Starting from scratch and making successful business acquisitions is challenging. Victoria Meyer welcomes back John Foley, the CEO of Verdant Specialty Solutions, to give a one-year update. John shares how vital it is to have your back-office team for you to stand on your own. Otherwise, you may depend on the previous owners, which may strain the working relationship. Recruiting the right leaders who have previous experience in steering your business to where you want it to go is key. After all, you will need skillful people who trust each other to build a sustainable culture. Tune in!
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How To Grow Your Business Acquisitions: Making Good Decisions With John Foley
I am speaking with John Foley, who is CEO of Verdant Specialty Solutions. John and I spoke when Verdant was starting. He’s back to give us a one-year anniversary update on his company. We’ll be getting into that more. John, welcome to the show.
When we talked, Verdant had just formed and you had a lot of big plans. How has the year played out?
We’ve had highlights and lowlights, but overall, it has been a lot of fun. It’s a lot of work. We’ve made some important progress in creating a great place to work for our team. I’m excited about the future. I’m happy to share and update you on what we plan.
What has been the biggest surprise in starting up this company?Good data equals good decisions. Click To Tweet
Looking back, I was excited about the strategy. We were targeting the middle market, especially batch manufacturing. We had the big company standard, small company feel, and focus on growth. We started with the acquisition of the Solvay amphoteric surfactants business, including assets in the US, UK, and Germany. One of the key learnings for me, because I’d never done it before, was starting a business with a corporate carve-out. What that entailed was we bought products, customers, and manufacturing assets.
We had a lot of great people in the plants and a few commercial business people, but no back office. We were still tethered to the former owners, Solvay, via temporary service agreements that posed more challenges than I would have anticipated both in that working relationship because it’s a key one. They’re still our back-office provider in being able to recruit and build a team to eventually stand on our own, and then some of the other challenges were not being in full control of your data or your system. In an environment where we had explosive changes like COVID, raw material inflation, logistics challenges, and good data equals good decisions, we had some real pain that we had to recover from.
I can’t imagine. That’s interesting. Until you’ve lived through it, that lack of control of your business processes that are all about how you invoice customers, receive payment, pay your employees, label your products, and then manage all the data that goes along with your business, it’s almost unimaginable because you’re inside of a company that you’re used to having that. In the chemical industry especially, we don’t outsource much of that work area. It’s hard to imagine having to work through a third party for that.
There are two key things. One, for me, it’s one and done because I never want to start another company doing it this way, but the other parts of it, a couple of interesting things, is we did have some painful experience managing our margins with insufficient data that we had to adapt and correct. I go to all of our sides quarterly as we build culture and our team. The universal question that everybody asks me is, “Why are you hiring so many people in Houston?” We onboarded twenty people in Q1. We have another eleven that we’re onboarding in April of 2022.
Not all are in Houston in the back office, but it’s an unappreciated part of the three-legged stool. You have your manufacturing assets. That’s what we do. We transform these products. You also have your commercial teams. The people in the plants generally understand we need salespeople and business people, but when they see us hiring back-office people, it’s like, “Why are you hiring so many back-office people?” They should be in other places. I have to explain to them that the back office is an essential part, but usually, it’s invisible and works pretty well. We take it for granted. That has been a challenge but essential to get the platform ready for year two.
You’ve already mentioned that you’ve been hiring a lot of people. When you started this, you started without a business team, if I’m correct. You started with manufacturing people but without your leadership and the commercial and business team around you.
We did have some important key business and technical people come over from the Solvay acquisition, but it was lean and we had to immediately start to hire some additional resources, commercial and technical. It was on the lean side. We knew we were going to have to recruit the C-Suite and then the supporting roles. That was a journey all by itself. It was a tight talent market. We were a brand new company. We had to brand to that market to get our talent. The other piece that we did to make it a little bit more challenging is we immediately made additional acquisitions.
That’s interesting. Most people try to get their business sorted out before they start acquiring new companies. You acquired two companies within a very short amount of time. Why? What prompted you to do that?
The answer is because it was always part of our strategy. When we were together a few years ago, it was our intent to make add-on acquisitions. The other piece, though, is we have great support from our investors. They were very supportive to make the investments to stand up the company and get it running. They also are keenly interested. It was part of the business plan to acquire companies. Maybe I was a little insecure there. I thought that maybe they thought I wasn’t working on it enough, so I made a few phone calls.
