How a fierce acquisition strategy can destroy value instead of create value. Using different frameworks, we analyzed Enclean's case in the U.S. Chemical industry

1. EnClean
Group E
Daria Aleshina
Mauro S. Brancaccio
Jesús Monzó
Nicole Pagnoni
Joaquín A. Ramirez Mongil
Ramón Schmitt

2. Company Overview
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
EnClean's Revenue/Service
Mix
Industrial
Vacuuming
Chemical Cleaning
Hydroblasting
Site Remediation
Catalyst Handling
Other
 Provider of industrial &
environmental cleaning services
 Recognized as a quality industrial
services company
 Early years - known for capital
appreciation through balanced
growth, acquisition, and
integration of successful proud
companies and operations.
Overview Analysis Resources & Capabilities Evaluation Recommendations

3. PEST Analysis
POLITICAL
• Substantial
difference after
1992.
• Bush’s declaration
of a possible
environmental
Moratorium.
• Strict disposal
laws.
ECONOMIC
• Continuous
economic
recession.
• Cost cuts in
cleaning industry.
• Substantial debt
& lack of easy
access to credit.
• Uncontrolled &
unrevised F.A.
• Elevated
employee wages.
• Oil crisis.
SOCIAL
• Environmental
concern regarding
peoples perception
due to Exxon
Valdez disaster
(1989).
TECHNOLOGY
• Competing
technological
developments.
• Replacement
technology/solution
s.
• Technology
legislations.
• Safety
regulations.
• Intellectual property
issues.
Overview Analysis Resources & Capabilities Evaluation Recommendations

4. Porter’s 5 Forces
Industry
Competitors
New Entrants
Substitutes
Suppliers Buyers
Threat of substitute products
• Customer loyalty decreases risk of substitution.
• Refining: low cost – lower substitution threat.
• Chemical: high costs – higher substitution threat.
Bargaining power of customers
• Low switching costs.
• High concentration.
• High price sensitivity.
Rivalry between the industry's firms
• Fragmented.
• Localized.
• No major players.
• High diversity amongst competitors.
• Excess capacity.
Threat of new ‘potential’ entrants
• Low capital requirement.
• No economies of scale.
• High product differentiation.
• 0 legal barriers.
• High retention risk.
Bargaining power of
suppliers
• Specialized machinery.
• Low concentration of
substitutes.
Medium-highthreat
Medium-lowthreat
Highthreat
Lowthreat
Mediumthreat Overview Analysis Resources & Capabilities Evaluation Recommendations

5. Timeline of Key Moments
January 1988
EnClean shifts away
from the low-cost
producer strategy
May 1988
Ed Bogle enters to
lead the strategic
planning process
April 1989
EnClean goes public
in a need to
refinance the
company
June 1989
Implementation of
cross-selling services
throughout the
geographic network
May 1991
Mike Bonem enters to
lead marketing efforts,
develop market data &
coordinate sales and
training
January 1992
Bush’s state of union
address: looking at
environmental issues
& considering a
moratorium
March 1992
EnClean hits crisis
mode
May 1993
Secret board meeting
Overview Analysis Resources & Capabilities Evaluation Recommendations

6. SWOT Analysis
STRENGHTS WEAKNESSES
OPPORTUNITIES THREATS
• Connect-the-dots strategy
• Weaver
• Diversification
• Brand Recognition
• People & Equipment utilization
• Cross-Selling Services
• BOD
• Sizemore’s poor cost accounting system
• Poor acquisition team/strategy
• Bad F.A. investing decisions
• Nepotism
• Ed Bogle
• Lack of monitoring scalability
• Unclear operational strategy
• Intercompany conflicts
• Make the ‘Weaver’ full-time
• Synergies
• Assess the current business portfolio
• Cross-selling
• Merging
• Integration of B.S & I.S
• Strong Corporate Culture
• Extensive diversification
• Regulations
• Price fluctuations
• Stock price volatility
• Uncertain/declining economic conditions
• New technologies
• Price competition
Overview Analysis Resources & Capabilities Evaluation Recommendations

