Builders of Enterprise Value
Two Case Studies
American Engineered Components
The Harding Group purchased the Industrial Fasteners Division of TRW and renamed it American Engineered Components (AEC). The business was non-core for TRW, and was under-managed but profitable. Trailing twelve months financial performance before acquisition was $16 million in revenues producing $1 million in operating profit.
AEC was a leading designer and manufacturer of complex, custom designed stamped metal components, disc springs and engineered industrial fasteners, including sealer plugs, Carr Plug Buttons and Teenuts, serving primarily the automotive, truck, electronics and industrial products markets. The products and components manufactured have long life cycles. Manufacturing processes included progressive die, transfer press, and multi-slide operations. Customers included General Motors Truck and Bus, Ford, Chrysler Corporation, TRW, Autoliv, and Schlumberger.
Stage 1:
Working with management, we improved internal operations and staffing. Sales and marketing were previously shared within TRW, and remained behind with them. AEC had only customer service personnel and needed to create its own internal sales and marketing team. We balanced the need for internal sales and marketing staff with high quality representative organizations and distributors. We opened a new office with our own sales personnel in Detroit to better serve the automotive and truck customers. Previously, a representative organization worked for us in Detroit, but we needed to have dedicated and focused individuals to better serve AEC’s important customers in Detroit. Since much of the selling and product development was technical, we used team selling nationally with our in-house engineers to solve problems for our customers. This strategy proved to be highly effective and allowed us to significantly grow the business organically and add new customers.
Along with our sales and marketing initiatives, we streamlined production and improved operating flexibility, introducing operating cells, Kanban and other best practices. We found that teamwork and morale soared as clarity of strategy and execution allowed people to see the journey ahead. As a result, improvement ideas came from all walks of employees including machine operators, foremen, engineers, sales, finance and human resources.
Also important was the relocation of the main factory in Cambridge, Massachusetts. The original factory was a 100,000 square foot three story brick building from the 1920’s. Operations were spread over the three floors, and we wanted to move to a single story factory nearby to keep all employees and improve efficiency. We found a 108,000 square foot factory nearby in Brighton, Massachusetts, and moved the company to this new facility. Prior to moving, the new building fit-out was optimized for efficiency and production flow. The results were outstanding, and we completed the move during Christmas shutdown in a snowstorm with no loss of production. The employees were amazing to pull off this move. Teamwork was alive and thriving at AEC.
Stage 2:
Now that our internal house was in order, we began an acquisition program based on our strategy of finding niche add-on companies that would complement our product lines and fit with our company culture. Importantly, we wanted to be able to cross-sell across all related product lines to gain further depth and breadth with our customers. We were early with the trend of companies partnering with fewer suppliers. Over four years, we made six acquisitions that proved to be highly effective and complimentary with our internal improvements. Sales had grown from $16 million to $50 million while our operating profit grew from $1 million to $9 million.
We had owned the business for seven years and felt that to take it to the next significant level such as $100 to $150 million in revenue, our ownership position would be severely diluted below majority ownership. We believed that a larger firm or corporation would better be able to continue the growth trajectory, provided that management remained in place and would continue to have an equity stake in the company. After talking with several possible buyers, we decided to sell to Goldner, Hawn, Johnson & Morrison, a large, well-capitalized private equity firm that would continue AEC’s goals and objectives with the existing management in place and providing continuing equity stakes in the company. Importantly, AEC management was also able to realize a significant capital gain on their equity from our sale of AEC.
AEC was a leading designer and manufacturer of complex, custom designed stamped metal components, disc springs and engineered industrial fasteners, including sealer plugs, Carr Plug Buttons and Teenuts, serving primarily the automotive, truck, electronics and industrial products markets. The products and components manufactured have long life cycles. Manufacturing processes included progressive die, transfer press, and multi-slide operations. Customers included General Motors Truck and Bus, Ford, Chrysler Corporation, TRW, Autoliv, and Schlumberger.
