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Maxco Inc.

Maxco Inc.

1118 Centennial Way
P.O. Box 80737
Lansing, Michigan 48908-0737
U.S.A.
(517) 321-3130

Public Company
Incorporated: 1946
Employees: 500
Sales: $80 million
Stock Exchanges: NASDAQ

SICs: 6719 Holding Companies; 5039 Construction Materials, Not Elsewhere Classified; 5013 Motor Vehicle Supplies & New Parts; 3089 Plastics Products, Not Elsewhere Classified

Maxco Inc., is a mini-conglomerate of four active subsidiaries and two divisions that has invested in three primary industry segments: distribution, manufactured products, and real estate development. The distribution segment consists of a division of Maxco, Ersco Corporation, and Wisconsin Wire and Steel. The manufactured products segment consists of Wright Plastic Products and Pacer Tool and Mold, serving the automotive component industry, and Pak-Sak Industries and Akemi, serving the industrial products industry. The real estate segment consists of a division of Maxco, Maxco Development Company, and two partnerships, Riverview Associates One Limited Partnership and CJF Partnership. Maxco is also owns 19.7 percent of the outstanding common stock of Medar, a leading supplier of microprocessor-based process monitoring and control systems for use in resistance welding and optical disc inspection.

Max Coon to Maxco: Company Origins

Working as a partner in a local accounting firm in Lansing, Michigan, in the late 1960s, Max A. Coon became interested in owning his own company. To start, Coon purchased a third share and later a 50 percent share of his client Lloyd Barnharts local underground construction company, Barnhart Construction Company, and offered stock according to the law at the time, which allowed companies to sell stock to ten people per year without being registered. Coon considers the true beginning of Maxco to be July 1,1969, when he used debt to purchase his first additional companies: Triquet Paper Company, Triplex Engineering Company, and Ollies, Inc. After two years of juggling his work at the accounting firm and his work at Maxco, Coon decided to pour all his energies into his own venture.

Maxco became a highly leveraged company, using debt and stock to acquire companies with strong potential. During Maxcos first decade, the company purchased the mainstays of its financial base. In 1972 Ersco Corporation, a fabricator of reinforcing steel and distributor of concrete construction products and accessories for road and commercial building construction, became a division of Maxco. In the mid 1990s, net sales of the construction supplies group, which consisted of Ersco and Wisconsin Wire and Steel, were approximately 50 percent of consolidated net sales. The purchase of Pak-Sak Industries in 1973, Auto Body Supply Company in 1973, Akemi Plastics in 1977, and Medar in 1978 gave stability to Maxco into the 1990s. Pak-Sak Industries and Akemi made up the industrial products group of Maxco and accounted for approximately 28 percent of consolidated net sales in the mid-1990s. Coon commented in an interview that he consciously stayed away from low-margin industries like food and liquor, seasonal, and recreational industries. From my experience as an accountant, he noted, I knew these industries were hard to manage.

Medar, Inc. Acquisition

Medar and Auto Body Supply Company (now FinishMaster) have been the shining stars of Maxcos holdings. Purchased January 1, 1978, Medar has grown into a leading supplier of resistance welding controls for on-line inspection of storage media such as Audio Compact Discs (Audio CDS) and Compact Disc Read-Only Memory (CD-ROMs). Maxco owned 100 percent of Medar until 1983 when it took the company public. Since 1983, Maxco has held a variable amount of stock in Medar. Maxco has been instrumental in helping Medar with its bottom line. In 1992, for example, Maxco received shares of Medar in exchange for the retirement and cancellation of outstanding promissory notes and accrued interest. The move gave Medar more flexibility. According to Medar president Charles Drake in Business Wire, the exchange served a number of purposes for Medar, all of which go hand in hand with a high-tech company experiencing significant growth. The debt retirement eliminates the need to fund the continuing interest obligation and the principal repayment, permitting the company to redeploy these financial resources to fund the growth ahead, while also serving to increase earnings per share.

Maxcos support and the good management of Medar have paid off. Though Medar acquired debt due to the cutback of automated factory equipment purchase in the auto industry in the late 1980s, its acquisition of Automatic Inspection Devices Inc., a manufacturer of systems to inspect the quality of compact discs, began paying off in 1991. The sales of the CD-inspection machines jumped from 17 to 31 percent of Medars sales from 1990 to 1991 and brought the company back into the black. The company expected demand for its welding controls to continue to be a significant part of its business, however. Medar president Charles Drake noted in Crains Detroit Business that the auto industry will require new welding machines each time automakers try to increase market share by introducing new models. A 1994 public offering of Medars stock led Maxco to report what it called a significant gain in its first quarter. Maxco realized $3.1 million in pre-tax gains from the offering. In 1996 Maxco continued to be the largest single shareholder of Medar.

