Arbor Shoreline Office Park
19345 U.S. Hwy. 19 N
Clearwater, Florida 34624-3148
Fax: (813) 530-9247
Web site: http://22.214.171.124/kaydon
Incorporated: 1941 as The Kaydon Engineering Company
Sales: $290.7 million (1996)
Stock Exchanges: New York
SICs: 3562 Ball And Roller Bearings; 3569 General Industrial Machinery, Not Elsewhere Classified; 3592 Carburetors, Pistons, Rings, Valves
With more than a decade of nearly unbroken sales and earnings growth, Kaydon Corporation has been quietly building an empire of custom-designed engineering solutions. Kaydon and its subsidiaries design, manufacture, and market products such as antifriction bearings, bearing systems and components, filtration systems, metal castings, shaft seals, slip rings, and other custom, specialty, and high-technology products. The company’s products are sold to four primary market sectors. Special Industrial Machinery, which accounted for nearly 28 percent of sales in 1995, includes components such as compressor filters, robotic manipulator bearings, medical scanner bearing systems, and printing machine roll bearings for machine tools, material handling equipment, medical diagnostic equipment, large air and gas compressors, robots, and other specialized machinery. Replacement Parts and Exports, at 38.5 percent the largest of Kaydon’s market sectors, includes replacement parts, such as railroad diesel piston ring sets, filter elements and shaft seals, space bearings, and slip rings and assemblies, for major equipment users and government and military agencies. Heavy Industrial equipment represented more than 17 percent of sales in 1995, providing hydraulic excavator swing bearings, power generation lubrication oil filter units, road grader hydraulic filter elements, and sealing rings, piston rings, slip-rings, and assemblies, to the construction, mining, oil, and power industries. Kaydon’s Aerospace and Military Equipment sector, representing the remaining 16.5 percent, has long supplied aircraft and military vehicle components such as jet engine shaft seals and sealing rings, landing wheel brake bearings, radar and fire control custom bearings, tank turbine engine shaft seals, and descendants of the product on which the company was founded, military turret bearings.
Since going public in 1984, Kaydon has built itself into one of the world’s leaders in specialty bearings. Growth has come both internally through expanding sales of its core products and through a series of carefully planned acquisitions adding new specialty and high-technology products. Kaydon, which for more than ten years was a protege company of Bairnco’s Glen Bailey, has carved out a niche for itself by providing solutions to difficult and high-technology engineering problems. Kaydon operates 12 manufacturing facilities in seven states, as well as plants in Mexico and the United Kingdom. The company is led by chairman and CEO Lawrence Cawley and president and COO Stephen Clough. In 1996, the company posted net income of $50.5 million on revenues of $290.7 million.
Launched in World War II
The Kaydon Engineering Company was founded in 1941 in Muskegon, Michigan, in order to support the United States entry into World War II. Kaydon originally provided a specially designed thin-section bearing for the gun mounts on the Navy’s ships. By the end of the war, Kaydon had expanded its bearings line beyond military applications. A hallmark of the company’s products, however, was that they were custom-designed, specially engineered, and difficult to manufacture solutions for customer equipment problems. The company’s dedication to such specialty products would continue to guide Kaydon throughout its history.
Kaydon clung to its bearings, growing to three manufacturing plants through the 1960s. That was when the company attracted the attention of Glen Bailey. Bailey had spent much of the decade working as a mid-level manager for ITT Corp. under Harold Geneen; Bailey’s job was to take Geneen’s acquisitions in the wire and cable industry and turn them around to profitability. In 1967, Bailey decided to go into the turnaround business for himself, acquiring New Jersey-based Keene Packaging Associates for $1.7 million. With $65 million in loans, Bailey set out to build his own $1 billion conglomerate—through the 1970s Bailey acquired some 20 small companies, which together neared $300 million in revenues by the beginning of the 1980s.
