The proposed merger of Safway and Brand cleared a couple of significant hurdles on its path to completion, after receiving clearance from the Canadian and US regulatory authorities. There were concerns among some that the combination of Brand and Safway would have anti-competitive effects and be subject to regulatory challenges. These concerns arose primarily in the industrial service area where Brand and Safway have significant overlap, especially in Canada. Other services offered by Safway and Brand are largely complimentary other than a couple of key competitive areas of the US, primarily in the Golf Coast region.
With regulatory approvals now in the rear view mirror, what’s next?
1. Race to close.
Now that the proposed merger has gained regulators’ approval, there are few additional impediments to closing. You can expect the Brand/Safway merger to be completed shortly, possibly as soon as the end of June.
2. Integration to begin in earnest.
Behind the scenes, key employees from both companies that comprise the “integration team” have been feverishly planning the integration of Brand and Safway. It is safe to say that there is a burning desire to put the integration plan in motion and get going. As I described in Brand/Safway Part I – an Integration Nightmare, many challenges await the new entity. The leadership team will carefully select “best practices” from each of the two companies. However, the start of the integration will raise many questions.
3. Acquisition activity to restart.
Both Brand and Safway had a full plate of acquisitions they were pursuing prior to the announcement of the merger. These potential transactions needed to be put on hold pending regulatory approval. With the regulatory approvals received, Brand/Safway will be free to restart these transactions. Brand/Safway will wield significant power in the merger and acquisition market moving forward. Yes, the big will get bigger.
4. Combining operations, who will survive?
When it was announced that Bill Hayes would lead the combined entity, a lot of Safway employees took this to mean that the Safway employees would have the edge in retaining their jobs in overlapping positions. Like Lee Corso likes to say, “Not so fast.” Safway has a well established history of keeping “the best available” when combining overlapping operations, nearly always without regard to where the employee comes from. Bill Hayes is a highly seasoned executive that has been through this before. He will be striving to fairly evaluate and keep the “best of the best”. As a result, there will be cuts on both the Safway and Brand side, resulting in a number of highly talented people out of a job. If you are in the industry, be prepared to move quickly to snap up some of the talent, as it likely won’t last long.
5. SafBrand? BrandWay?
What will the new entity be called? I keep referring to the combined entity as Brand/Safway because we haven’t heard what the combined entity will be called. Safway has the best name in the industry as a pure play scaffold provider, while Brand has the best name for a broad based industrial service provider the last 15 years. Safway has been around for 80 years and has survived where others have failed. Brand, while it doesn’t have the longevity of Safway, is clearly a well known brand (pun intended). It would be a shame to discard either of these two names and a tragedy to have them both discarded in favor of something totally new – that works for high-tech, less so for basic industries like industrial services. I think it would be best to keep both, either Safway Brand, or Brand Safway, but we shall see. I will refer to the combined entity as Brand Safway going forward, as I think it rolls off the tongue better than Safway Brand.
6. How soon until John Q Public can own a piece of Brand Safway?
It is clear that Brand Safway will pursue an Initial Public Offering (IPO), the question is how quickly this can happen. Many factors go into the timing of this decision, including some beyond the control of the Brand Safway management. Brand contemplated an IPO in its past and even got so far as drafting an S-1 (the document necessary to initiate an IPO). Expect Brand Safway to pursue an IPO during or shortly after the integration is completed and look to pick up your shares of Brand Safway sometime in 2018.
7. With the Headquarters moving to Georgia, what will happen to Waukesha?
Early in the process, it was announced that Bill Hayes, Safway’s current CEO, would lead the combined entity (one for the Safway side), and that the corporate headquarters would be in suburban Atlanta (currently Kennesaw, GA) – one for the Brand side. This is not uncommon in the merger of two industry giants. This begs the question – what will happen to the old Safway headquarters in Waukesha, WI (suburban Milwaukee). The answer likely will be "not much," and potentially "more work." If Brand Safway pursues its “best of the best” integration strategy, I wouldn’t expect too many changes in Waukesha. Safway has built a world-class operation that grew out of the commercial scaffolding operations. I would expect that very little will be done to commercial scaffolding business and for that business to be operated out of Waukesha. If anything, you can expect a heavier workload for the Waukesha operations as Brand Safway layers in the commercial operations of Patent and potentially Aluma. BTW – the shift of the executive headquarters from Waukesha to Atlanta didn’t really mean much, as the majority of the Safway executive team already operates remotely with very little time in the Waukesha office.
8. How will being public affect Brand Safway?
By going public, Brand Safway will be afforded many benefits, including liquidity for its shareholders and access to capital (critical in a capital intensive business like Brand Safway). However, being public is not without it drawbacks. Being public often requires predictability of performance and quarterly evaluations. Will Brand Safway be able to keep a long-term focus or succumb to the pressure of short-term, quarterly results? The only other industrial service provider to be public, was Patent/SGB when it was part of Harsco’s infrastructure division. Given the challenges Patent had in running its business, it is hard to tell if it was adversely impacted by being part of a public company or whether it was merely a sub-standard business with an ever-changing and inferior business model.
9. Following the merger, where will growth come from?
From my perspective, this is one of the most exciting questions. Regardless of the timing of the Brand Safway IPO, one thing is clear, the owners of Brand Safway will demand growth in the business. Both Brand and Safway have found that it is very difficult to grow in your base market when you are as big as they are. What typically happens is the large players in the industry take turns trading customers. This will be good news for Brock (and maybe newcomers into the large industrial space like Apache or Petrochem??), as clients will look for another party to shift their business to. As a result, both Brand and Safway have grown their businesses in recent years through acquisition, often into services not previously provided, or provided on a limited basis (see Safway’s acquisition of Safeworks, Safway Atlantic and Mobley). One thing is for certain, acquisitions of this type will continue and Brand Safway will exert great power in the space. It will be interesting to see how far the Brand Safway acquisition model will reach. Will the company get into manufacturing or importing to handle its capital equipment needs? What other services will be the target of the acquisition search? Don't be surprised if you are in this space or a related space and you get the call, “hello, this is Brand Safway calling.”
Needless to say, it is an exciting time in the scaffolding and industrial service industries and we will likely get more questions before answers in the short term, but rest assured, answers are on the way. Will you be ready? Stay tuned.