How to Split a Company in Two and Double the Profits

Thomas G. Dolan

October 2008

Many companies, especially those heavy on specialties, may add new products and services, or create new divisions within the company to diversify. But G. Earl Martin, Inc. took a different route. Instead of creating a new department or division, the company was split into two separate companies under the same ownership. Martin Plastering Contractors, Inc. and GEM Wall & Ceiling Contractors, Inc. (GEM Walls) both operate under Larry Martin, chairman/CEO and Jonathan Frank, president/COO. The joint businesses are based in Terre Hill, Pa.

When G. Earl Martin formed his company in 1954, the focus was on residential plastering. In the early 1970s, the company moved into residential drywall and commercial work, with the plastering aspect expanding to exterior insulation and finish systems and related categories. In 1986 the elder Martin retired and passed the business on to his son, Larry.

"In 2004, our 50th anniversary, we separated into two companies,” Martin says. "The owners are me with my partner and brother in law, Jonathan Frank, keeping it a family business.”

Though the two companies are under the same joint ownership and under the same roof, they are incorporated as two separate entities.

Martin Plastering Contractors focuses on plastering, stucco, EIFS and high level finishes. GEM Walls is directed toward drywall, acoustical tile, ceilings, carpentry, metal framing including trusses and insulation. Except for the two owners, each company is under separate management; each company has its own general managers, project managers and estimators. GEM Walls is the larger of the two, with about 150 employees, 25 of whom are in the office, while Martin Plastering has 45 employees, five of whom are in the office. GEM Walls brings in 80 percent of the revenue, and Martin Plastering brings 20 percent.

How It Happened
Martin explains that the reason for the split is that the two different orientations were going in completely different directions, with different sets of challenges.

"On the plastering side, we’ve been doing very high end custom residential houses, and the growing segment of retirement communities,” Martin says. "This involves a lot of upscale work, such as veneer and ornamental plastering. The plastering trade requires a higher level of craftsmanship than the more production aspect of metal studs and drywall, ¬though both sides require good craftsmanship in their own right.”

On the other hand, GEM Walls is involved in commercial work. Moreover, GEM Wall’s commercial work is focused on the giant chain stores such as Target, Wal Mart and Kohl’s. Retirement and assisted living construction is also a significant source of revenue for GEM Walls. Whereas residential plastering work is expected to take time and schedules are looser, just the opposite is true with the big box stores. There, the schedules are invariably very tight, and sometimes plastering is involved in these projects as well. "Usually it’s the framing and drywall that pushes those jobs and the plastering or EIFS fits in as the job is being built,” Martin says.

When asked how the split of the original company into two separate companies has worked out, Martin says, "It’s "better than expected. Our revenue has doubled. One interesting side effect is that some insurance companies won’t touch EIFS if it’s an add-on service to a primarily drywall company. GEM Walls won’t do EIFS. But in those cases, Martin Plastering, which specializes in EIFS [and is an AWCI EIFSmart Contractor], is brought in as a subcontractor.”

"One big advantage to the split is that, in about the past one and a half years, we have been able to do what we didn’t do before, and that is take on more than one multi million dollar projects simultaneously,” Frank says.

He explains that the upscale residential plastering work might have a contract of $250,000 to $500,000, with more time-consuming detail but less time pressure; however, the large department stores with multi million dollar contracts might involve 200,000 to 250,000 square feet (some up to 450,000 square feet) and be on a schedule of six months or less.

"In addition, these large department stores are often anchor stores in a mall, so we are expected to do a number of the smaller shops there as well,” Frank says.

How did they manage to not only find this vast amount of additional work within such a short time, but also successfully manage to complete it on schedule?

Again, Frank explains, the separate but complementary focuses help reinforce each other. For example, a department store customer who needs a certain amount of plastering or EIFS can get both aspects from the same source. Since they are both under the same roof, the partners have no problem of coordinating the plastering into the main momentum of the drywall.

