cumbersome bureaucracy from the Hansbergers' shoulders, giving them the flexibility to capitalize on their vast experience. The result: Ram says its sales, which remained flat at less than $20 million during the Colgate years, have more than tripled since the 1979 buy-back.
"We're unusual in that the company's basic management framework since the mid-fifties is still here," says C. Ronald Schramm, Ram's chief financial officer, who left the company in 1979 but returned the following year. "That means we maintained close ties to the golf industry."
Another dividend: As a family, the Hansbergers today seem closer than ever, and more of its members have joined the firm. Lyle's son Tom, 42, is running computer operations for Ram's golf ball plant in Mississippi. Al's son Gary, 38, oversees golf club research and development; it was Gary who designed the Laser-FX club, Ram's current hot seller, which "gives the feel of golf back to the player," according to a company publicist. Jim's son Scott, 28, who flirted with becoming a professional golfer, is a regional sales manager. The founders' brother-in-law, Al Norby, is personnel director. Even oldest brother Bob, the Boise conglomerateur, recently signed on to oversee things as Ram's part-time chairman, a role which often brings him from Idaho to Ram's headquarters in Melrose Park, Illinois.
In effect, by selling Ram to Colgate and then buying it back, the Hansbergers got to eat their cake and have it too. Their experience suggests a bizarre lesson: One way to infuse new life into a family business is to take the risk of leaving it for a while.
The four Hansberger brothers and their two sisters grew up on farms in southwestern Minnesota. Their father, Floyd Hansberger, didn't believe in the machinery that was then becoming available, so the boys gravitated to engineering "as a matter of self defense," Bob recalls. Tired of rounding up the horses at the far end of the pasture, the boys begged their father to buy a tractor. He agreed, but only if the boys learned to maintain it and drive it. "The mechanization of the farm created all those engineers in our family," Bob says.
Armed with $500 and his engineering degree from Dunwoody Institute in Minneapolis, 24-year-old Lyle Hansberger moved to Chicago in 1946 and opened a tool and die company which made specialty machinery for manufacturing companies. One of his customers was George McGregor, whose small company was profiting from the postwar demand for a product that hadn't been available during the war: golf equipment.
Though Lyle was no champion golfer, he was fascinated by the engineering challenge. Making a golf club head, he remarked to his brothers in those days, was more a matter of art than science: Clubs were fashioned one at a time by workers who stood at a grinding wheel until the head looked and felt good. "There's no reason why you can't make it more quickly and accurately if you mechanize the process," Lyle reasoned.
George McGregor, meanwhile, was more interested in selling golf clubs than making them. So in 1947, Lyle convinced his brother Bob to pool their funds (as well as the business education Bob had tacked on to his engineering schooling) and buy out McGregor. Together they raised the $5,000 for the down payment and renamed the company Sportsman's Golf Corporation in 1948. Their brother Al joined them a few years later when he finished school.
Bob, who never worked at the company full time, left Chicago in the mid-fifties for Boise, where he molded two lumber companies into the nucleus of his Boise Cascade empire. But even at a distance, his management and financial acumen provided a healthy complement for Lyle's engineering zeal and Al's creative marketing savvy. Jim, youngest of the six Hansberger siblings and fully ten years younger than Al, joined Lyle and Al out of the University of Minnesota in the mid-fifties, and subsequently managed to synthesize the best qualities of his three older brothers.
For its first quarter-century, the company prospered largely through its technological innovations. Sportsman's introduced the first automatic boring machine for wood club heads in 1958 and the George Low Wizard Putter Line, featuring mallet head designs and fluted shafts, in 1960. The revolutionary Ram golf ball, the industry's first Surlyn-covered ball, made its debut in 1966 and subsequently became the prototype for 90 percent of all golf balls produced worldwide. Such was its fame that in 1967 the company changed its name to Ram Golf.
The brothers seem to have had no problems sharing power. When the company opened its golf ball and bag manufacturing plant and research and development facility in Pontotoc in 1965, founder Lyle, still an engineer at heart, turned the CEO's reins over to Al and moved south to supervise the golf ball operation first hand. Today, at 68, he's still there as Ram's vice-president for manufacturing. Al, now 66, shepherded Ram into the acquisition by Colgate, but when the family bought back the company, Al took back his previous title, vice-president for marketing and sales, and yielded the CEO's post to Jim.
"People wonder, 'How can four brothers get along for 40 years in the same business?'" Jim says. "But we do, and do it well. We believe it's in the best interests of the family and the company to find a way to agree. And once we've made a decision, we all support it." Even outside the company, the brothers often get together on business-hobby ventures, like motel and real estate investments.
Getting along with Colgate, however, was another story. By all accounts there was no clash of personalities, just a clash of corporate cultures. Ram was a people-oriented company that tailored its products to the individual needs of its pro shop distributors and their customers; Colgate was oriented to mass merchandising. Golf is a seasonal industry with a long product development cycle (Ram has already designed its product line for spring 1991); but Colgate's financial people, geared to managing a year-round line of home-care products, grew nervous over Ram's customarily huge mid-winter inventories.
