The sale of Louisville Slugger earlier this week to a global company based in Finland hit locals hard — not only because it’s the most famous baseball bat of all time, but because the brand is part of the city’s identity.
But the fact is, Slugger is just the latest in a string of local firms to move, sell or agree to sell to outside interests in the past nine months. That list includes General Electric Appliances, hot startup BEAM Technologies, Louisville’s biggest trucking company Pegasus Transportation, K-I Lumber, and bringing it back to the diamond, the Louisville Bats.
In total, those companies employ more than 20,000 Louisvillians and account for billions of dollars in value. Not only that, their presence in the city has served as a tool to recruit corporate relocations, a sort of signal that this is a good place to do business.
When companies are bought, they often slim their operations, as Slugger will, which hurts the tax bases of their former homes. Also, corporations do much more than just provide jobs and pay taxes. They also cut huge figures in the community. Think of the Humana Festival of New American Plays or the Brown-Forman Nutcracker, or GE’s partnership with the University of Louisville’s Speed School.
So when they decide to leave, the question is not whether it hurts the city but by how much. There is a tangible impact, as with tax-base erosion and the loss of employment. But there are also intangibles.
Louisville Mayor Greg Fischer hinted at those while putting an otherwise happy face on the news of Slugger’s sale in a public statement.
“I’m glad that the iconic Louisville Slugger will remain in the city where it was created and nurtured by the entrepreneurial Hillerich family,” Fischer said. “The company’s factory and gift shop, an important tourism attraction for our city, will remain on Main Street and continue to be a top destination for people across the globe.”
After the Slugger dust settled, IL followed up with John Gant, director of economic development for Louisville Forward, the metro agency tasked with business attraction, retention and expansion. Gant said it’s important to remember that when companies are sold, it means they’re headed in the right direction.
“The more companies we can help grow, the better off we will be, which will lead to more purchases of strong companies,” he said. “I think this is not a negative thing. If we had no purchases, (that) would be a bad indication, I think.”
That’s a business perspective. But what about the civic cost? Does the city have plans to turn around the narrative of local companies moving their headquarters away?
“It’s not something we are trying to turn around,” he said. “We don’t have control of who buys (a company). The fact that companies are being purchased tells us good things are happening in Louisville.”
Gant said typically there isn’t much Metro government can do about a company being sold, as the deal is often not announced until it’s done. For instance, Metro officials found out about the Slugger sale when everyone else did. He said the Mayor meets with area CEOs to get a sense of how they view the local business climate. Meanwhile, Louisville Forward aids with workforce and permitting issues. “We’re in constant contact with them,” he said.
Some of these buyouts are part of the cycle of business. David Dubofsky, a professor of University of Louisville College of Business, noted that 2014 had $3.5 trillion worth of global merger activity — 50 percent higher than 2013 and the highest since 2007. Firms are sitting on a lot of cash now, and interest rates on capital are low. “All this can fuel M&A activity,” he said.
Still, Kent Oyler, president at CEO of Greater Louisville Inc., the metro chamber of commerce, wants the flow of deals to start going Louisville’s way more often.
“What we would much prefer is to have consolidators located here, and purchasing companies from out of town, and moving them back here,” he said.
Oyler said a big problem is that Louisville doesn’t have enough dedicated private equity activity, which would inject capital into local firms. Instead, local companies are acquiring capital by selling. An educational effort is needed to change that, he said.
“A lot of local companies are not familiar with how private equity works,” he said. “It has a reputation as a scary thing, where people come in and send in MBAs, and drive you batty. And there’s some truth to that.”
But they also offer value. PE firms provide equity over multiple rounds of funding, ultimately compensating owners better than if they just sold out, Oyler said, and keeping the firms local.
“They’re … going (to) grow your company a lot,” he said. “The PE (firms) bring in expertise and growth capital. My company grows faster, and I’m going to, as an owner, get more money out of it.”
The absence of local investment capital has hurt Louisville, and recently. The whiz-kids at BEAM Technologies, for example, were the model local startup, but they were lured to Columbus, Ohio, by a $5 million injection from Columbus venture capital firm Drive Capital. (PE firms typically work with more established private firms, while venture capital firms often fund firms closer to the startup level.)
There are local companies that fill some of that money-giving role, but even they see things need to change. Jonathan Blue, chairman of Louisville PE firm Blue Equity, said one problem is that local firms such as his often don’t even know local companies are for sale until it’s too late.
What can be done? He said someone in the city needs to make it their business to compile a list of all the area businesses run by their founder that are now anywhere from 30-50 years in. Often when a sale happens, there are succession issues at such firms, and the owner is looking to get out.
“There should be a short list of those companies that someone’s in touch with … before they get sold to someone out of state,” he said. “A list like that’s not too difficult to accumulate.”
Blue also said Metro government needs to do a more aggressive job recruiting existing businesses to come here.
“If we’re treading water, we’re drowning,” he said. “This isn’t to take a shot at anybody, but Rick Pitino and John Calipari recruit every year. They have to replenish that roster.”