How Barry-Wehmiller Built a $3.6B M&A Machine Fueled by Culture with Bob Chapman and Kyle Chapman

Oh, we appreciate the opportunity. Can we start off with a little background? I think we need two parts: an individual background and a Barry-Wehmiller background. I'll go first. I've got a pretty traditional business background. I got an accounting degree from Indiana, MBA from Michigan, went to Price Waterhouse, was in public accounting for a couple of years, and was invited by my father to join a pretty broken family business that he had invested in in the 1950s, which was struggling. But I decided to take on the challenge. I began in 1969, joining an $18 million company that was old technology. But I brought my skills to it. We transformed the company from that $18 million to $3.6 billion. It was a Barry-Wehmiller family company for almost a hundred years and has been the Chapman family since 1963.

Yeah, let me give you a touch again. The company was founded in 1885 by Mr. Barry and Mr. Wehmiller. Mr. Wehmiller was the inventor and Mr. Barry was his brother-in-law who was the financial partner. Mr. Wehmiller developed a continuous motion pasteurizer that allowed breweries to pasteurize beer and ship it to further distances. The company grew dramatically internationally in the early 1900s. Then he died in the teens, and his wife Lily Rashers took over until their son Fred could take over. But the company struggled when Mr. Wehmiller died and his wife took over and then their son took over. The company never had the innovation that drove its early period. So it existed like many family companies based on its history but it struggled with international competition and with leadership. My dad was an Arthur Andersen accountant and was asked to come in and do the audit of Barry-Wehmiller in about 1950. The banks wanted an audit, and Mr. Wehmiller said, 'Would you join Barry-Wehmiller and become our treasurer and general manager?' So my dad stepped out of public accounting to help this struggling family company. Big risk, but then he had a chance to invest $30,000 in stock in the mid-50s. Then in 1963, a company approached my dad and said, 'We'll lend the company the money if you want to buy out the Wehmillers.' So basically a leveraged buyout. The factoring company lent the company money against its receivables, the cash was used to buy out the Wehmillers, and our family became the controlling interest. We inherited an older company. I think it's important to your audience: I studied when I was a young man because it's a St. Louis company. I knew some of the people. I studied Emerson Electric and how Chuck Knight built Emerson Electric through acquisitions, and I hired some of his key team members. I was intrigued by this balanced business model. So my dad died six years after I joined the company. I took the passion I had gained for the company—bottle washers, pasteurizers, the brewing industry—and I spent from '75 to '83 trying to take its history and give it a future, with some significant financial challenges and mistakes I made. In 1984, I looked at my finance team, barely financeable, we were on the edge financially, and I said, 'I'm proud of our history, but our history does not give us a future.' So I began having studied or selected, I said, 'We need to acquire companies that have a better market position that gives us a better future.' So I began doing acquisitions with no experience, purely to give the company a better future from its history to its future. So 140 acquisitions later, we've transformed this company from a company focused on its historic markets of the brewing industry and returnable bottle washers and beer pasteurizers to a diverse global company that has seen share price growth of over 10% a year compounded for 25 years. So we've created a vibrant organization through a combination of acquisitions and organic growth. Today, that $18 million company when I stepped into it is a vibrant company that is now $3.6 billion, and Kyle's vision is on its way to becoming a $5 billion global company that we hope is a symbol of what companies could be: good stewards of the people we have the privilege of working with as team members, as investors, as clients. Kissan, real quickly, where we are today, just to kind of go in from that $20 million single product, single customer, single technology. Our $3.5 billion is focused on two business models. Highly engineered equipment, our history, serving the packaging market: we make packaging machinery, equipment that makes corrugated boxboards, equipment that makes toilet paper—you're welcome—equipment that fills cans, things you touch every day come off of our equipment. The other business model is professional services, kind of complex professional services. So we will help a pet food facility with all the engineering around how to process pet food, we'll buy the equipment, put the controls, even help construct the facility. So we have business-to-business consulting as well. The mix of our business: about one-third comes from equipment, one-third from parts and services, and one-third from this high-end professional services firm.

Yes, privately held.