"We're in this business for the relationships and the accomplishments, as opposed to a sheerly financial approach," Jim says. "The financial approach is important, but it's not the dominant emphasis for this family."
What's more, as a tiny outpost of Colgate's empire, "we were too small for Colgate to take seriously," Al suggests in retrospect. Colgate installed a stream of new executives at Ram, including a new general manager, marketing manager, and assistant controller. "They were all good, dedicated people," says Ron Schramm, Ram's CFO, "but with each of them there was a 2 to 2 1/2 year learning curve." And while Ram's people were accustomed to wearing several hats apiece, Colgate threw armies of specialists and assistants at every conceivable function.
"They'd send heads out from department after department after department," Jim Hansberger recalls. "We were so busy meeting them or lunching them or flying to England with them that we didn't have time to run our business." Prior to the Colgate sale, Al and Jim say they spent 30 to 40 percent of their time dealing directly with their customers; after the sale, Jim says, that proportion dropped to about 5 percent.
Compounding the problems was the fact that Colgate chairman Foster's vision of marketing synergy between golf and home-care products, if indeed it ever was valid, wasn't adequately communicated to Colgate's corporate troops. Most Colgate managers perceived Ram, perhaps rightly, as Foster's personal ego trip. Nevertheless, because golf is a sexier business than toothpaste or laundry detergent, Colgate people were only too happy to indulge their boss.
"We got smothered with attention," Jim remembers. "It was like an elephant rolling over her young."
Some of that attention translated into quantifiable benefits. For example, there was a huge annual promotional budget, ranging from $3 million to $4 million, just for pro golfers' endorsements. At one point during the Colgate regime, Ram had signed up more than 50 touring pros. And since Colgate placed three English golf companies and two Australian concerns under Ram's umbrella, the Hansbergers picked up important international connections and expertise.
In addition to those benefits, the Hansbergers took care to maintain good personal relations with Colgate's people, so Ram was ideally poised for global growth when the family bought back their company.
Today Ram has its own British operation, and international sales — about one-third of the company's total-have grown at a 60 percent annual rate over the past three years. Ram is a sophisticated maker of custom clubs and a leading innovator in the highly technical science of matching shafts with club heads and tuning them to an individual golfer's swing. In a recent evaluation of customized club-making conducted by Golf magazine, Ram was ranked tops in the industry. Four years ago Ram broke into golf-related sportswear, which now accounts for about 25 percent of its volume. In 1987 they also acquired Country Club Systems, a computer software company specializing in back-office accounting systems for private clubs; Ram Golf's growing client base includes more than 1,200 country clubs, downtown dining clubs, and pro shops.
Would all this growth have been possible without the Colgate interlude? Maybe not. 'The company we reacquired from Colgate was quite a different company from the one we sold," Jim says today, "and we were quite different people. The best business education we ever had came during that Colgate period." Jim's older brother Al, the president and CEO then, laughs: "We all got master's degrees in practice." The brothers neglect to mention the obvious: All that education didn't cost them a cent.
The key to the Hansbergers' present success, of course, was their willingness to disengage themselves, however briefly, from their company. But how could they behave so objectively and rationally toward an enterprise that represented, after all, the life's work of their family? Jim smiles matter-of-factly: "We're mature individuals. We've been successful at keeping our emotions removed. We're realistic people. We all worked our way through college. We worked at blue-collar jobs. We got our hands dirty. When you've done that, you have a bit broader perspective."
Dealing with the big boys
What to do when a large corporation wants to buy your cozy family business? The Hansberger brothers offer these suggestions, based on their sale of Ram Golf Corporation to Colgate-Palmolive in 1974 — and on their buy-back five years later.
- Once you've sold, don't expect to retain control. "Every buyer takes the approach that he won't change the business," Jim Hansberger says. "He wants your participation. But you have to approach a sale with the understanding that you're going to become disinvolved. That's part of the price. If you expect to be involved on a long-term basis, don't sell."
- Assume that your company's culture will be drastically changed. "Large companies manage by momentum, throwing people and money at problems," Bob Hansberger says. "Small companies manage by being creative and nimble and understanding the special ingredients of their success. A large company inevitably has the problem of understanding the essence of the success of the acquired company."
- Retain your flexibility. The Hansbergers declined the long-term employment contracts offered by Colgate; instead, they committed themselves to Colgate for only two years. Thus when they saw that Ram's direction was changing under Colgate's management, they were free to leave, which they did in 1978.
- Don't burn your bridges. Although Ram's family culture was incompatible with Colgate's corporate culture, "Our relationships with Colgate people were always excellent," Jim Hansberger says. "Even when we left Colgate, we left on wonderful terms and worked hard with Colgate's people on the transition." Thus when Colgate managers went into a divestiture phase in 1979, it was a painless matter for them to sell Ram back to the Hansbergers.
- Avoid wishful thinking. "The hopes and promises and dreams don't always materialize," says Al Hansberger, Ram's CEO when it was sold to Colgate. "The hope to become a bigger company through an acquisition is always there, but it may not come to pass."