Smart Mergers in the SME Space
Merging your company with another is never an easy decision to make, but for the founders of Stretch and Point Blank it was the right move.
- Players: Trevor Bernberg, Bongani Chinkanda and Mike Silver
- Company: Elevator
- Established: 2017
- Combined Turnover: R50 million
- About: Elevator was created earlier this year when Trevor Bernberg of Point Blank and Mike Silver of Stretch decided to merge their advertising agencies and create a
- R50 million below the line company called Elevator. The two founders are now joint CEOs, and Bongani Chinkanda has been appointed as business and strategy director to form a new leadership triumvirate.
- Visit: www.elevator.co.za
Having both been around for about eight years, agencies Stretch and Point Blank needed a change to take their businesses to the next level.
"We were out of the start-up phase and business was okay, but it felt as if we had hit a plateau. A big change was needed to take the business to the next level," says Point Blank founder Trevor Bernberg.
"Stretch had reached the same place. I knew Mike, and in many ways I had viewed Stretch as Point Blank's biggest competition, but I also realised that the cultures and ethos of the companies were similar, so a team-up could be very successful."
It was a realisation that Stretch founder Mike Silver had also come to, which was why he invited Trevor for dinner one evening in 2016. While discussions were furtive and purely exploratory at first, it quickly became clear that a merger was the right way to go.
Fast forward to 2017, and the companies have become a new entity called Elevator. Entrepreneur spoke to Trevor and Mike, as well as Elevator's new business and strategy director Bongani Chinkanda about the lessons they learnt from this exciting but tumultuous process.
1. Next-level growth often requires a new way of doing things
Trevor Bernberg: We enjoyed some terrific growth for the first five years, or so, but then things started to slow down. To keep that same level of success going, we had to grow the company, and that meant more investment.
There are a few ways in which you can bring more money and resources into the company. You can be acquired by a large corporate, or you can opt for a big buy-out. You can also perhaps find a new outside investor. But none of these appealed to me. Profit was too much of a focus.
I didn't want someone else to take over and simply look at how profit can be maximised. I wanted to play a significant role in taking the business to the next level, and that's why a merger was appealing. By combining the forces of Stretch and Point Blank, we could both continue this journey in a meaningful way.
2. You need a good fit
Mike Silver: There were a lot of similarities between Stretch and Point Blank from a culture perspective, which is why the merger worked so well. A merger is very difficult if the companies are fundamentally different. Two companies can't become one if they operate completely differently.
Trevor: Mike and I also had the same aims with this merger, which is very important. If you don't want the same things, merging is a bad idea. We settled on the name Elevator, for instance, because we wanted to elevate our clients, our employees and South African society in general. It wasn't just about profit for us. If one of us had just been after profit, the merger would have been a disaster.
3. Mergers are always (really) hard
Bongani Chinkanda: I always say that managing a merger is like building a car while you're driving it. Even though you're busy with this huge internal process, you still need to deliver the same level of service to clients.
In many ways, it's business as usual. You can't drop the ball. A merger will demand a lot of operational resources, and you can't allow it to impact clients. Also, a merger will often require more work after it's happened than before. It's like an organ transplant. You don't want the body to reject the organ after it's been transplanted, and that requires work. A merger requires work daily.
Mike: Mergers are hard. Initially, things went so well during the planning phase, and the two companies were so similar in terms of culture that we thought the merger would be easy. It wasn't. Things crop up, especially when it comes to systems and processes. Point Blank had more of a start-up culture, while Stretch was very systems-and-processes driven.
Both benefitted from the integration, but it wasn't easy. There is what you think will happen during a merger, and then there's what will actually happen. It is not a process that can be measured in weeks or months, but in years. Give yourself two to three years to get everything bedded down properly.
4. Employees will have plenty of opinions
Bongani: As management, you might think that the benefits of a merger are obvious, but don't assume that employees will see it that way. Change is hard, and people don't always respond well to it.
Communication is incredibly important. Make sure that you explain the process to employees. There is no such thing as too much communication. You need to be patient and have an open-door policy.
5. Get outside advice
Trevor: We were lucky enough to find an outside advisor who could help us navigate the process. If you're going to enter into a merger, you need an external advisor. We all have blind spots — things we don't even consider until it's too late.
Someone who is neutral can help you look at the situation in a more objective manner. As the founder of one of the companies, you're too close to the merger. You can't see all the angles and focus on everything. In fact, you often won't even know what the right questions are, never mind the right answers.
6. It's about synergy
Mike: The aim of any merger should be to create a company that can offer clients more than previously possible. It's about synergy – leveraging the capabilities of the other company to create a more rounded offering. As Elevator, we can now offer clients more services than Stretch or Point Blank ever could. Our clients benefit more than anyone through this merger, which is what makes it a success.
7. A name is important
Trevor: Name recognition and brand building is important, of course, but we ultimately decided that we needed to let go of Stretch and Point Blank. If we kept one of those names, the merger wouldn't have felt equal. One of us would have felt as if we'd been absorbed into someone else's company. It took a while, but we finally decided on Elevator as the name for the new company. It's a name everyone can get behind and feel excited about.