As we were closing on the deal with Solvay, I made three phone calls and we ended up buying 2 out of the 3 businesses. It just happened. I started. Once we got into the process and we closed on DeForest surfactants in mid-July 2021 and then we had the Baze Chemical business under LOI, people were asking, “We’re going to support you on this if you want to do it, but is now the right time?” By then, my answer was, “Not really, but we’ve already started. These fit perfectly with what we want to build. We have to finish it.” We finished them. We closed on Baze on October 1st, 2021, and then my attention turned firmly towards making sure we construct the company, the back office, the processes, and get things set up to run. Our number one priority now is to finish that.When you start something from scratch, the learning opportunities are enormous. Click To Tweet
How are you approaching that? There are a lot of different ways. Are you adopting the business processes from one of the companies in order to create that platform across Verdant? Are you starting from scratch? How do you approach that when you have no back office? People have been doing business for a long time, but you’re starting from scratch.
A couple of key elements that I focused on, one was the team. It’s recruiting the right leadership team that is experienced in not just working in a company with great processes and keeping the processes running, but we have to keep our business running while we recruit and construct the back office. The profile of the leadership is critical. We have to have people who have those skills and/or that we know and trust each other enough to build it out. That was the first part.
Secondly, I tell the three business teams that we have because they still operate fairly autonomously because we haven’t been able to integrate the systems. We will not create systems that look like Solvay’s or Baze Chemical. It’s going to change for everybody. We have to come up with our own model on how we manage this to operate big company standards, safety, compliance, reliability, and productivity while still keeping the speed and focus on growth and team that the small companies have. We’re finding our way through that.
The first big project we’re about to implement is we have to implement our own ERP system. We’re on a schedule to implement that for the Solvay business on June 1st, 2022, and then we’ll roll in the DeForest business and then take 3 or 4 months before we roll in the Baze business. That’s a critical event that’s right in front of us.
ERP implementations are never easy.
Even for stable companies. I give a lot of credit and try and support the team. We hired a great CFO. Her name is Shireen Greer. She has been through this and she’s in charge of that implementation. I have a lot of sympathy and support for the people in the plants, our customer service, and supply chain teams because we all know the challenge is to get the right raw materials at the right time and line up the logistics. They don’t have easy jobs. On top of that, they have the new company culture and implementation, but so far, so good.
The cut-over is a scary moment. I know a company I worked with years ago that discovered they hadn’t invoiced anyone for six weeks or two months. I was like, “No wonder we have no cash because if there’s no invoice, they can’t pay you and you can’t pay anyone.” It was frankly a glitch in the system and in the change-over from one to the other that wasn’t thought through or trained properly. These things get resolved, but you hope you don’t have those major glitches.
We have enough self-awareness that we delay the implementation because a couple of the workstreams weren’t where we wanted them to be. There’s always that risk, and it will be difficult. There’s no easy way about it. My mother-in-law’s visiting. She has the new iWatch. I said, “You have to keep struggling. After a few days, you’ll get it.” The ERP implementation to me is similar. Hopefully, it’s that level of complexity.
One thing that strikes me with what you’re doing with Verdant is carve-out and acquiring two new businesses. It’s a significant amount of change for the people inside the companies, and then it’s a significant amount of change for your customers and your suppliers. What has been the reception? Let’s first start with the employee’s point of view. How have your employees embraced this change?
As I go around because it’s important to me to spend time with them, there are some universal issues that they share with me, like compensation in an inflationary environment and the right support, but it varies a bit depending on which business we bought. I would say they’re all anticipating change and they want to change in most cases. The vision of what we’re creating, the big company standards, small company focus, and more of a work-family type environment, is appealing to them, but we haven’t been able to move as quickly as some of them would want us to.You go to war with the data you have, not the data you want. Click To Tweet
I was at our base site in Palestine, Texas. I love that they are very open. All of our employees share a lot, but they were sharing that, “You’ve owned us now for 3 or 4 months. We were expecting more things to change sooner. We’re excited about it. We expected to change.” We probably had too much focus to construct the company’s inner workings, which is essential, and not enough on bringing the change to our employees and to the market. Those are the two areas I wish we could accelerate more on. Both groups are looking for the promise of what Verdant is to unfold and have it come.
The other part that many of our employees are excited about, and we have 320 employees now, so I can’t speak for every one of them. When they hear this, somebody will argue with me, but I think the real opportunity of what we’re creating is when you build something right from scratch and all the processes, the learning opportunities are enormous.
I started my chemical career at Monsanto. I’m not sure if any part of Monsanto is still around, but it was truly a great company for me to start with. They had clean processes and a clear strategy, and it was well-executed. I felt blessed I started there. The rest of my career has always been in businesses that need to be improved or need to be improved more than Monsanto. All my learnings came from being put in those situations. Now, we have people who are joining us. We are excited to be able to leverage their skills, get involved, shape a company, and do things differently. We had a great story of a big screw-up that we fixed, which we celebrated.
Are you willing to share it with us?
