Finding the right fit
Corporate culture is a determining factor in company’s acquisitions
- September 28, 2018
Kevin Murphy has completed an eventful first year as CEO of Newport News-based Ferguson Enterprises Inc., the largest plumbing wholesaler in the U.S. and the third-largest distributor of industrial and HVAC products.
Ferguson Enterprises, which recorded revenue of $15 billion last year, acquired nine companies during its last fiscal year and another three so far this year. It began construction this summer on an $86 million, 260,000-square-foot structure, its third headquarters building in Newport News. The 65-year-old company has more than 27,000 employees in more than 1,400 locations. In Virginia, the workforce includes more than 3,800 associates, with 1,625 working at the Newport News headquarters.
Ferguson Enterprises, in fact, has become such a powerhouse that its parent company has taken its name. Switzerland-based Wolseley plc became Ferguson plc last year.
While noting these high-profile developments, Murphy is quick to turn attention to the role that corporate culture plays in the company’s growth.
“Every acquisition we do starts with: Is there the right cultural fit? Are the values of that corporation the same or similar to our values? When you have that as your mindset, it makes for acquisitions enhancing the culture as opposed to distracting from it,” he says.
Murphy, 48, saw firsthand how this approach worked when Ferguson Enterprises bought his family’s 22-year-old business, Columbus, Ohio-based Midwest Pipe and Supply, in 1999. After the acquisition, he worked in a variety of Ferguson management positions before being named chief operating officer in 2007. Murphy was promoted to CEO last year.
“I really fell in love with the people and the culture and was so appreciative of the way that they brought me into that culture as an acquisitions associate years ago. That same spirit really helped me to transition from the COO job to this job last year,” Murphy says.
Ferguson Enterprises has about 250 showrooms, but little of its business is purely retail. While consumers can buy light fixtures or appliances at these sites, Murphy says, the bulk of transactions conducted there is project-oriented.
“Most people think of our Ferguson retail business as that showroom asset because that’s the most recognizable to the public,” he says. “But even that is really a connected retail experience where a designer, a remodeler, a builder, a trade professional who is doing work for a consumer, helps to bring that consumer in, to help aid in the design choices, to have a consultative experience [with Ferguson Enterprise employees] to make that project better.”
Twenty-three percent of the company’s business is conducted on the internet. Many of those purchases, however, also involve interaction with Ferguson Enterprises staff.
“North of 50 percent of that volume has some degree of consultative approach with our inside sales associates — through chat, email, text or phone — where we are guiding that person through the process to say, ‘Here’s how we think this might be better for your project,’ and offer a consultative solution. That’s foundational for everything we do. We call it ‘Thought Leadership.’ Everything we do inside the company needs to be driving towards Thought Leadership to make a project better for the trade professional and the end user.”
Murphy says becoming CEO has given him a new perspective on Virginia’s economic development. “I knew the business side, but we are a big employer in the state of Virginia and becoming involved with the economic development side has been very enjoyable, and it will probably become a bigger part of what I do as we move on, now that I got this first year of transition under my belt.”
One of his biggest economic development concerns is building a skills-trades workforce. Ferguson recently signed a three-year, $300,000 partnership with the workforce development group SkillsUSA. The company also helped develop a nine-week plumbing-training class in the Peninsula area.
Murphy is a 1992 graduate of Miami University in Oxford, Ohio. He and Mindy, his wife of nearly 25 years, have two sons. One attends High Point University in North Carolina, and the other is a junior in Jamestown High School.
Virginia Business talked with Murphy at the company’s Newport News offices on Aug. 21. The following is an edited transcript.
Virginia Business: You came to the company through an acquisition. Was it an adjustment to come to a large corporation like that?
Murphy: I didn’t think that a large organization would ever embrace the leadership of a small family-held business. Quite the opposite is true.
If you think about how we approach acquisitions, we could buy buildings, we could buy trucks, supply-chain capabilities all across the U.S. The reason that we do an acquisition is for the people involved in that business, for their relationships in the market. What makes their capabilities unique is how they approach a customer base.
VB: You’ve had some recent acquisitions. You talked about how people were important, but how strategically important were these latest acquisitions?
Murphy: We’ve had a good mix in the past 13 months … of traditional wholesale distribution companies, that again bring associates into our company that have relationships in the geographic marketplaces that they operate in … [and some nontraditional companies]. We have purchased a pure-play e-commerce business [AC Wholesalers] that does HVAC equipment and supplies, which is very nontraditional in the approach of the HVAC repair-model business.
We [acquired] an e-commerce business called Supply.com that really starts to get after a changing trade population, and how they want to act, and how the trade professional wants to transact in an omni-channel way, while still having a consultative approach … We bought a walk-in tub business for the aging population … called Safe Step just recently.
We recently made an investment [through] our Ferguson ventures arm that is brand new to our company this year in [GTP Services, a construction industry software provider]. These are nontraditional ways for us to partner with and bring together companies that have to do with a changing construction industry, that have to do with how we are looking towards productivity in a construction industry that has been challenged in that regard for a long, long time.
VB: Let’s talk about your headquarters expansion. That’s a massive project. Where does that stand? Tell us a little bit about how big it’s going to be.
Murphy: I guess if we think about it, the biggest issue for us is Newport News is our home. Virginia is our home. So, we wanted to make not only an investment in our home, but also a symbolic representation of what it means to us. What we ended up doing is we are going to consolidate several locations that exist on the Peninsula and bring them together in this third headquarters building … that will be located at City Center.