7. 7 s of McKinsey
Tim & Malcolm had complementary
skills.
Strong BOD.
Importance on safety.
Heavy acquisition strategy:
importance on expanding into all
sectors of the industry.
Weaver.
Connect-the-dots strategy.
2 pronged growth strategies:
expanding geographically &
broadening service-lines.
Quality.
Safety.
Network of facilities.
Provide multiple services.
Employer of choice.
Initially staff was focused on quality
& fully trained.
As time progressed quality began to
decline.
Too many people doing too many
different things.
Unclear vertical structure.
Lack of horizontal organization.
Miscommunication amongst different
units.
Tim: handled day-to-day activities.
Malcolm: raised capital, made
acquisitions & handled admin.
Training process for companies buying
into EnClean.
Fast moving/ adaptable daily service.
Flexible.
Decentralized.
No defined structure.
Once the weaver was introduced there
was no more execution.
Multiple angles to problem solving.
Structure
Strategy
SHARED
VALUES
System
Style
Staff
Skills
Overview Analysis Resources & Capabilities Evaluation Recommendations

8. Resources & Capabilities
R1. Finance
R2. Technology
R3. PPE
R4. Location
R5. Brands
R6. Sales force
R7. Corporate Culture
C1. Safety
C2. Quality
C3. Strategy Development
C4. Sales
C5. Synergies
C6. Cross-selling
C7. Training
C8. Purchasing
C9. Communication
RelativeStrength
Strategic Importance
1
1
5 10
5
1
0 Superfluous Strengths Key Strengths
Zone of Irrelevance Key Weaknesses
Overview Analysis Resources & Capabilities Evaluation Recommendations

9. Resources, Capabilities & Competitive
Advantage
RESOURCES
TANGIBLE
• Lack of financial resources.
• PPE.
• Connect-the-dots.
• Machinery.
INTANGIBLE HUMAN
• Technology: high in acquired
tech, low in R&D related.
• Good reputation given to top
safety & quality.
• Low company culture given the
excessive scalability.
• Initially high skilled labor force.
• Strong BOD.
• Strong communication &
collaboration with frequent
meetings.
• Weaver.
• Training.
Organizational Capabilities
• Cross-selling
• Diversifications of acquisitions.
• Quality
• Safety
Competitive Advantage Strategy
• Cross-selling.
• Expanding.
• Quality & Safety.
Industry Key Success factors
• Customer relationship.
• Reputation.
• Synergies.
• Quality & Safety.
• Cross-selling.
• Location.
• Sales force.
• Leadership.
Relied on the organizational
capabilities.
Overview Analysis Resources & Capabilities Evaluation Recommendations

10. Resources & Capabilities
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$120,000
1992 1991 1990 1989 1988 1987 1986 1985
Liabilities+Shareholders
Equity
Current liabilities Long-term debt Shareholder's equity
$4
$2
$0
$2
$4
$6
$8
$10
$12
$0
$20
$40
$60
$80
$100
$120
1992 1991 1990 1989 1988 1987 1986 1985
Mn
Mn
Revenues Cost of Goods
R&D Selling, general and admin expenses
Depreciation and amortization Net income
Operating Income Interest
• 247% increase in debt from 1990 to 1992.
• Increased debt-equity ratio to 2.09 in 1992.
• High amortization on depreciation expenses.
• Stock market Price from $22 to $3 in one year
• 64% increase in interest expenses from 1991 to
1992.
• $ 2.6 mill. negative net income in 1992.
• 62% increased revenues from 1990 to 1991.
8 €
10 €
18 €
16 €
22 €
3 €
$0
$5
$10
$15
$20
$25
198819891990199119921993
Enclean's Stock price
Overview Analysis Resources & Capabilities Evaluation Recommendations

11. Evaluation
Rapid and intense growth generated poor synergies within the business. In
order to grow, EnClean incurred into a substantial debt, creating financial as well as
structural problems within the firm.
PROBLEMS&ISSUES
Overview Analysis Resources & Capabilities Evaluation Recommendations

12. Recommendations
Full-time weaver.
Integrate financial statements.
Increase senior management.
Thoroughly analyze the new paradigm of the industry.
Clear goals & objectives across all levels.
SHORTTERM
Focus on core competences.
Divest on unprofitable businesses.
Create a Synergy group.
Create a coordinated management system.
MEDIUM
TERM
Renegotiate existing contracts.
Create frequent evaluations.
Improve equity-debt ratio.
Improve cash flows.
LONGTERM Overview Analysis Resources & Capabilities Evaluation Recommendations