Figgie International Inc.
Figgie International Inc.
4420 Sherwin Road
Willoughby, Ohio 44094
Fax: (216) 951-1724
Incorporated: 1963 as Automatic Sprinkler Corp. of America
Sales: $1.17 billion
Stock Exchanges: NASDAQ
SICs: 3569 General Industrial Machinery Nee; 3556 Food Products Machinery
Figgie International Inc. is an international diversified operating company comprising more than 30 divisions. The company sells fire protection and safety equipment, technical (largely U.S. military) equipment, machinery and allied products (bottling, labeling, and packaging systems), consumer sports equipment, insurance and real estate services, and safety products.
The Figgie empire was built largely through acquisitions of small companies. Harry E. Figgie, Jr., its chairman and chief executive officer, launched Figgie in 1963 with the purchase of a failing Youngstown, Ohio, fire sprinkler company, Automatic Sprinkler Corp. of America. More acquisitions (53 in all) were to follow in the company’s first five years. Figgie, a management consultant turned executive, bought Automatic Sprinkler with almost no money of his own, having persuaded bankers and investors to provide $7.2 million in purchase funds and another $2 million for capital investment.
He had prepared for this move to highly leveraged ownership by an intense program of business education (engineering master’s degree, law degree, Harvard MBA) and experience, including nine years with the consulting firm Booz, Allen & Hamilton, where he specialized in acquisition.
The company nearly went bankrupt in its first year and, in a desperate move, even secretly moved one of its strike-bound manufacturing operations to another state while Figgie himself was ill with a high fever. After staving off bankruptcy, the new company began a whirlwind five years of acquisitions, following Figgie’s “nucleus” theory. Figgie’s theory involved bunching companies within promising markets for the sake of market penetration and increased management expertise. Around Automatic Sprinkler he bunched fire protection and safety companies such as American LaFrance, the historic maker of fire engines, and Badger Fire Extinguisher Co. Around baseball equipment maker Rawlings Corp. he bunched consumer recreation companies such as hockey equipment maker Sherwood-Drolet Corp. Ltd. and Fred Perry Sportswear Ltd. Around Interstate Electronics Corp. he bunched electrical electronics firms; around Geo. J. Meyer Manufacturing Co., packaging machinery and material handling companies; and around Kersey Manufacturing Co. Inc. and Safway Steel Products Inc., construction and mining companies.
In one month, Figgie looked at 50 companies. In one 25-day period he closed five deals, all for small companies with an average $7 million in sales. The whole fire protection group had only $40 million in combined sales when purchased, including Automatic Sprinkler’s $20 million. The debt-equity ratio was six to one at one point, all in 90-day rollover money. In November 1965 the company went public, Over-the-Counter, where it remained into the 1990s. Early in 1968 it was trading at 50 times earnings. But a promised $2.75 earnings per share did not materialize; instead it paid nine cents. “It was time to slow down,” Figgie said later.
After survival and acquisition came consolidation. Figgie likened his company’s growth to the one-room schoolhouse that grew to 40 rooms. By 1970 sales were at $365 million; profit was $8.6 million. The company expanded its international business, acquiring Fred Perry Sportswear, a British firm, in 1973. Its domestic divisions exported more and by 1980 offshore sales were almost $150 million. The company also moved into service operations. The company’s data processing department became its Systems Management Group; its insurance department became Waite Hill Holdings—both free-standing profit centers still responsible for internal service but expected to take on outside clients too. Later an acceptance division and an international licensing division were formed, both on the same internal-external model.
There were valleys as well as peaks. Figgie stock dropped to three in 1974, from a high of 74. Harry Figgie was accused of neglecting management for the sake of acquisitions. He later admitted that developing management and installing needed financial controls were two “major problems” he dealt with in the 1970s. But while other conglomerates reduced themselves to a few top performers, Figgie International (so renamed in 1981) stayed the diversified course.
