The Southern Company Of North Little Rock

Industry outsiders re-energize a mature business.

"It all started in Memphis,” says Michael Shelby, CEO of The Southern Company of North Little Rock, who begins to narrate the story of his company's founding as if it were an old folktale fit to be told around the campfire.

(l-r) CEO Michael Shelby, CFO Lee Carter and President Philip Grace

And in many ways, The Southern Company's beginnings do resemble something out of a storybook. Founded in the 1940s, The Southern Company was a petroleum equipment distributor headquartered in Memphis, Tennessee, with a branch in North Little Rock, Arkansas. In 1958, a young and enterprising salesman named Bud Mulligan moved from Memphis to Arkansas to run the company's branch office. After 17 years, Mulligan decided to buy the branch from The Southern Company and change the name to The Southern Company of North Little Rock Inc.

The Southern Company of North Little Rock enjoyed years of success as a petroleum equipment distributor throughout Arkansas and Oklahoma, eventually expanding into environmental service in 1990, when EPA regulations on fuel storage tightened. In the 1990s, the bulk of The Southern Company's work was removing and replacing underground storage tanks, ensuring they complied with stringent environmental standards.

But by 2004, Mulligan, then 82, was ready to sell the company he had been growing for nearly 30 years. Although business was steady, Mulligan knew his company needed a new energy to keep pace with the changing industry.

COMPANY SNAPSHOT President: Michael Shelby and Philip Grace Year Founded: 1975 Headquarters: North Little Rock, Arkansas Employees: 50 2007 Sales: $14 million Web Site: www.thesoco.com

Enter Michael Shelby and Philip Grace, two childhood friends whose cumulative background in petroleum equipment was, to say the least, sparse. “I've always wanted to run my own company,” says Shelby, a former sales manager for Enterprise Rent-A-Car and The Cendant Corporation. “I had worked for two multi-billion dollar companies and done pretty well, but I sought the challenge of working for myself.” In his search for a new business opportunity, Shelby enlisted the help of his friend Philip Grace, who previously had built a truck-leasing company from the ground up. Though both successful businessmen in their own right, Shelby and Grace were self-confessed newcomers to the world of petroleum equipment.

Still, the determined new business partners were confident. Recognizing The Southern Company's solid fundamentals and potential for growth, Shelby and Grace decided the time was right. “We figured that I had experience with starting a business, and Michael had plenty of experience in sales and management,” says Grace. “So we took the plunge.”

A New Energy
On January 13, 2005, after nearly a year of due diligence, Shelby and Grace purchased The Southern Company of North Little Rock, and that's when the fun really began. The new owners delved into the industry headfirst. Relying heavily on the PEI staff and other experts for guidance, Shelby and Grace put their faith in industry authorities like Bob Renkes. They trusted The Southern Company's veteran employees and their own gut instincts to guide them through the process of re-energizing a mature business. “It was a bit intimidating at first,” says Shelby. “But we always felt encouraged.”

Adding to the initial pressure was the fact that when Shelby and Grace purchased it, The Southern Company was doing well, enjoying regular business in both the petroleum equipment and environmental divisions. For the new owners, the challenge was not to save a struggling company, but to maintain The Southern Company's strong reputation and skilled personnel, while working to reach beyond its current customer base with an eye on expansion. “Mr. Mulligan, the previous owner, was a great businessman, but we saw a potential in the general contracting and environmental divisions that had not been taken advantage of,” says Shelby. “We were determined to expand.”

As The Southern Company's most veteran employee, Branch Manager Bob Shepherd provides the new owners guidance and insight. “He knows this business inside and out,” says Grace.

Aggressive Expansion
That aggressive approach has served The Southern Company well. Since 2005, annual sales have nearly doubled, due in small part to the acquisition in January 2006 of the assets and employees of Ozark Equipment LLC, a Little Rock petroleum equipment distributor. With this acquisition, SoCo, as it's known to insiders, increased its staff from 35 to 50, yet retained key players who've been in the industry for decades. In that same year, the new owners worked to expand the footprint of the environmental division. “The company started doing environmental work in 1990 as a service for existing customers,” says Shelby, “and we felt it needed to be known outside of our customer base that we are the best in the area concerning regulated tanks.” Now, only four years later, with sales in 2007 totaling around $14 million, it's safe to assume that SoCo's new owners have made it successfully over the learning curve.

Today, the broad range of products and services that attracted Shelby and Grace to The Southern Company back in 2005 remains strong. While petroleum equipment and supplies make up the majority of SoCo's business at the main office in North Little Rock and a branch location in Fort Smith, Arkansas, the sale of tanks, pumps and POS systems extends far beyond retail; municipalities, airports, hospitals and industrial sites are among SoCo's top customers. In an industry slowly seeing a decline in retail business, The Southern Company's presence in industrial and commercial markets “gives us a leg up,” Shelby says.