Yeah. Since it’s just you and me talking, I can share it. With the raw material inflation, we focused on getting the right price through the quarter by quarter and month by month, but we didn’t have the right data and the right processes for the business. In Q4, we increased prices but not enough to cover energy, raw material, and logistics costs. It was a difficult quarter for us with one of our businesses in particular. When we saw that, the systems and the processes that we inherited weren’t going to fix the problem. We recruited some people I’ve worked with before. We created Excel-based cost models, got the inputs and estimates, and made a massive improvement to get back towards sustainable margins in Q1.
In a typical company, and I saw some of this, people would have been sitting around and saying, “It’ll all work after the finance team has the cost right and purchasing has updated it. It spits out of this beautiful system and tells us what price.” That wasn’t our reality. It was a guerrilla war that we had to start on November 11th, 2021, and get ready for December 1st, 2021, to change our prices. We had a team of 10 or 15 people that got together, worked every day, took the challenge, and implemented it successfully. What we had to build wasn’t what we wanted at all, but the opportunity to do that work as a team, solve a problem and then see the value. We have many examples like that in the company and we’re proud of that.
That ties back to your earlier point of one of the challenges when you were still relying on your predecessor company for the back office. You don’t have clarity of data. You maybe don’t have the data flow that you need. Let’s be honest. This happens in companies that own their back office. This is, unfortunately, not unique. I know of examples where companies have had these oops in the systems because something is broken, like the ownership of who is inputting data or using the data, but the complexity of it when you’re working through a third party is much more challenging.
Frankly, they don’t care as much. It is what it is. In one of the businesses, we get a monthly data download with our customer product-level margin data. It isn’t enough to monitor and drive. To paraphrase Mr. Rumsfeld, “You go to war with your data, not the data you want.” One of the challenges in our industry is we have very talented people in the chemical industry. We have technically trained chemical engineers or CPAs who love data precision. I would say many of them need the precision of data to make decisions. While it’s critical for safety and compliance issues, you don’t always have all the facts with business. It’s getting people comfortable moving forward with what we have, not what we want.
It calls to mind one of my kids when she was younger. She was working through some math stuff that was a lot around rounding and estimating. I remember her saying, “When am I ever going to use this?” That’s the real skill. The precision is awesome. Our school system measures precision, but estimating and putting it together and saying, “That sounds about right,” is a skill. We’re able then to make a decision based on close enough.
For our model, especially batch manufacturing where we have seven sites now. For a complex business that has 15 or 20 sites, we’re not going to have a model that captures all the products and the customers. We’re dependent on a team of people who know and trust each other, know the model, and make those decisions. It’s good.Be responsible by having the right products at good prices. Click To Tweet
What has been the market reception? We’ve covered some of the internal, the business opportunities, and the challenges, but how has the market received Verdant in its new form? Not just the Solvay piece but the Baze and the DeForest piece in one, but both from a customer and a supplier perspective?
It’s probably too early to fully appreciate it. Predicting the future, they’re going to be very happy and supportive and like our model. I see indications of that. As a new company, if you’re a supplier, you’re always curious about who these people are, will they be good customers, and will their processes run? Doing that and establishing the identity and the trust with the supplier base is important. We’ve made progress there and continue to. It helps.
On the customer end, some of our larger customers have expressed support for the strategy of specialty batch, which is typically many more small companies practice specialty batch. There’s a clear need for it, and then to be able to do it to large company standards. The people and the programs that they see we’re implementing are intriguing for them. Some of our large partners have expressed support for it, but we haven’t been able to fully exploit it yet because of our inward focus. We’re curious about how to align where these things go and where we need to start the shift. We get the company constructed and these businesses integrated. I insist on and intend to direct my focus more externally in the companies to solve the problems and create value.
In fact, it is the alignment and the harmonization of the customer experience that your customers get. They know that they’re doing business with Verdant, and that Verdant is bringing something unique, differentiated, and valuable to them becomes critical because that’s where ultimately you create value and loyalty and you can maximize your business opportunities.
That’s where we need to work and make sure we have that Verdant culture and model finish the creation and bring it to life. With that said, our markets are quite fragmented. In the oil field production or chemicals business we have in West Texas or in Louisiana, those customers, in many cases, are quite different from multinational consumer product companies from what they need, how they like to buy, and what the experience is.
The core is we have to be good and fast. We want to be responsible but have the right products at good prices. We’re building the momentum to be able to do that. I clearly have not spent enough time with customers in our year one. I am a customer guy. My people person is the way I like to lead, but most of my time is spent with our teams and bringing them together. We need to unleash our energy externally.