Stage 1:
Working with management, we improved internal operations and staffing. Sales and marketing were previously shared within TRW, and remained behind with them. AEC had only customer service personnel and needed to create its own internal sales and marketing team. We balanced the need for internal sales and marketing staff with high quality representative organizations and distributors. We opened a new office with our own sales personnel in Detroit to better serve the automotive and truck customers. Previously, a representative organization worked for us in Detroit, but we needed to have dedicated and focused individuals to better serve AEC’s important customers in Detroit. Since much of the selling and product development was technical, we used team selling nationally with our in-house engineers to solve problems for our customers. This strategy proved to be highly effective and allowed us to significantly grow the business organically and add new customers.
Along with our sales and marketing initiatives, we streamlined production and improved operating flexibility, introducing operating cells, Kanban and other best practices. We found that teamwork and morale soared as clarity of strategy and execution allowed people to see the journey ahead. As a result, improvement ideas came from all walks of employees including machine operators, foremen, engineers, sales, finance and human resources.
Also important was the relocation of the main factory in Cambridge, Massachusetts. The original factory was a 100,000 square foot three story brick building from the 1920’s. Operations were spread over the three floors, and we wanted to move to a single story factory nearby to keep all employees and improve efficiency. We found a 108,000 square foot factory nearby in Brighton, Massachusetts, and moved the company to this new facility. Prior to moving, the new building fit-out was optimized for efficiency and production flow. The results were outstanding, and we completed the move during Christmas shutdown in a snowstorm with no loss of production. The employees were amazing to pull off this move. Teamwork was alive and thriving at AEC.
Stage 2:
Now that our internal house was in order, we began an acquisition program based on our strategy of finding niche add-on companies that would complement our product lines and fit with our company culture. Importantly, we wanted to be able to cross-sell across all related product lines to gain further depth and breadth with our customers. We were early with the trend of companies partnering with fewer suppliers. Over four years, we made six acquisitions that proved to be highly effective and complimentary with our internal improvements. Sales had grown from $16 million to $50 million while our operating profit grew from $1 million to $9 million.
We had owned the business for seven years and felt that to take it to the next significant level such as $100 to $150 million in revenue, our ownership position would be severely diluted below majority ownership. We believed that a larger firm or corporation would better be able to continue the growth trajectory, provided that management remained in place and would continue to have an equity stake in the company. After talking with several possible buyers, we decided to sell to Goldner, Hawn, Johnson & Morrison, a large, well-capitalized private equity firm that would continue AEC’s goals and objectives with the existing management in place and providing continuing equity stakes in the company. Importantly, AEC management was also able to realize a significant capital gain on their equity from our sale of AEC.
Crenlo, Inc.
Founded in 1951, Crenlo is a leading manufacturer of cabs and rollover structures for construction, agriculture, and commercial equipment markets serving manufacturers such as Caterpillar, Deere & Company, and Case New Holland. Crenlo's cabs are highly engineered, custom designed, steel frame enclosures which attach to and become an integral part of an OEM's specific equipment. Cabs range in design complexity from simple shells to totally equipped cabs which would include seats, controls, air-conditioning, etc. In addition, Crenlo builds a proprietary line of modular electronic enclosures under the trademark of EMCOR Enclosures, servicing varied markets, including the defense, datacom, telecom, security, test & measurement and broadcast industries. Crenlo also provides expertise in the design and manufacture of high volume, build-per-print requirements for major customers such as Siemens, Hewlett-Packard, and Agilent Technologies.
We were approached by the three senior members of Crenlo’s management team to see if we could help them with the acquisition of their company. They were also interviewing other private equity firms in New York City to see if any of them would be a fit for them. Crenlo was part of a New York Stock Exchange listed parent company, GF Corporation, whose other major business was commercial office furniture and wanted to divest Crenlo to focus their energies on growing the office furniture business. We immediately liked the management and their clear competency in running Crenlo. They were truly seasoned, and we felt we could do things together. The chemistry gelled, and we began the negotiations with the parent company to buy Crenlo with management.
This situation was a bit different than normal as the three senior managers wanted to eventually own all of Crenlo. We liked these men and felt we could craft a “win-win” structure, but they did not have much capital to invest. We designed a plan, through performance incentives and puts and calls over a five-year strategic and financial plan, to put them in a position to own the business if they met or exceeded the plan in the fifth year, our targeted exit year.
