Last week’s big announcement of the merger of StanPac and Ryland Group, creating a new member of the Top 5 Homebuilders, spawned a flurry of articles and blogs, most of them suggesting the kingdom and the power and the glory of mergers, forever and ever, amen. The truth of the long history of mergers is, with a few notable exceptions, that they are virtually always "less than meets the eye," sometimes dramatically so. Don’t believe me? Ask anyone who was an employee of one the firms, three years later. Then ask any economist or financial analyst, five to seven years later.
Economies of scales are usually illusory at this level. Doubling what is already thousands of units already doesn't get you much with either suppliers or trades. The administrative burden almost always ends up where it began originally within a few years as eliminated functions and people creep back. Meanwhile, more layers of management are added, slowing down a remote operation's ability to respond to the local market. If you don’t think that is a big deal, you don’t get out into the field often enough.
The largest problem of all, typically ignored, is the mergers of two very different cultures which take years to sort out, and I mean years. It is never, ever mentioned in any of the publicity, as if the issue does not exist. (Again, ask anyone who has been through it and yes, I have several times.) Senior management rarely does anything intentional to solve the culture issue, figuring, "Hey, we are big boys; we can work this all out." A big load of loss accrues. StanPac/Ryland do have locations and product with little overlap, appearing to be complementary. This is good news for people keeping their jobs and makes market sense, taken at face value. The bad news is it makes integration of cultures all the more challenging.
I hope StanPac/Ryland beat the odds and turn into a case study on "how it's done," but it won’t be easy. I also hope they, as Jim Collins, author of “Good to Great” would advise, “face the brutal facts” and deal with the tough issues head on. It will not be easy.
Scott Sedam is President of TrueNorth Development, an international consulting & training firm counting more than 200 builders in five countries as clients. TrueNorth is homebuilding’s leader in the implementation of Lean Operating principles that increase profit and build supplier/trade loyalty while producing a better home. For Scott’s new PDF of his article series in Professional Builder Magazine, “Bridging the Margin Gap,” email to firstname.lastname@example.org with “Margin Gap” in the subject line or call TrueNorth at 248.446.1275. We invite you to join our LeanBuilding Group on www.linkedin.com.