The Keys to Successfully Integrating Acquisitions

In the video interview below, Motley Fool CEO Tom Gardner speaks with Middleby (NASDAQ: MIDD  ) CEO Selim Bassoul. Since becoming CEO in 2000, Bassoul has led a remarkable transformation at Middleby, the cooking equipment maker, turning the stock into a nearly 50-bagger over that time. In the video below, Bassoul discusses the ways his acquisitions are able to succeed with Middleby.

Middleby is one of Tom Gardner's favorite stocks, but you can never have too many great companies in your portfolio. If you're looking for more ideas, our chief investment officer has selected a different stock as his favorite for this year. Find out which stock it is in the free report: "The Motley Fool's Top Stock for 2013." Just click here to access the report and find out the name of this under-the-radar company.

Tom Gardner: What about integration? How can an outside investor follow Middleby and know how to understand how integration is happening? Because that's another problem area for companies that make acquisitions. The cultures are different, the compensation philosophy is different and the attempt to force that business; we had the chief customer officer of Land's End. Land's End was an incredible business, an incredible stock. It was an absolutely incredible stock in the '80s and '90s, and the founder decided to sell the company. And he sold it to Sears and that utterly destroyed Land's End. The culture of Sears crushed the innovation, the love of company that employees had at Land's End, and is not the same company at all today. So I understand management remains in place; that's one thing that keeps that culture intact, but what are you trying to integrate into Middleby and what are you trying to allow to be decentralized in...?

Selim Bassoul: Middleby has been buying a lot of privately held companies, mostly family owned or an entrepreneurial founder. We try to keep the management in place. We don't have people sitting on the bench at Middleby. We're (unclear), so we don't take people from Middleby and turn them over to the new acquisition. If we don't believe that management is capable to stay at that company, we do not buy that company. That's No 1.

No. 2: It's literally a mixture between an IPO and a private equity what Middleby buys. We provide liquidity to that management or to that founder/entrepreneur. Then when they come into us, that company could not have been able to go to China, Brazil, India, Middle East, Mexico, without our infrastructure, so it gives them an access, immediate access to international. In many cases, those companies also have not the ability to build the relation they have with the supplier, given the scale we have, so the first thing becomes another leverage.

No. 3: The most exciting for us is we provide earnout. There's an earnout to make sure that those people retain value as they help us make the money we're going to make as investors into that company, and we leave them autonomy. They continue operating on their own. We leave them getting that patent technology going; however, in many instances they lack credibility within the chains.

The most important -- we'll talk about it later -- is our no-quibble warranty. Now, suddenly, I take a company that has a disruptive technology, that has no ability to get to a Olive Garden or Red Lobster, just because there's no president or VP of operation at an Olive Garden that has 850 stores, that's going to come in and take a company that's $20 million, hasn't been tested and roll it, gives them an order as big as that company is.

And at Middleby, we give that guarantee. We've had a relationship with those customers and they understand. If something was wrong, we're going to stand behind it. We're going to train; we're going to implement it right. We're going to take it overseas, in the case, for example, for Yum! where we take that technology overseas, and we're going to basically train their people, whether it's in India or in China or in the Philippines in our own test kitchen, which a small company could not do.

Middleby is one of Tom Gardner's favorite stocks, but you can never have too many great companies in your portfolio. If you're looking for more ideas, our chief investment officer has selected a different stock as his favorite for this year. Find out which stock it is in the free report: "The Motley Fool's Top Stock for 2013." Just click here to access the report and find out the name of this under-the-radar company.


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