Monmouth, Inc
For the exclusive use of P. ISLAS GARCIA
4226
JULY 31, 2010
THOMAS R. PIPER
HEIDE ABELLI
Monmouth, Inc.
Harry Vincent, executive vice president of Monmouth, Inc., was reviewing acquisition candidates for his company’s diversification program. One of the companies, Robertson Tool Company, had been approached by Monmouth three years earlier but had rejected all overtures. Now, however,
Robertson was in the middle of a takeover fight that might provide Monmouth with a chance to gain control. Monmouth, Inc.
Monmouth was a leading producer of engines and massive compressors used to force natural gas through pipelines and oil out of wells. Management was concerned, however, over its heavy dependence on sales to the oil and gas industries and the violent fluctuation of earnings caused by the cyclical nature of heavy machinery and equipment sales. Although the company’s long-term sales and earnings growth had been above average, management believed that its cyclical nature had dampened Wall Street’s interest in the stock substantially.
Initial efforts to lessen the earnings volatility were not entirely successful. Monmouth acquired a supplier of portable industrial power tools, a manufacturer of small industrial air and process compressors, a maker of small pumps and compressors, and a producer of tire-changing tools for the automotive market. The acquisitions broadened Monmouth’s markets but still left it highly sensitive to general economic conditions.
The continued volatility prompted a full review of the company’s acquisition strategy. After several months of study, three criteria were established for all acquisitions. First, the industry should be one in which Monmouth could become a major player. This requirement was in line with management’s goal of leadership within a few distinct areas of business. Second, the industry should be fairly stable, with a broad market for the products and a product line of “small ticket” items. This
4226
JULY 31, 2010
THOMAS R. PIPER
HEIDE ABELLI
Monmouth, Inc.
Harry Vincent, executive vice president of Monmouth, Inc., was reviewing acquisition candidates for his company’s diversification program. One of the companies, Robertson Tool Company, had been approached by Monmouth three years earlier but had rejected all overtures. Now, however,
Robertson was in the middle of a takeover fight that might provide Monmouth with a chance to gain control. Monmouth, Inc.
Monmouth was a leading producer of engines and massive compressors used to force natural gas through pipelines and oil out of wells. Management was concerned, however, over its heavy dependence on sales to the oil and gas industries and the violent fluctuation of earnings caused by the cyclical nature of heavy machinery and equipment sales. Although the company’s long-term sales and earnings growth had been above average, management believed that its cyclical nature had dampened Wall Street’s interest in the stock substantially.
Initial efforts to lessen the earnings volatility were not entirely successful. Monmouth acquired a supplier of portable industrial power tools, a manufacturer of small industrial air and process compressors, a maker of small pumps and compressors, and a producer of tire-changing tools for the automotive market. The acquisitions broadened Monmouth’s markets but still left it highly sensitive to general economic conditions.
The continued volatility prompted a full review of the company’s acquisition strategy. After several months of study, three criteria were established for all acquisitions. First, the industry should be one in which Monmouth could become a major player. This requirement was in line with management’s goal of leadership within a few distinct areas of business. Second, the industry should be fairly stable, with a broad market for the products and a product line of “small ticket” items. This