Martin says, "We’re always ready to respond to special demands, down to the details of the carpentry, even including something like the setting of a flag pole.”

Aim for Accuracy
There are five estimators between the two companies, and accurate estimating is one of the keys to the successful managing of these difficult jobs. Materials pricing—being able to accurately forecast prices for raw goods—is a challenge for many. But Martin Plastering is able to get a good handle on future prices.

How?
Martin says it is "our excellent relationship with our suppliers. They go to the manufacturers and get job-specific prices and their commitment to us is strong to supply the material we need even when there are shortages.”

"This is because of the longevity and respect we’ve been able to mutually build up over the years. We don’t shop prices, and we work to accommodate them with their delivery schedules. I would say we look out for each other. When you stick with them in good times, then that loyalty is returned in bad times.”

Frank says they try to keep this same relationship process going with the contractors and owners they work for: "Our emphasis is trying to be accurate, to find out the full scope of the work, and to bid to that, so that our customers have the confidence that we will go with the price we say, get it done on budget and on time, and avoid mistakes. General contractors don’t like change orders. We recently had one job in which there were some high uncovered areas that we included but the competition did not.”

The work radius is some 60 to 80 miles outside of Philadelphia, south central and southeast Pennsylvania, to the outskirts of Baltimore. "There are numerous wall and ceiling contractors in this area and the competition here is intense,” Frank says.

The management team, Frank says, "makes every effort to anticipate in advance what is going to happen, not only before the bid, but once the job starts. We look three to six months ahead on the schedule to make sure we can maintain it.” To do this, the owners don’t hesitate to bring in subcontractors. "We’d rather pay our own employees,” Frank adds. "We have to pay the subcontractors well and on time—anything to keep our customers happy.”

The owners’ work is about 80 percent bid and 20 percent negotiated. "Five years ago we could depend more on negotiated work,” Martin says. "But there are more labor subcontractors now that can be utilized. Now there’s no wall and ceiling contractor who has a full schedule. People no longer are limited to their own employee base. So there’s more and more competition all along the line, and more and more pressure to keep prices down.”

Like a Family
At the same time, Martin and Frank work hard to bond with their employees, and they keep the core employees on the payroll all year long. "One thing my dad said, which always stuck with me, is to treat others the way you would want them to treat you; give them what they want, and they will give back to you,” Martin says.

Keeping a close eye on safety is another way that Martin let his employees know he cares. A full time safety director works directly in the field, and employees are given continual training. Twelve project managers went through training last year with the Association of Builders and Contractors, and field employees have taken the OSHA 30-hour courses in construction safety and health hazard recognition and prevention. Many of the company’s plasterer mechanics have the AWCI EIFS certifications as well.

"Our turnover rate is less than 5 percent, which, as far as I know, is beneath the industry average,” Martin says. Although the owners bring in outside talent when necessary, they mostly promote from within. "Most of our project managers, general managers, and other managers have come up through the ranks,” Martin says.

The owners have a strong commitment to the community and employees as family, for this is a family business in which the third generation is now working.

Martin has been married to his wife, Lena, for 38 years, and they have one grown son.

Frank has been married to Martin’s sister, Lisa, for 25 years. They have four children: two are in high school, one daughter works for the company as a receptionist, and her husband works in the field. Another daughter’s husband also works in the field.

Martin lists his hobbies as including hunting and working with horses, both riding them and driving in horse drawn carts. Frank is a gardener and bee keeper who enjoys taking karate lessons with his son.

In terms of the future, Martin Plastering Contractors and GEM Wall & Ceiling Contractors are companies that are using whatever downtime they can find to bolster for the future.

Martin says, "Short term, especially with the forecast for the economy not being that strong, we’re at a plateau. But we are in the planning stages of changing our locations to increase our office and warehouse space, to double the 15,000 square feet we have now.”

"Long term,” Martin says, "we are looking for growth.”