But let me add, privately held but we adopted something I think your audience will find interesting. When I was doing an acquisition in the 90s, our privately held company was valued on the basis of book value. We would sell to our executives stock at 91% of book value and buy it back at 91% of book value. We were doing an acquisition trying to buy a company and use our stock, and we embraced what we called EVA—Economic Value Added—to value our stock in the transaction with this company. So we gave him stock at Barry-Wehmiller valued by EVA, which simulates market value, and we valued his company on that basis. That opened our mind to a way to value our privately held company that emulates a publicly traded company. Because it might be confusing to the audience that I said our share price has gone up more than 10% a year compounded for over 25 years. We value our company with the methodology of economic value added, and it has allowed us to look at transactions on a very professional level. So as a privately held company, we have a simulated market value all the time. We're trading at a certain multiple, we can compare to public companies, but we don't have the issues of a publicly traded company. That's a unique thing we do as a privately held company. We're a privately held company that operates with the best disciplines of a publicly traded company and value that is constantly measured through EVA methodology.

Kissan, the funny thing is, having done 140 acquisitions, you would think two would look alike, and none of them do. So the answer is, in some cases we'll buy a business out 100% cash. In some cases, if it's a big transaction and we like to keep our leverage low so we can operate in all types of environments, we'll ask the seller to take rollover equity into Barry-Wehmiller. In some cases, if there's a difference in valuation, we'll use seller paper or earnouts to help bridge the gap. You name it, we've done it, and we've probably done a couple of others you can't even think of.

Yeah. Let me just comment before Kyle does. We did this because I had some revelations that changed my view of my responsibility as a leader: to not see people as functions for my success, but to see people as somebody's precious child who's been placed in my care, knowing the way I lead Barry-Wehmiller would impact their personal life. So those revelations occurred, and we began to embrace this culture. I would say to you, the byproduct—the reason we did it was through the lens through which I saw people change from what I was taught and experienced, and what happens is it becomes an incredible strategic advantage in addition. Not only are you caring for your people, but you attract unbelievable talent to your company. I mean, unbelievable talent from major corporations around the world because they want to work for a place that cares about them. And again, not only does it attract talent, but it attracts companies that want to transition ownership. They want to talk to us because they can't talk to anybody else who will talk about the stewardship of their people. So it becomes a talent advantage, an opportunity to bring other companies into our sphere of care, and it becomes a strategic advantage. It's amplified our talent, our opportunities, and it retains. Because you can have the greatest business model, but if you don't have the talent, you've got nothing. The company today has exceptionally talented people from companies around this country who now can bring the skills they had and put them in a culture of caring. It creates a magnetic force that attracts talent, customers, opportunities. It's powerful, not just money. The other thing I want to mention briefly: when I began doing acquisitions, I had no money and no experience. That was an advantage when I look back because I couldn't afford to fail. If I failed, it was all over. So the fundamentals we developed were very conservative, looking for value. So this culture we've created becomes not only the right thing to do, but it creates strategic advantages over other people.

No, no, no. We traditionally began doing acquisitions like everybody else did. This really began with the acquisition of three companies that we did in 1997, about a $100 million acquisition, big acquisition. That's when it began. It was a series of three revelations. One was in 1997: we acquired a company called Haste in South Carolina. I flew down and was standing in the lunchroom. It was March of '97, March Madness. Everybody was having breakfast, talking about basketball, having fun. I just happened to notice that when it became 8 and they walked to do their job, the fun went out of their bodies. So my first revelation: why can't business be fun? Why do we call it work? The second revelation was sitting in church. My mentor was the director of our church. All of a sudden I looked at Cynthia and said, 'You know, our rector Ed has only got us for one hour a week. We have people for 40 hours a week. We are 40 times more powerful to impact people's lives than our church.' The final one was at a wedding. I realized that the lens through which I saw people was as functions—engineers, accountants, receptionists—and the lens through which I saw people at the wedding was reversed. I said, 'These aren't functions, they're somebody's precious child who's been placed in our care.' That revelation led us to totally transform the way we looked at moving from management, which is the manipulation of people, to leadership, which is the stewardship of people we have the privilege to lead. So that's how it happened. Started in 1997, ran through around 2001, which was the wedding.

