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The Southern Company Of North Little Rock

Industry outsiders re-energize a mature business.

"

It all started in Memphis," says Michael Shelby,CEOof The Southern Company of North LittleRock, who begins to narrate the story of his

company's founding as if it were an old folktale fitto be told around the campfire.

And in many ways, The Southern Company's be-ginnings do resemble something out of a storybook.Founded in the 1940s, The Southern Company wasa petroleum equipment distributor headquartered inMemphis, Tennessee, with a branch in North LittleRock, Arkansas. In 1958, a young and enterprisingsalesman named Bud Mulligan moved from Mem-phis to Arkansas to run the company's branch office.After 17 years, Mulligan decided to buy the branchfrom The Southern Company and change the nameto The Southern Company of North Little Rock Inc.

The Southern Company of North Little Rock en-joyed years of success as a petroleum equipmentdistributor throughout Arkansas and Oklahoma,eventually expanding into environmental servicein 1990, when EPA regulations on fuel storagetightened. In the 1990s, the bulk of The SouthernCompany's work was removing and replacing un-derground storage tanks, ensuring they compliedwith stringent environmental standards.

But by 2004, Mulligan, then 82, was ready tosell the company he had been growing for nearly30 years. Although business was steady, Mulligan

COMPANYSNAPSHOT

emSou/heroCo. {IfPresidents: Michael Shelby and Philip GraceYear Founded: 1975Headquarters: North Little Rock, ArkansasEmployees: SO2007 Sales: $14 millionWeb Site: www.thesoco.com

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~'.(I-r) CEOMichaelShelby,CFOLeeCarterand PresidentPhilipGrace

knew his company needed a new energy to keeppace with the changing industry.

Enter Michael Shelby and Philip Grace, two child-hood friends whose cumulative background in pe-troleum equipment was, to say the least, sparse."I've always wanted to run my own company," saysShelby, a former sales manager for Enterprise Rent-A-Carand The Cendant Corporation. "I had workedfor two multi-billion dollar companies and donepretty well, but I sought the challenge of workingfor myself." In his search for a new business oppor-tunity, Shelby enlisted the help of his friend PhilipGrace, who previously had built a truck-leasingcompany from the ground up. Though both suc-cessful businessmen in their own right, Shelby andGrace were self-confessed newcomers to the worldof petroleum equipment.

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As The SouthernCompany'smost veteranemployee,BranchManagerBob Shepherdprovidesthenewownersguidanceandinsight."Heknowsthisbusinessinsideandout,"saysGrace.

Still, the determined new businesspartners were confident. RecognizingThe Southern Company's solid fun-damentals and potential for growth,Shelby and Grace decided the timewas right. "We figured that I had ex-perience with starting a business, andMichael had plenty of experience insales and management," says Grace."So we took the plunge."

A NEWENERGY

On January 13, 2005, after nearly ayear of due diligence,Shelby and Gracepurchased The Southern Company ofNorth Little Rock, and that's whenthe fun really began. The new own-ers delved into the industry headfirst.Relying heavily on the PEl staff andother experts for guidance, Shelby andGrace put their faith in industry au-thorities like Bob Renkes. They trustedThe Southern Company's veteran em-ployees and their own gut instincts toguide them through the process of re-energizing a mature business. "It wasa bit intimidating at first," says Shelby."But we always felt encouraged."

Adding to the initial pressure wasthe fact that when Shelby and Gracepurchased it, The Southern Companywas doing well, enjoying regular busi-ness in both the petroleum equipment

and environmental divisions. For thenew owners, the challenge was notto save a struggling company, but tomaintain The Southern Company'sstrong reputation and skilled person-nel, while working to reach beyond itscurrent customer base with an eye onexpansion. "Mr. Mulligan, the previ-ous owner, was a great businessman,but we saw a potential in the generalcontracting and environmental divi-sions that had not been taken advan-tage of," says Shelby. "We were deter-mined to expand."

AGGRESSIVEEXPANSION

That aggressive approach hasserved The Southern Company well.Since 2005, annual sales have nearlydoubled, due in small part to the ac-quisition in January 2006 of the as-sets and employees of Ozark Equip-ment LLC, a Little Rock petroleumequipment distributor. With this ac-quisition, SoCo, as it's known to in-siders, increased its staff from 35 to50, yet retained key players who'vebeen in the industry for decades.In that same year, the new ownersworked to expand the footprint of theenvironmental division. "The com-pany started doing environmentalwork in 1990 as a service for existing

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customers," says Shelby, "and we feltit needed to be known outside of ourcustomer base that we are the best inthe area concerning regulated tanks."Now, only four years later, with salesin 2007 totaling around $14 million,it's safe to assume that SoCo's newowners have made it successfully overthe learning curve.

Today, the broad range of productsand services that attracted Shelby andGrace to The Southern Company backin 2005 remains strong. While petro-leum equipment and supplies make upthe majority of SoCo's business at themain office in North Little Rock anda branch location in Fort Smith, Ar-kansas, the sale of tanks, pumps andp~s systems extends far beyond retail;municipalities, airports, hospitals andindustrial sites are among SoCo's topcustomers. In an industry slowly seeinga decline in retail business, The South-ern Company's presence in industrialand commercial markets "gives us aleg up," Shelby says.

The environmental division, thrivingsince 1990 and serving Arkansas, east-ern Oklahoma and the surrounding ar-eas, separates The Southern Companyfrom its competition. Specializing inproperty assessment, monitoring andtank remediation, SoCo's environmen-tal service gives the company a uniqueedge. "If someone has a system thathas failed and leaked, we can go inand clean it up, and then go in andinstall new equipment," says Grace.