The environmental division, thriving since 1990 and serving Arkansas, eastern Oklahoma and the surrounding areas, separates The Southern Company from its competition. Specializing in property assessment, monitoring and tank remediation, SoCo's environmental service gives the company a unique edge. “If someone has a system that has failed and leaked, we can go in and clean it up, and then go in and install new equipment,” says Grace.

The Southern Company can do it all, and they have. In 2006, Vice President of Environmental Services Barry Winningham and Vice President of Sales Jeff Marvin were making a routine sales call, visiting a commercial trucking facility where SoCo was set to install new pumps. Once they arrived at the site, Winningham and Marvin not only found pumps in need of repair, but a large puddle of diesel in the ground that indicated a tank leak. “Instead of just putting in new pumps, we had to rip out the whole system. New tanks, new pumps, new canopies, new everything,” says Grace. With the environmental division spearheading the cleanup efforts, and the petroleum equipment side of the business repairing the damaged tanks, The Southern Company was able to complete the project for the customer without enlisting outside help. “We're a one-stop shop,” says Grace. “That's our strong point.”

The Southern Company's 20,000 sq. ft. headquarters in North Little Rock, Arkansas.

The Best in the Business
At the heart of The Southern Company's collective strength is its experienced staff. “When we bought the company, SoCo had some solid people in key positions,” says Shelby. Industry veterans make up the majority of the company's 50 employees, a knowledgeable team that helped ease the new owners into the industry and made the change in ownership a smooth one. “We inherited the best in the business,” says Shelby.

One of the best is Bob Shepherd, manager of The Southern Company's branch location in Fort Smith. Unofficially known as the “Elder Statesman of SoCo,” Shepherd has been with the company since its founding in 1975. With 43 years of experience under his belt, Shepherd has offered the owners invaluable insight into the business. “Bob has seen the industry grow and change, and he's weathered it all.” says Grace. “We rely on him to keep teaching us.”

Using employee expertise to their advantage, Shelby and Grace strive to make The Southern Company's staff an active part of the decision-making process. “We give our employees access to the information, so they can say, 'Hey, this is what I think we should do,'” says Shelby. “It creates a different culture within the company.”

That company culture, which Shelby refers to as “fun and busy,” is a direct result of the owners' top priorities: customers, employees, profits. “If we put our customers first, then take care of employees, the profits will take care of themselves,” says Shelby. Both owners take pride in their active role in everyday operations, explaining that customers “feel like they can pick up the phone and call me or Philip when issues come up,” says Shelby. “We always say that we're not 'order-takers.' We're here to sell the best products and offer the best services available.”

SoCo's calibration trucks guarantee customer equipment is accurate and precise.

One of The Southern Company's most valuable assets is its up-to-date operating system—but that wasn't always the case. “When we bought the company, the phone in my office was missing the 7 button,” says Shelby with a laugh. But the missing 7 was the least of the new owners' worries: Unreliable dial-up Internet and DOS-based software were outdated leftovers from the previous ownership. Shelby and Grace immediately installed a fast, reliable T1 line and updated the company software system to Sage's MAS 90, which limits the duplication of information between branch locations and allows each location to operate as independently as possible. SoCo's CFO, Lee Carter, was instrumental in helping the company transition to the new software. Carter, a former principal at Ozark Equipment who joined the company in 2006, had extensive experience with the Sage software. “Lee was absolutely invaluable in implementing the new system,” says Shelby. “It was perfect timing.”

As newcomers to the industry, Shelby and Grace quickly learned the value of relying on their peers for guidance, a philosophy that remains true for both owners today. Members of a PEI 10-Group, the Little Rock Executives Association and the Young Presidents Organization, three groups designed for company executives to exchange business ideas, Shelby and Grace believe that the learning process never stops. “We've gotten so many great ideas from these groups,” says Shelby, “from how to improve the hiring process, Internet sales, and just how to run our business better. We're not afraid to ask for help, that's for sure.”

Smart Growth
According to many industry experts, the petroleum equipment industry will see continued consolidation in the future. As the new owners have done successfully in the past, Shelby and Grace plan to take advantage of the emerging trend—but with caution. “Our goal for the future is smart growth,” says Shelby. “When we bought the company, of course we wanted to grow and sell everything to everybody. We figured out pretty quickly that strategy doesn't always pay the bills.” So for The Southern Company, expansion will come courtesy of careful acquisitions that “make sense,” says Grace. “You watch other industries try to grow too fast, and it all crumbles down on them. We want to grow, but it has to be smart.”

To those who know the perils of this complex industry, it's hard to believe that just four short years ago, Michael Shelby and Philip Grace were standing on the outside looking in. Today, they are the proud co-owners of one of the top petroleum equipment distributor and contracting businesses in Arkansas. Hard to believe, that is, for everyone except the owners themselves. “We knew we'd get here,” says Shelby. “We had the structure in place, the right employees, and we were ready to grow.” Nodding in agreement, Philip Grace puts it simply: “This is exactly where we wanted to be.”

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The PEI Journal • Fourth Quarter 2008 • Volume 2, No. 4 • Contents are Copyright © Data Key Communications, Inc.
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