Yeah. The way what I'd add to what Kyle said is people say to me all the time, 'I can understand having a good culture in your core business, but how do you bring it to all these companies you've adopted all over the world? How do you do that?' One of the things we've learned in this 20-year journey is everybody in the world, regardless of whether you're in China, India, Serbia, Italy, Germany, simply wants to know that you matter. That is a universal human truth. I'll never forget in Los Angeles, we were adopting a company. I was talking to the team members and said, 'Welcome to the family. You've got a good future with us.' A lady spoke up, looked like she might be in her 40s, got tears in her eyes and said, 'I never thought I was going to get a chance to work for a company that cared about me.' So whether the company is financially successful or struggling, the universal truth is people want to know they matter. They hear about us but think a lot of companies say good things but don't live those values. We're only as good as our reputation. Harvard wrote a case study about eight years ago on our culture, and it's become one of their best-selling cases with 70 universities using it to teach leadership how to care for the people you have the privilege to lead. We had an opportunity to acquire a company in France. There was debate with our board due to challenges with government intervention and workers councils. I flew over to meet with the workers council. I sat down with about eight people. I explained welcome to the family, we're going to build a good world together, and shared our guiding principle: we measure success by the way we touch the lives of people. Normally workers councils are in conflict with management. At the end, a gentleman named Felipe looked at me and said, 'Mr. Chapman, could I say something? We've been waiting for you for 32 years.' They began crying. Why? Because even the government can't protect your soul. The government can't show that you matter. In Serbia, we had an opportunity to acquire an exceptional company, competing against all our competitors. The owner picked us because of our culture. We now have almost 500 people in that plant, and the culture is amazing. This is a universal truth. You can't just ask people to care; you have to teach them how to care, which is what we do. We didn't do this to attract companies or people. We did it because it's a responsibility of leadership for those people in your care to send them home each night knowing that who they are and what they do matters, because the way you lead impacts the health of your team members and the way they go home and treat their family.

Kean, the other thing for your listeners to add to that. When I began in 1984 to start doing acquisitions, I looked for companies that had a better market than we were in. But eventually, what I look for—because in the 80s I really struggled as a company and I learned a lot when I struggled—and so in 1988 when we had a chance to kind of start again fresh after we spun off two-thirds of our company in the London Stock Exchange and we were financially stable, I said, 'What did I learn?' What I learned to do was fix struggling companies, which I had done. In our market there were a lot of struggling companies. So I took what I had learned and took it to other companies that had similar issues. That's why, as Kyle talked about, we started with companies that were struggling. Why? Because I felt comfortable that I could bring value to struggling companies in the future, and it worked out extremely well. What I learned through my mistakes in the 80s gave me a skill that other people didn't have. They didn't look at these companies because they were struggling; I looked at them and saw value. I'm not that smart, but I have good common sense, I'm creative, and I have a positive attitude. I was able to see value where other people didn't see value and buy at a competitive price because we did the deal. You know, they're not going to sell to us at less than that. But I saw value where other people didn't see it. So it was pretty much a passion to diversify our company, reduce our dependence on any one market.

And so we built this again the business model design. I want to emphasize that Kishan, our business model design is extremely intentional, based on a diversity of products, markets, and customers, so if something changes we don't hurt our people. I learned that from Emerson Electric. We are very intentional within our competencies to have diverse markets, customers, and products, so that again things change. We've seen a lot of change in our country in my lifetime and we are resilient to that, which has already been tested. We will continue to make sure that we are thoughtfully diverse in fields that we believe create opportunities for us in the long term. Recurring revenue, consulting revenue, so we're not dependent just on capital spending that tends to swing. We have recurring revenue, consulting revenue. The biggest thing anybody in your audience can do is make sure you have a vibrant business model design and you stay within your competency. I did a presentation at Washington University a few years ago on acquisitions and I read a study that 77% of all acquisitions fail to achieve the goals of the acquirer. Why? Because of deal momentum. You get in these deals, then you have to bid up and then you have to make it work, usually by cutting costs and transitioning people. I would say we were kind of born out of having to do acquisitions to have a future, but we had no money, so we had to acquire companies that other people don't want. They'll virtually finance it. That gave us some beginning competencies. Then we had this big event where we spun off two-thirds of our company on the London Stock Exchange, which gave us a financial base; Harvard wrote a case study on it. It gave us a new financial foundation to build a second company from our history. We began in 1988 with a $20 million company that now is $3.6 billion and is immensely thoughtfully diverse. It's a unique business model that I think will serve all of our stakeholders and our customers well. What's the biggest risk in M&A? The biggest risk in M&A is overselling revenue synergies. That's how people talk. I'm surprised you count them. No, that's how you convince yourself to pay more. But honestly, it is a misread on culture. If you don't have cultural alignment, things just fail. People operate in silos. They don't want to collaborate. Having that cultural alignment is super important. When you're aligned culturally and you have standard expectations of what you want to do together, people lean in and work together and collaborate. But if you have toxicity that exists on one side, it's very very difficult to do well.