FinishMaster Acquisition

FinishMaster, Maxcos first cash purchase, was the brightest star of Maxcos holdings. When FinishMaster was acquired in 1973 as Auto Body Supply Company it operated out of one location and had revenues of less than $700,000. James White had founded the company in 1968; five years later he sold the company to Maxco to finance growth. Maxco acted as a silent partner, allowing White to grow the company according to his own plan. From the outset, my idea was to start a paint business and follow the lines of automotive parts divisions, like NAPA has, he commented in the Grand Rapids Business Journal. He began to acquire new stores in 1975, and by 1996, FinishMaster had grown to include 56 outlets in 12 states. Its not a case that we want to be the biggest in the world. We just want to be the best in our line of business, White told the Grand Rapids Business Journal Maxco took FinishMaster public in 1995, and FinishMaster realized a 23 percent increase in sales and a 61 percent increase in net income.

Coon credited FinishMasters success to its excellent record of building on existing business, purchasing power, strong management organization, and emphasis on service and training. Ernst and Young, Inc. Magazine and Merrill Lynch named James White the Entrepreneur of the Year for the state of Michigan in 1995. In 1996, while James White served on the companys executive board, his son Ronald served as president and CEO.

Unlike Medar and FinishMaster, not all of Maxcos holdings have proved brilliant investments. During Maxcos second decade, the company experienced operating losses due to such troubled projects as the Zilwaukee Bridge, whose delays and cost overruns cost Maxco nearly $5 million. Despite rough times, Coon nurtured his close ties to Maxcos lenders. I never lied to my bankers; theyre my friends, Coon said. I let them know of problems beforehand. I never surprised them with trouble. And in 1996, Coon was able to demonstrate his financial savvy.

Company Perspectives:

It is the mission of Maxco, Inc., through the ownership of operating subsidiaries and investments, to excel in the creation of economic value for its shareholders. Maxco will promote the creation of economic value within its investments and subsidiaries by establishing a culture for its people that promotes entrepreneurial growth. Maxco will support this growth by providing the highest level of corporate resources to its subsidiaries. We believe our people are our most valuable resource; we will pursue a continuous quest for quality in everything we do; our conduct will reflect the highest standards of integrity; we are committed to the health and well being of the environment and communities within which we live and work. To the extent that we act according to these values, we believe we will excel in the creation of value for our shareholders.

In 1996 Lacy Diversified Industries Ltd. purchased a controlling interest in FinishMaster for $63 million. With the proceeds of the sale, Maxco was able to eliminate its debt for the first time in its history. Coon said that the move made Maxco more conservative. I see us becoming more of an investment company than a mini-conglomerate, he said. Given the stability of its executive team, some members of which have been with the company for more than ten years, and Maxcos record of profitability, the company seemed well prepared to embark on its new course.

Principal Subsidiaries

Ersco Corporation; Maxco Development Company; Wisconsin Wire and Steel; Wright Plastic Products, Inc.; Pak-Sak Industries, Inc.; Akemi, Inc.; Medar, Inc. (19.7%); CJF Partnership (25%); Riverview Associates One Limited Partnership (2%).

Further Reading

Child, Charles, Enjoying the Payoff, Crains Detroit Business, November 18, 1991, sec. 1, p. 2.

Coon, Max, Maxcos FinishMaster, Inc., Announces Acquisition, Expands Midwest Operations, PR Newswire, February 3, 1993.

, Maxco Increases Equity Position in Medar through Debt Exchange, PR Newswire, June 29, 1992.

Drake, Charles J., Medar Reports Debt to Equity Exchange, Business Wire, June 26, 1992.

Galasso, Joseph, Jr., Decade Ends on Flat Note for Most Public Companies, Michigan Business, October 1990.

Howes, Daniel, 1994 Michigan Corporate Report Card: Serving the Shareholders, Detroit News, December 11, 1994, sec. D, p. 1.

Luymes, Robin, FinishMaster Is Showing Growth, Grand Rapids Business Journal, July 2, 1990, sec. 1, p. 5.

Schneider, A. J., Buying Binge Lifts LDI, Indianapolis Business Journal, June 10, 1996, p. 1.

VanderVeen, Don, Flourishing Company Forges New Frontier, Grand Rapids Business Journal, September 11, 1995, p. All.

Sara Pendergast

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