The Southern Company can do itall, and they have. In 2006, Vice Presi-dent of Environmental Services BarryWinningham and Vice President ofSales Jeff Marvin were making a rou-tine sales call, visiting a commercialtrucking facility where SoCo was setto install new pumps. Once they ar-rived at the site, Winningham andMarvin not only found pumps in needof repair, but a large puddle of dieselin the ground that indicated a tankleak. "Instead of just putting in newpumps, we had to rip out the wholesystem. New tanks, new pumps,new canopies, new everything," saysGrace. With the environmental divi-sion spearheading the cleanup efforts,and the petroleum equipment side ofthe business repairing the damaged

Fourth Quarter 2008

13 years ago, LD-2000 #34349 left our factoryto provide catastrophic line leak detection.Today, our Old Friend is back home to becleaned up and put on display. You see, #34349is being retired. During its 13 years of service,this LD-2000 passed every annual test. Thesite is being renovated and the testers thoughtwe should know how our equipment holds up.Old Friends tell you about the decisions youmake, right or wrong; like being made of theright stuff to perform year after year.

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99 LD-2200

The PEl Journal 15

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tanks, The Southern Company was able to com-plete the project for the customer without enlistingoutside help. "We're a one-stop shop," says Grace."That's our strong point."

THEBESTINTHEBUSINESS

At the heart of The Southern Company's collec-tive strength is its experienced staff. "When webought the company, SoCo had some solid peoplein key positions," says Shelby. Industry veteransmake up the majority of the company's 50 employ-ees, a knowledgeable team that helped ease thenew owners into the industry and made the changein ownership a smooth one. "We inherited the bestin the business," says Shelby.

One of the best is Bob Shepherd, manager of TheSouthern Company's branch location in Fort Smith.Unofficially known as the "Elder Statesman ofSoCo," Shepherd has been with the company sinceits founding in 1975.With 43 years of experience un-der his belt, Shepherd has offered the owners invalu-able insight into the business. "Bob has seen the in-dustry grow and change, and he's weathered it all."says Grace. "We rely on him to keep teaching us."

-The SouthernCompany's20,000sq.ft. headquartersin NorthLittleRock,Arkansas.

Using employee expertise to their advantage,Shelby and Grace strive to make The SouthernCompany's staff an active part of the decision-mak-ing process. "We give our employees access to the

16 The PEl Journal

information, so they can say, 'Hey, this is what Ithink we should do;" says Shelby. "It creates a dif-ferent culture within the company."

That company culture, which Shelby refers toas "fun and busy," is a direct result of the owners'top priorities: customers, employees, profits. "If weput our customers first, then take care of employ-ees, the profits will take care of themselves," saysShelby. Both owners take pride in their active rolein everyday operations, explaining that customers"feel like they can pick up the phone and call meor Philip when issues come up," says Shelby. "Wealways say that we're not 'order-takers.' We'rehere to sell the best products and offer the bestservices available."

One of The Southern Company's most valuableassets is its up-to-date operating system-but thatwasn't always the case. "When we bought the com-pany, the phone in my office was missing the 7 but-ton," says Shelby with a laugh. But the missing 7was the least of the new owners' worries: Unreli-able dial-up Internet and DOS-based software wereoutdated leftovers from the previous ownership.Shelby and Grace immediately installed a fast, re-liable T1 line and updated the company softwaresystem to Sage's MAS90, which limits the duplica-tion of information between branch locations andallows each location to operate as independentlyas possible. SoCo's CFO, Lee Carter, was instru-mental in helping the company transition to thenew software. Carter, a former principal at OzarkEquipment who joined the company in 2006, hadextensive experience with the Sage software. "Leewas absolutely invaluable in implementing the newsystem," says Shelby. "It was perfect timing."

As newcomers to the industry, Shelby and Gracequickly learned the value of relying on their peersfor guidance, a philosophy that remains true forboth owners today. Members of a PEl lO-Group,theLittle Rock Executives Association and the YoungPresidents Organization, three groups designed forcompany executives to exchange business ideas,Shelby and Grace believe that the learning processnever stops. "We've gotten so many great ideasfrom these groups," says Shelby, "from how to im-prove the hiring process, Internet sales, and justhow to run our business better. We're not afraid toask for help, that's for sure."

SMARTGROWTH

According to many industry experts, the petro-leum equipment industry will see continued con-solidation in the future. As the new owners havedone successfully in the past, Shelby and Graceplanto take advantage of the emerging trend-but withcaution. "Our goal for the future is smart growth,"

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egy doesn't always pay the bills." So forThe Southern Company, expansion willcome courtesy of careful acquisitions that"make sense," says Grace. "You watchother industries try to grow too fast, andit all crumbles down on them. Wewant togrow, but it has to be smart."

To those who know the perils of thiscomplex industry, it's hard to believe thatjust four short years ago, Michael Shelbyand Philip Grace were standing on theoutside looking in. Today, they are theproud co-owners of one of the top pe-troleum equipment distributor and con-tracting businesses in Arkansas. Hard tobelieve, that is, for everyone except the

SoGo'scalibrationtrucks guarantee customer equipmentis accurate owners themselves. "We knew we'd getandprecise. here," says Shelby. "We had the struc-

ture in place, the right employees, andwe were ready to grow." Nodding

in agreement,Philip Grace puts it simply: I"Di:i1"This is exactly where we wanted to be." ~

says Shelby. "When we bought the company, ofcourse we wanted to grow and sell everything toeverybody. We figured out pretty quickly that strat-

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