Bailey’s second acquisition was Kaydon, which he bought in 1969. Over the next decade, Bailey pumped some $50 million into Kaydon, upgrading its plants to state-of-the-art equipment, adding specialty filtration products to its line, and expanding Kaydon’s facilities to seven plants for a total of 900,000 square feet of manufacturing space. At the same time, Bailey guided Kaydon toward new customers in its core markets and brought the company into new markets, including the robotics industry and the developing market for CAT scanners. Bailey’s strategy for Kaydon was working: by 1975, the company was posting nearly $36 million in revenues; four years later, the company topped $65.5 million in sales. By 1981, Kaydon’s sales had risen to $85 million. The company’s operating profits also saw steady growth, from $3.8 million in 1975 to $22.4 million in 1981.
Reborn in the 1980s
By then, however, Bailey had soured on the conglomerate concept. Instead, Bailey sought to build a different type of corporate empire. He restructured his collection of companies, combining them into separate divisions, and renamed the parent corporation as Bairnco (“bairn” was a Scottish word for child). Bailey’s idea was to nurture the separate divisions until they could be spun off as independent companies. As Bailey, who would appoint himself chairman of each new spinoff, told Business Week, “Big companies kill the entrepreneurial spirit. I’d much rather have five $200 million companies with highly motivated management than a single, institutionalized $1 billion one.” Bailey sought to nurture the entrepreneurial spirit in his management as well. Managers of the Bairnco divisions were given ample incentive to build the division—in the form of being offered the opportunity to take over the leadership of a newly spun off company. Further incentive was added in the form of performance bonuses: all employees could double the salaries with bonuses linked to the division’s net income. Lastly, while Bailey would himself take a share of stock in a new spinoff, management of the newly independent company would also receive a large share of the company’s stock.
Despite the recession of the early 1980s, which saw Kaydon’s sales drop to $80 million in 1982 and then to $72 million in 1983, Bailey was ready to give birth to Bairnco’s first “child” by 1984. In April of that year, Bairnco spun off Kaydon Corporation to stockholders. Bailey was named chairman of the new public entity, and received 9 percent of the company’s stock, while Kaydon’s management, including president Richard Shantz, received a total of 20 percent of the stock, at $2 per share. The new Kaydon debuted at $3.50 per share, and within five years its stock price would climb to $30 per share. But Kaydon also began its return to independence with a heavy debt load: some $60 million in cash debt against $10 million in equity. Yet, as the market for the company’s bearings and filtration products began to recover, Kaydon’s revenues rebounded, climbing to a new high of $86 million, for net earnings of $5.7 million.
Under Shantz, Kaydon adopted the growth strategies of its former parent, and began extending into new product areas. Kaydon sought to redefine itself from a producer of specialty bearings to a manufacturer of custom-designed and engineered product solutions. By 1984, the company had added bearings for jet engine components and an antifriction roller lift valve assembly for the automotive market. The latter product, which helped to reduce engine exhaust emissions, quickly proved successful among automobile makers rushing to meet new federal emissions restrictions.
Kaydon’s strategy is to function as an extension of our customers’ businesses through a commitment to identify and provide engineering solutions to design problems. We seek to blend technical innovation with cost-effective manufacturing and outstanding service. We will strive to develop growth opportunities by expanding our range of technical capabilities through both internal developments and selected acquisitions. This will permit us to pursue our strategy of custom technical solutions beyond our current products into expanded product and market areas.
Kaydon looked beyond internal expansion to fuel the company’s growth. Taking another lesson from its former parent, the company set out on the acquisition trail. Its first acquisition came in 1986, with the $29.6 million cash purchase of Koppers Company’s Ring and Seal division. Ring and Seal, located in Baltimore, Maryland, had originally produced cast iron stoves as far back as 1832, then made cannon balls during the Civil War, but by the 1980s had matured into a specialized producer of sealing rings and shaft seals for a customer base similar to Kaydon’s bearings and other products. The acquisition quickly lifted Kaydon’s revenues, to $112.5 million in 1986 and to $133.5 million the following year. Earnings were also strong, reaching $17 million for 1987. By then, Kaydon had already made its second acquisition, a $5.1 million cash purchase of the Spirolox specialty retaining ring division of TRW Inc. In 1987, Shantz took over the chairmanship of the company from Bailey, who remained on the board of directors. In November of that year, Lawrence Cawley, who had joined the company in 1985, was named president and chief executive officer. The company’s market focus was also undergoing a shift. While Aerospace and Military continued as the company’s primary market segment, replacement parts and export had grown to nearly one-third of company sales; at the same time, the company was rolling back sales to the automotive and agricultural markets—in the face of shrinking profit margins—to represent only 6 percent of sales.