We did the ceremonial groundbreaking [in June]. We are looking at a two-year construction time horizon. We’ll be moving 1,200 to 1,400 associates into that building in total. It’s a large capital investment for us, but one that is squarely focused on not only providing our associates with a great place to work, but also a real symbol around what our evolution as a company is. It’s going to be extremely state-of-the-art in terms of technology. It will have an open-concept environment that really facilitates collaboration, both in physical space in that headquarters building, but also through the use of technology across all the 1,400-plus locations we have coast to coast, border to border.
Although we are doubling down on our commitment to Newport News, Va., we also have centers of excellence that are popping up all around the country, based on talented associates that want to live in a particular geography. So, we’ve got good investments in Chico, Calif.; we have got good technology investments in Atlanta, Ga. The person that runs our commercial business is in Chicago, Ill. We have people dispersed all around the country that will really collaborate with this technology and design space that we have inside our headquarters-3 building.
The other part of it is that it will provide a good quality of life for our folks. Like I said, it will be a wonderful facility. It’s got a rooftop terrace that will be used for not only meeting space, but areas where they can work, have lunch, collaborate with colleagues. It’s located inside of City Center, so there is good retail and shopping environments that people can walk to. The outdoor space is going to be fantastic. So, it really was designed to get at what the desires of our future associate base looks like, their work/life balance and a comfortable work environment for them to collaborate with associates.
VB: Now, Wolseley rebranded itself as Ferguson plc. You represent more than 80 percent of the revenue, right?
Murphy: About 90 percent of the profitability of the group.
VB: Wow. Was the reason the parent company name was changed?
Murphy: If you look at the reasoning behind it, Ferguson is the most recognizable brand inside the portfolio, the largest piece of business inside the portfolio. It’s where the bulk of the investment will go just in terms of ability to win resource allocation and things like that. As you look at how our share ownership is, we have a fairly substantial ownership position with U.S. investors, and so having a recognizable brand that exists in the markets where that investor base lives is important.
VB: Ferguson plc is traded on the London exchange. Is there a plan to put it on the New York Stock Exchange?
Murphy: Not at this time. We think there is ample liquidity, still trading in ADRs [American Depositary Receipts] here stateside. So, right now, the plan is to continue on the London Stock Exchange.
VB: Ferguson has been named to the Forbes list of America’s Best Large Employers. How do you become and maintain a status as an employer of choice?
Murphy: That was a real highlight of this past year. For us, this is just a public recognition of the things that make our company special and important for 65 years. If you look at our roots. [former company President] David Peebles said, “Take care of associates; they’ll take care of your customers.”
That is a cultural bedrock for us … We measure associate engagement as one of most important things for our leadership. Because if you don’t take care of your associates, if you don’t take care of providing opportunity for your associates, the company won’t be successful. You won’t be successful as a leader ...
When I was in independent business, a lot of people used information and knowledge as a blanket of job security. When I came to Ferguson, it was completely the opposite. The culture was: If you don’t teach or train someone to be better than you are, then you can’t have that next step. That is how we live every day. The biggest mark of a leader who accelerates inside our company is how do you develop people and make people better.
VB: That brings us to [your efforts to help build a trade-skills workforce].
Murphy: Over the last many years, we have had a push in this country, for the right reason, to increase the educational opportunities for our people and making sure that college is a good path. But as we see it, the trades are a wonderful path for people — not only earn a living, not only help build America, but also to become a small business owner.
As we look at what’s happening to the trade-professional ranks out there, we lost a tremendous number of people during the downturn in the construction industry. It just hasn’t migrated back. Particularly in the plumbing force, what we see is an aging out [of workers] with not as many people entering that profession to [replace] those people going into retirement. So, how do we make it so that it’s an attractive path to a great career, a great way to start a business and a way to provide for your family? That’s what this is all about. How do we make sure we have the proper workforce to build this country and to do the projects that are necessary?
[We’re working with] local high schools, local trade schools. How do we make it an attractive career path? How do we help those trade schools and how do we help the licensing requirements to make it so it’s a faster path with a qualified workforce that brings a professional environment to construction activity?
VB: Are there any philanthropic programs that you’re involved in?
Murphy: We do a great amount of philanthropic work inside this company and, yes, it exists here in Hampton Roads and in our headquarters environment. But it really exists throughout all of our 1,400 branches across the country, and that’s how we think about entrepreneurialism inside of the branch network today. We have a lot more that is centralized, but our associate base gravitates towards what are those things that are important to our business, our local community, and how can we make a difference in those local communities that we operate in?
One of the proudest moments we have as a Ferguson family is, when we have a natural disaster, how we come to aid the community in that rebuilding effort. The work that our associates did in Houston, Texas, after Hurricane Harvey, the work that our associates did after Irma in Florida and Puerto Rico was amazing … Our [distribution center] manager in Frostproof, Fla., opened the doors up to families who had been displaced during Hurricane Irma and brought them in and created showers and a living environment for them …The way our associates rally around those kinds of things brings the true spirit of Ferguson out.
VB: Is there something we haven’t covered that you want to talk about?
Murphy: We’re a career orientation organization. We’re not a job. Just like I said, on the business side, we are not a transaction, we are a consultative process to a project.
The same applies to how we think about our people. This is a place where we are going to provide you with opportunity for growth in sphere of influence, growth in standard of living, within the areas that you say grace over. If we don’t do that, you will leave us, and we won’t be able to grow our company with best associates.
My predecessor to this job [Frank Roach] had 42 years with Ferguson Enterprises. He used to say that he worked for the company for 42 years, but never worked for the same company each year because we changed, and we provided opportunity for growth, and we evolved as an organization. That’s how we think about our company today.