(EDITOR'S NOTE: This article, written by Farm Equipment's Dave Kanicki, originally appeared as a sidebar article within "RDO Equipment: People are Key to Growth," April/May 2007, Farm Equipment, p. 10-18.)
By 1997, RDO Equipment Co. had grown to a network of more than 30 John Deere ag and construction equipment stores. CEO Ron Offutt was in his mid-50s and, in his own words, "I started thinking about my own mortality."
With none of his family involved in the business at the time, he recalls thinking: "With John Deere having the right to name its dealers, this is a poor business to die in without a successor. I also thought being a public entity would solve that problem."
He also remembers thinking that being a public company would bring some liquidity to the dollars he had tied up in the company.
Because the dealer base at that time was predominantly made up of "a lot of gray hairs, no hairs, and white hairs," Deere demanded that its dealers have an exit strategy that outlined when they were ready to get out of the business.
Offutt believed taking the company public would satisfy John Deere's requirements as well as his own needs.
In 1997, with John Deere's blessing, the initial public offering of company shares was made and its success far surpassed Offutt's expectations.
"Optimistically, we felt we'd come home with $35-40 million by selling off 35% of the stock. We got picked up in the updraft of the market at the time and we came home with about $68 million," says Offutt.
As for the dealership, their phones were ringing off the hooks with dealers wanting to sell at a multiple of earnings instead of book value. "We were on the phone, too, calling John Deere and telling them we would like to buy one place or another, both on the ag and CE side.
"John Deere corporate became fearful thinking that maybe they had created a monster," says Offutt. "So what they did was shut the gate and wouldn't let us buy anything. We had the analysts calling every quarter asking 'What are you going to buy the next quarter?' 'What's on the line?' 'Where's the growth coming from?' "
The firm found itself under enormous pressure to grow, but with no place to go. "John Deere had the fear and we were paralyzed. So as a company, we decided we had to develop other platforms of growth."
Looking back, Offutt says the first strategic mistake was getting into the trucking business. "We thought we could do trucking. How much different can trucks be from construction and ag equipment? It's just mechanics and parts." the firm acquired several trucking operations to stabilize its ag and construction equipment businesses.
Within 18 months after they got into the truck market, sales had fallen to nearly half of what they were.
"We lost a lot of money," Ron says in retrospect. "We didn't know how to get ourselves out of trouble.
"We had to amputate our arm to save the company. Our earnings tanked. The value of our stock tanked. With all of this, we lost the investors following the company to where there was only 3,000-4,000 shares of the stock sold every week and it just kept getting cheaper and cheaper and cheaper.
"We were digging ourselves out of a hole and nobody was following us. I think our book value was $7 a share and dropped to $2 or 3."
This was down from a high of $29.50 a share. "Anyway, it just made sense to take it back private. It gave John Deere a comfort level because the monster went back into its cave. It also made Vermeer more comfortable," says Offutt.
"I feel bad. People bought our stock and a lot of them lost money. The stock price rose to $29/share and stakeholders would have done alright selling at that point. The same goes for me, but that didn't happen."
As for Christi's experience with the dealership being a publicly traded company, today she says, "This industry and this business is better being family-owned. From my perspective, we have the luxury of growing at our own pace and to invest in the things we want to invest in. We've made a tremendous investment in our future with our service trucks and our buildings and our people and training."
To back this commitment, in the last 2 years, RDO Equipment Co. has reinvested $45 million back into stores. "The Offutt Family is not milking this cow," says Keith Kreps, vice president of Northern Ag.