In 1988, Kaydon made its first international move, building a plant for its newly formed Maquiladora, Mexico, subsidiary in order to produce large bearings—up to 120 inches in diameter—for the construction industry. The following year, Kaydon went international again, this time with the acquisition of IDM of Reading, England. At the same time, Kaydon acquired Electro-Tec Corp. of Blacksburg, Virginia. The two acquisitions, made for $22 million in cash, brought the company into the slip ring business. Used for transmitting electrical signals or power between rotating and stationary members of electromechanical devices, slip rings fit well into Kaydon’s portfolio of highly engineered, customized specialty products. The IDM acquisition also gave Kaydon an important foothold for expanding into the European market. Together the acquisitions helped boost the company’s revenues to $151 million. Inside Kaydon management, Lawrence Cawley succeeded Richard Schantz as company chairman, while Stephen Clough, who had been serving as vice-president, was named the company’s president.
New Acquisitions for the 1990s
As Kaydon entered the new decade, it continued on its expansion through acquisition strategy. Next up was the $40 million cash purchase of Cooper Bearings, based in King’s Lynn in the United Kingdom, and its Cooper U.S.A. subsidiary. The Cooper acquisition further enhanced Kaydon’s status in the specialty bearing market, adding Cooper’s line of highly specialized split roller bearings, further strengthening Kaydon’s European position and placing the company among the world leaders of the specialty bearing market. Meanwhile, the company had been working to refocus the company’s market emphasis, boosting the revenue share of replacement parts and exports to nearly 40 percent of sales, while lessening its reliance on the weakening military and aerospace markets, and phasing out of the automotive market (which the company left in 1995). Despite an upsurge in military orders surrounding the Persian Gulf War, the company’s growth was hampered by the recession of the early 1990s; in 1991, Kaydon posted its first and only revenue decline since its spinoff in 1984. In that year, also, Kaydon moved its corporate headquarters from Muskegon to Clearwater, Florida.
By 1992, however, the Cooper acquisition allowed Kaydon to post a rebound, gaining some $23 million in sales to end the year with $183 million. Over the next three years, Kaydon continued to add to its stable of subsidiaries—and its revenues—with four acquisitions, including Kenyon Corp., Industrial Tectonics Corp., DJ Moldings Corp., and, in 1995, the $22 million cash purchase of Seabee Corp., a privately held designer and producer of custom-engineered machinery components. By then, Kaydon’s strong record of successful acquisitions was helping Kaydon build its revenues to nearly $300 million, with net earnings of more than $50 million, by year-end 1996. Glen Bailey, who stepped down from Kaydon’s board of directors to concentrate on his own corporate empire, must certainly be proud of his “child.”
Cooper Bearings (United Kingdom); Cooper Bearing, U.S.A.; Electro-Tec Corp.; IDM Electronics (United Kingdom); Industrial Tectonics Inc.; Kaydon Corp. Filtration Division; Kaydon Corp. Sumter Division; Kaydon Mexico; Kaydon Ring and Seal, Inc.; Seabee Corp.; Victor Fluid Power Inc.
“Bairnco: An Empire That Spins Off Companies to Grow,” Business Week, April 30, 1984, p. 68.
Kingman, Nancy “Bairnco Spins Off Kaydon, Plans More Similar Ventures,” American Metal Market, April 30, 1984, p. 15.
——, “Kaydon, Free but Debt Laden, on Move,” American Metal Market, June 18, 1984, p. 12.
Kramer, Farrell, “Kaydon Finds Success by Offering Hard-To-Make Goods,” Investor’s Daily, October 19, 1990, p. 30.
Weil, Henry “’We Grow Companies’: So Says Glen Bailey of Bairnco Corp.,” New York CityBusiness, June 3, 1985, p. 23.
—M. L. Cohen