A big boost to Figgie’s technical segment came in 1982 when it landed a $433 million U.S. Navy contract for electronic test instrumentation on the Trident II submarine weapons system. By 1984 this segment was to produce almost one-fourth of both revenues and profits; three-fourths of this segment’s business was with the U.S. government.
The early 1980s were a time of difficulty, but by the mid-1980s the company was registering record sales in the neighborhood of $750 million. Barren’s commended Figgie for the various restructurings and cost cutting measures that had helped achieve these gains. Figgie’s debt-equity ratio was down to 0.84-to-one. Harry Figgie was looking for two or three more “respectable” years before re-entering the acquisition phase. He figured this move would be necessary to realize his goal of a multibillion dollar company.
The 1980s also saw the company move its headquarters from Harry Figgie’s native Cleveland to a splendid Georgian-style building on 1,200 acres in Richmond, Virginia. After six years in Virginia, the company returned to Cleveland to create a new 630-acre commercial development.
By 1987 revenues had topped $919 million and profits were more than $42 million, for a four-year rise of over $200 million and $17 million, respectively. This was achieved not by selling less profitable divisions but by making them more profitable. Nonetheless, Harry Figgie was ready to make what he called “tuck-in” acquisitions with product lines related to Figgie’s existing divisions. Largest of these was still the fire protection and safety products group, which now included a security service.
One of the major success stories was the restructuring of St. Louis-based Rawlings Sporting Goods, ball and equipment supplier to the baseball major leagues, the National Collegiate Athletic Association, and the National Football League.
Harry Figgie was building a reputation not only as an astute company builder but as “one of America’s toughest bosses,” according to Fortune magazine. He had served under General George S. Patton in World War II, he told Fortune in 1989, and apparently had taken on some of the general’s demeanor. Sixty-five years old and with no intention of retiring, he was considered demanding, volatile, and not known to pull punches when dealing with his employees. He didn’t deny his ability to bawl people out but contended that “ungodly” pressures of running a conglomerate had contributed to his volatility. Figgie International had bought “small companies with no management depth” over the years and that had left “no room for error.”
A perhaps more serious problem, noted by commentators, was that he was running the company in his own style without training a successor, or so it appeared to a Forbes writer in 1988. By 1991, however, Harry Figgie, Jr., had brought his son, Dr. Harry E. Figgie III, a successful orthopedic surgeon who had been president of the family-owned Clark-Reliance Corp., of Cleveland, on as vice-chairman of technology and strategic planning. Dr. Figgie’s four-page commentary on “Retooling the Corporation” appeared right after his father’s four-page letter to shareholders in the 1991 annual report.
As for ownership, Figgie International has been viewed by some analysts as so dependent on Harry Jr.’s leadership, as well as underpriced on the stock market, that its value in sold-off bits and pieces would make it an attractive takeover target. To fend off takeover, the company issued a second class of common stock carrying more voting power. Then it sold more of the first, Class A stock, to pay for its purchase of more Class B stocks, thus strengthening management’s hold on ownership. Financial World called it “an insider’s crafty move” and said Wall Street feared it would “erode shareholder equity” and dilute earnings.
Meanwhile, acquisitions had gone apace. Figgie bought 24 companies between 1985 and 1988—makers of scissor lifts, dairy equipment, and thermometers, among other companies, each with $20 million to $100 million in sales. Net income tripled in four years, reaching $65 million. Cash flow per share doubled since the early 1980s restructuring.
There were still problems. The Navy found fault with smoke protection gear supplied by Figgie’s Scott Aviation division after a former Scott employee said he had been ordered to destroy test results that showed them defective. Later, during the Gulf War, Figgie found itself “at odds with the Army on its chemical warfare masks,” Harry, Jr. reported in the 1991 annual report, managing a shot at the “military-political complex,” which he implied was at the heart of the disagreement. Nonetheless, he “breathed a sigh of relief” that U.S. troops had encountered no chemical warfare in that conflict. He also was pleased to report the company’s success in overturning the Army’s decision to end its Figgie contract “for default” and make it instead a termination “for convenience of the government.” Another flap had to do with working conditions in Rawlings’s manufacturing operations in Haiti and Costa Rica; the Haiti operation was closed down because of political instability.
