Magazine Article | September 17, 2012

Leverage Acquisitions For Explosive Growth

By Gennifer Biggs, Business Solutions Magazine

As converging technologies hit the food-and-beverage vertical, this independent software vendor (ISV) expanded its line card and grew by eight locations.

For AFS Technologies, which provides its food-and-beverage distribution customers with a range of business automation solutions, convergence in the technology industry has opened the door to a new consultative sales approach. To take full advantage of the opportunity tied to convergence and earn a competitive edge in the marketplace, AFS acquired and customized a full suite of vertically specialized and complementary technology solutions. Then, AFS capped off its portfolio with a business intelligence tool that helps its customers identify potential internal trends and efficiencies that can offer them a competitive advantage.

As an ISV that opened its doors almost 30 years ago, AFS has seen a lot of change in the food-and-beverage industry, says Abe Nezvadovitz, VP of strategic alliances and services for AFS. As part of that evolution, AFS has watched the needs and wants of its distributor customers grow. "Technology has changed so much with the addition of wireless, miniaturization of handhelds, and more," says Nezvadovitz. "Improvements in technology have allowed us to make more solutions available to our customers and enable them in entirely new ways."

Acquisitions Fuel Continued Momentum In Vertical
To keep its customers on the leading edge of technology, AFS needed a plan for tackling adjacent technologies. The ISV's roots are in providing enterprise resource planning (ERP) tools for food-and-beverage distributors, solutions that included basic financials, accounting, inventory control, and invoicing. But when AFS chose, many years ago, to focus in on that vertical, it understood it would need to serve more of its clients' needs. "We had many sophisticated customers, and as technology started to offer more functionality, we knew those customers would demand more services, and we needed to be ready to tackle those demands," says Nezvadovitz.

The first addition to the AFS linecard was a warehouse management system (WMS), which can be a complicated product to tackle in food and beverage given the different methods of billing and other issues. For example, many food warehouses bill by the pound, not the case, which is not addressed in many WMS products. Additionally, food and beverage distribution are heavily regulated and demand the capture of layers of regulatory information other WMS tools may not be calibrated to handle. "It used to be OK for food distributors to just keep track of who they bought product from. Today, you need to be able to track from the initial buy through all sales, for instances such as recalls of tainted food," explains Nezvadovitz.

After developing its WMS solution in-house, AFS started exploring other ways to expand its line card. Rather than build out new software products, the ISV chose to invest in acquisitions. "Our target growth curve drove that decision," explains Nezvadovitz. "The benefit of the acquisition process is a sharp growth curve." To further guarantee success, AFS targeted vertical-specific ISVs, only considering those they considered best-of-class. "The true advantage of this approach was that we not only acquired the intellectual property of those businesses, but also their human resources, which would have taken us the longest time to build out." Among those solutions brought into the AFS portfolio via acquisition was a laptop order-entry solution for sales forces. This acquisition also included the acquired company's database of products that, once integrated with AFS's other products, provides real-time access to a distributor's entire product line via laptop. Next, AFS layered on trade-promotion management and deal rebates through another acquisition. That allowed it to offer a manufacturer's rebate service to customers with neither the time nor expertise to track the potential sales, rebates, and other money-saving offers from food manufacturers. "It was economically impractical, so many of our customers didn't do it, which meant they were leaving money on the table. Plus, sometimes those pennies off a product can make or break a sale," explained Nezvadovitz. "We make it practical and share it across the broader base of our customers so they can take advantage of the economies of scale." Lastly, AFS went on the hunt for a business intelligence tool that took all the data harvested across its newly expanded product line and created insight on which businesses could build new efficiencies and profitability.

Acquisitions Along Vertical Lines Fuel Accelerated Growth Three Ways
Nezvadovitz cautions that a solutions provider or ISV that chooses acquisitions to fuel fast growth will face some challenges. Perhaps most important is selecting businesses that are already flourishing and healthy. While targeting successful businesses certainly raises the price, most are willing to negotiate as long as there is an advantage to them as well. "Without the acquisition, they struggle with scalability because they were pigeonholed, they have one niche. Now, as part of our portfolio, they can expand their potential base to include all of our other solutions, so the acquisition accelerates their growth, too. It's a win-win synergy."

For that interactive synergy to work, however, meant pulling in the acquired human resources, then recognizing and respecting their expertise. "We consider the personnel we brought over with these companies — all deeply experienced in not only the vertical but their individual technologies — to be as valuable, if not more so, than the products," explains Nezvadovitz. "We brought them over as teams with their software, because you can put the best players together into a dream team, but they may not be as good together as they were individually because they all have their own best practices. We didn't want to change that." AFS has trained its sales force to identify potential sales of adjacent products, and once an opportunity has been sniffed out, the initial salesperson brings in experts from whatever product line seems the best fit. Nezvadovitz says that consultative approach to sales was a different approach for AFS, but came fairly naturally as each sales team got comfortable with the full AFS portfolio.

Overall, the acquisitions delivered to AFS three key advantages: new products that were deeply aligned with the food-and-beverage vertical, experienced sales and support staff, and each acquired company's customer base. That trifecta has fueled amazing growth for AFS; the business has grown from one location in one state to a presence in nine states, all over the last eight years. "We grew our own sales both through new potential customers we could approach with our expanded portfolio and the existing customers of those other companies who now had a trusted source for complementary technologies," says Nezvadovitz. The integrated suite of solutions also has led to a secondary opportunity as customers strive to push their competitive edge forward with more efficient processes using AFS's new business intelligence (BI) tool.

Take Vertical-Specific Big Data And Create Business Intelligence
AFS's latest acquisition and marketplace differentiator allows it to turn the treasure trove of information housed in the automation solutions it offers into relevant and usable information. "All the information they need is right there if you look for it through the right lens," says Nezvadovitz. "We offer our customers the right tool to focus in on the data in our various systems and turn it into significant information they can use to evaluate what they are doing right and wrong and what trends are within their very own walls."

AFS offers BI tools that work with each of its solutions, so it can offer customers a way to leverage the data from ERP solutions to WMS solutions and beyond. Nezvadovitz uses the example of a large deli-style beef company with which AFS works. Not surprisingly, corned beef sales skyrocket around St. Patrick's Day but the business needs to know more than that. With AFS business intelligence tools the customer can look at analytics that help it plan the timing for ordering ingredients, ramping up production, hiring extra personnel, and shipping more volume. Those decisions are no longer educated guesses, which can cost a company thousands if off just a fraction. Rather, the BI pulled from the customer's suite of AFS solutions shows exactly when and where to shift gears for that holiday push. "BI is so far-reaching within an organization, it is a great value for us to offer because there is almost no place it doesn't have an impact on our customers," says Nezvadovitz. Since investing in acquisitions to take its vertical focus to the extreme and offer a one-stop-shop for its food-and-beverage distribution customers, AFS has enjoyed a steepened growth curve and an enviable level of customer retention. "We're expanding as our customers are doing the same, and that empowers stable, sticky relationships," says Nezvadovitz. "We have customers that have been with us for 20+ years because we continue to evolve and offer whatever they look for. And sometimes, we are the ones pushing them forward and helping them stay relevant, with solutions such as mobility and e-commerce. We help enable them to innovate and stay competitive."