What ensued proves the power of aligning interests to facilitate these men achieving the American dream. Crenlo’s trailing twelve month revenues were $35 million and operating income was $3.5 million. By the end of the following year, we grew revenues to a $43 million annual run-rate and because Crenlo had a high fixed cost structure at these sales levels, most of the increased sales dropped to the bottom line. As a result, operating profit soared to $9 million and was sustainable.
We found ourselves ahead of schedule by three years, and we were able to make the management’s dream come through early. We enlisted J.P. Morgan and its private investment arm, as a result of our long relationship with them, to help. They financed the purchase of our securities and provided bank financing for Crenlo while receiving a minority equity stake in Crenlo for their equity investment. Management now had majority ownership of Crenlo with a right to buy out J.P. Morgan in the future.
A few short years later, J.P. Morgan’s loan was paid in full, and they sold their equity ownership to management. Management now owned 100% of Crenlo. The company continued to grow over the next several years to well over $100 million in revenues with no debt. Management continued to run the business until it was sold to Dover Corporation, when they retired. We could not be happier for their success and ours with this journey.
For a full history of Crenlo, please see its current website at: http://www.crenlo.com/history.html
Founded in 1951, Crenlo is a leading manufacturer of cabs and rollover structures for construction, agriculture, and commercial equipment markets serving manufacturers such as Caterpillar, Deere & Company, and Case New Holland. Crenlo's cabs are highly engineered, custom designed, steel frame enclosures which attach to and become an integral part of an OEM's specific equipment. Cabs range in design complexity from simple shells to totally equipped cabs which would include seats, controls, air-conditioning, etc. In addition, Crenlo builds a proprietary line of modular electronic enclosures under the trademark of EMCOR Enclosures, servicing varied markets, including the defense, datacom, telecom, security, test & measurement and broadcast industries. Crenlo also provides expertise in the design and manufacture of high volume, build-per-print requirements for major customers such as Siemens, Hewlett-Packard, and Agilent Technologies.
We were approached by the three senior members of Crenlo’s management team to see if we could help them with the acquisition of their company. They were also interviewing other private equity firms in New York City to see if any of them would be a fit for them. Crenlo was part of a New York Stock Exchange listed parent company, GF Corporation, whose other major business was commercial office furniture and wanted to divest Crenlo to focus their energies on growing the office furniture business. We immediately liked the management and their clear competency in running Crenlo. They were truly seasoned, and we felt we could do things together. The chemistry gelled, and we began the negotiations with the parent company to buy Crenlo with management.
This situation was a bit different than normal as the three senior managers wanted to eventually own all of Crenlo. We liked these men and felt we could craft a “win-win” structure, but they did not have much capital to invest. We designed a plan, through performance incentives and puts and calls over a five-year strategic and financial plan, to put them in a position to own the business if they met or exceeded the plan in the fifth year, our targeted exit year.
What ensued proves the power of aligning interests to facilitate these men achieving the American dream. Crenlo’s trailing twelve month revenues were $35 million and operating income was $3.5 million. By the end of the following year, we grew revenues to a $43 million annual run-rate and because Crenlo had a high fixed cost structure at these sales levels, most of the increased sales dropped to the bottom line. As a result, operating profit soared to $9 million and was sustainable.
We found ourselves ahead of schedule by three years, and we were able to make the management’s dream come through early. We enlisted J.P. Morgan and its private investment arm, as a result of our long relationship with them, to help. They financed the purchase of our securities and provided bank financing for Crenlo while receiving a minority equity stake in Crenlo for their equity investment. Management now had majority ownership of Crenlo with a right to buy out J.P. Morgan in the future.
A few short years later, J.P. Morgan’s loan was paid in full, and they sold their equity ownership to management. Management now owned 100% of Crenlo. The company continued to grow over the next several years to well over $100 million in revenues with no debt. Management continued to run the business until it was sold to Dover Corporation, when they retired. We could not be happier for their success and ours with this journey.
For a full history of Crenlo, please see its current website at: http://www.crenlo.com/history.html
Testimonial
After J.P. Morgan had its bank loan repaid in full and received a substantial profit on their equity investment in Crenlo, Sandra Payne, a senior officer, said “It was one of our best investment experiences ever, and we value the leadership of The Harding Group.”