Through it all, Figgie International remained a textbook case of successful diversification. Its six operating segments, unrelated to each other but consisting of companies closely related within segments, had combined sales of $1.36 billion in 1990. It had been the only way to grow, according to Harry Figgie. “We’d identify growth industries and buy really sick companies in them,” he told Across the Board magazine. It was “a high-risk strategy” in which “we should have failed,” he said, presenting himself as a “dirty-fingers-type guy” who didn’t know enough about finances to quit.
But he knew “manufacturing economics,” said Across the Board, citing a Paine Webber Inc. analyst who praised Harry Figgie for his “terrific record of buying small [companies], tearing them apart to learn the business as [he and his employees] go along, and learning from the competitors.” At least six “stellar turnarounds” resulted, among them Interstate Electronics Corp., the nucleus of the Figgie technical group; Scott Aviation, maker of high pressure oxygen systems; Rawlings Sporting Goods, the sole surviving U.S. sporting goods manufacturer; and Automatic Sprinkler, by then the number two U.S. installer of fire protection sprinklers, earning each year five times the $7.2 million that Harry Figgie paid for it in 1963.
In line with his acknowledged expertise in such matters, Harry Figgie has a sort of adjunct career in progress: he is a well received author of several books on management and economics, including Cutting Costs: An Executive’s Guide to Increased Profits and Bankruptcy 1995, which was on best seller lists for several months beginning in October 1992.
But Figgie International, weathering another recession, faced “a tough, rugged, and hard year” in 1992, said Harry Figgie in the 1991 annual report. Only cost-cutting measures had saved the situation in 1991. Ahead was another “sobering year” which Figgie International was entering “buttoned down with a very cautious approach.” One could only hope, said Harry Figgie in his usual pointed fashion, that in the election year 1992 “the politicians [would] not do too much damage to the weak recovery.”
As for what lay ahead, Figgie International stands ready to profit from market improvements in all of its six major business areas. The company’s past achievement, uniquely engineered by Harry Figgie, Jr., gives indication of survival and growth even through rugged years.
American LaFrance; Figgie Fire Protection Systems; “Automatic” Sprinkler Corporation of America; Figgie Packaging Systems; Figgie Power Systems; Fred Perry Sportswear (U.K.) Ltd.; Interstate Electronics Corporation; Rawlings Sporting Goods; Safway Steel Products; Scott Aviation; Sherwood-Drolet Corp., Ltd.; Snorkel-Economy; Taylor Environmental Instruments; Waite Hill Holdings Inc.
Figgie, Harry E., Jr., “A Dream Comes True: The Story of Figgie International,” Newcomen Society (U.S.), 1985; Maturi, Richard J., “Rebound Continues: Figgie International Profits from Recession Moves,” Barren’s, September 16, 1985; Marcial, Gene G., “Figgie Relives the Go-Go Years,” Business Week, June 22, 1987; Maturi, Richard J., “Looking for Tuckins’: That’s Figgie International’s Acquisition Strategy,” Barren’s, July 13, 1987; “Figgie: Insiders Get Richer, Poor Get . ..,” Financial World, June 28, 1988; Hannon, Kerry, “There He Goes Again,” Forbes, October 31, 1988; Nulty, Peter, and Karen Nickel, “America’s Toughest Bosses,” Fortune, February 27, 1989; “Casualties of Peace: The Navy Checks Its Safety and Finds Some Faulty Gear,” Time, November 27, 1989; Thackray, John, “Diversification: What It Takes To Make It Work,” Across the Board, November 1991.