That’s probably pretty typical and almost to be expected, particularly because of the formation and the combination of three companies effectively as opposed to just one. If it was one, it would be a little bit simpler and smoother for you to be able to carve out time to get external, but bringing in the three teams together has different priorities. You’ve got to keep the customers happy. Otherwise, you have no business.
We’ve been competing well. Certainly, in Q1, I was very happy. We delivered our financial objectives in Q1 and saw progress versus Q1 in 2021 when we didn’t own any of these businesses, but they were still benefiting from the post-COVID demand and particularly cleaning products. We’ve had a nice progression. I was happy for the team and for myself. It’s always happier when you deliver your objectives. Now, we’re in Q2.
Let’s talk about what’s on deck for year two. You guys are about to celebrate your one-year anniversary as a company. What’s on deck for year two?
Thank you for that. We are organizing our year one anniversary parties at every site, or I like to say our birthday party because we were born on May 6th, 2021. As we look at 2023, there are a few big priorities. One, it’s continuing to strengthen the team and learning how to work together while being safe and compliant. Those are those strategic levers that we have. We’re still doing a lot of recruiting to bring in and get the resources that are required. The ERP implementation, which starts in Q2, is critical. If we only achieve one big thing in Q1, it’s going to be to get that system launched and working because it supports so many other activities.
Externally, there are a number of growth projects. To hit on a few of them, one is this customer focus and a focus on new customers as well, particularly in the former McIntyre business, the business we acquired from Solvay. We have a big push to increase our new product introductions. There will be more formulations, resurrecting some old products that have been phased out, and a strong focus on tier two and distribution.
We’re fairly concentrated with the large global companies, but we want to restart that speed of the customer culture that this business had at its roots. Probably the second largest lever we have, and the one our investors are most excited about, is the opportunity to lever up the asset we acquired in Palestine, Texas, making ethylene oxide and propylene oxide derivatives. This is a site with good bones. It’s relatively a new plant focused on very small batch specialty products.
We’re growing our toluene business up there because there’s a lot of demand showing up at the door. Those are people who want us to make their products for the drivers the industry is facing, but we also want to launch our own products. We will start doing that. We’re preparing to launch Verdant-branded products up there. To do that, we have a lot to do to get the human capital, quantity, and competencies at that site. We need to invest some capital to debottleneck the plant. The reactor capacity is there, but we need more ancillary storage, reactor charging, packaging, rail loading, and unloading. We’re working on small projects up there to do that.
There’s also the community and stakeholders’ support. We think that site will play a key part in what we see as a long-term consolidation to the Gulf Coast and more of the specialty batch products I have yet to consolidate. We intend to help the industry get that done. We’re very excited about that. The third one is we’re ready to start looking for additional acquisitions that make sense for this business. My job is starting to be liberated as we have the team, the ERP being implemented, and the basic operating system. We’re going to have the capacity and machine to look at value-added acquisitions that can fit into our business and our model.
There are a lot of small to medium-sized businesses out there that maybe have a generational ownership change that they need to make or they need to attach to different manufacturing assets, including carve-outs as the large companies. Look at their portfolios. They have product lines that don’t fit them. Now that we have a structure, I hope we can find some of those. That’s never overnight. Typically, it takes a while, but I want to get back in that game.
That’s exciting. It sounds like it has been a good year for you and for Verdant. I’m glad that you were able to share that with us.
Thank you very much. It was a great year. Sometimes, I think there are easier ways to make a living, but I’m not sure there are more fun ways to make a living for me. It has been a lot of fun. There are a lot of great people supporting us. I appreciate the opportunity to tell our story.
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This episode is sponsored by AVEVA.
About John Foley
John Foley is the CEO of Verdant Specialty Solutions, a global specialty chemical company that supports human well-being through the power of science and nature. An accomplished leader, John has a 30-year record of success in both the specialty and commodity chemicals industries.
John joined the Verdant management team upon the company’s formation in May 2021. Previously, he was the CEO of ORG Chemical Holdings, a business that he transformed from 2015 to 2020. His career includes 25 years with the global chemicals firm Solvay and its predecessor companies, where he held regional and global leadership positions. John was vice president of divisions that offered solutions for the home and personal care, agrochemical, coatings, oil and gas, and industrial markets. He has also served on several boards including the Board of Directors for Solvay North America, ORG, and the Society of Chemical Manufacturers Association (SOCMA).
An agricultural economist by training, John earned his bachelor’s degree in agriculture economics from the University of Nebraska in 1984. He attended Harvard University’s General Manager Program in 2001.
John was born and raised on a farm in Nebraska, where he lost his right arm at age six. This formative experience taught him the value of determination, diversity, and human potential. John is a voracious reader, marathon runner, dog lover, father of two adult children and a foster parent with his wife Krista. John lives in Houston, Texas.
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