Mestek, Inc.

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Mestek, Inc.

260 N. Elm Street
Westfield, Massachusetts 01085
(413) 568-9571
Fax: (413) 562-8437

Public Company
Incorporated: 1946 as Sterling Radiator Company
Employees: 2,900
Sales: $231 million
Stock Exchanges: New York
SICs: 3585 Refrigeration & Heating Equipment; 3535 Conveyors & Conveying Equipment; 8711 Engineering Services; 7372 Prepackaged Software

Mestek, Inc., is a leading manufacturer of heating, ventilating, and air conditioning systems for industrial, commercial, and residential spaces. The company also manufactures steel-manipulating equipment for factories, and produces computer systems for use in the medical industry. The company got its start in the wake of World War II as a manufacturer of heating components for commercial spaces, and it grew steadily in this field through the early 1980s. In the mid-1980s, it joined with a bankrupt steel-making machinery company, changed its name, and expanded its scope of business into the waste management field, before returning to its core operations.

Mesteks predecessor was the Sterling Radiator Company, founded in 1946. The enterprise was first conceived during the previous year, when John E. Reed, the companys founder, had dinner in Albany with a businessman who described to him the possibilities of a new technology: fin tube radiation. After a long conversation, and additional research, Reed joined with partner Gustave H. Stenner to launch the Sterling Radiator Company in February of the next year.

A few weeks later the new company began operations in rented quarters located off Bartlett Street in Westfield, Massachusetts. Sterling boasted three employees, who worked in the companys small garage space. By July 1946, they had manufactured their first products: 11/4 inch and 2 inch steel tubes equipped with either 32 or 24 metal fins per foot. These devices, which had been developed before World War II, were originally used to heat railroad passenger cars. In the wake of the war, finned tubes were adapted to heat commercial buildings through the use of hot water or steam. Reed remarked to friends as his business got under way that he had chosen this enterprise because it was so simple.

Sterling fin tubes were available only in black. The company purchased brackets for installation and simple expanded metal covers from another supplier. A one-page sales brochure was produced to describe all of Sterlings products. Throughout 1946 and 1947, the companys business expanded steadily. By the end of 1947, Sterlings activities had expanded beyond the size of the companys quarters on Bartlett Street, and Reed purchased a small building that had once been a milk plant on Birge Avenue in Westfield.

In its new quarters, the company continued to expand the range of commercial heating products it offered to include a wider selection of fin tubing and louvered covers. In addition to these products for use in stores and other industrial spaces, the company began to experiment with products for use in the home. Sterlings plant was expanded to accommodate these new activities in the late 1940s.

By 1950, Sterling had grown so large that an additional manufacturing facility was needed. The company purchased land and a building at 260 North Elm Street in Westfield. A short time later, Sterling branched into its first new line of business, when the Sterling Heat Specialties Company was established to put together and sell gas-fired unit heaters, for use in commercial and industrial buildings.

Four years later, the company more than doubled its factory space when a new addition was completed. In addition to its continuing efforts to expand the number and kind of products it offered, Sterling also began to develop a network of salesmen in locations across the country, to facilitate distribution of its products nationwide.

These efforts were underway in August 1955, when Sterling suffered a major setback. A torrential downpour caused a railroad embankment near Sterlings plant to dissolve and be washed away, releasing a torrent of water that destroyed many of the plants buildings and left a thick layer of mud on top of all of its equipment. It took ten days of intensive cleanup operations before the factory was able to produce fin tubing, and several more weeks before other products were being manufactured in volume.

The effects of the flood lingered into 1956, but the massive rebuilding made necessary by the deluge offered Sterling the opportunity to expand its facilities and rearrange them for greater efficiency. Within four years, the company again required greater capacity and new facilities were built; this process was repeated again in 1964.

In that same year, Sterling began a process of expansion through the acquisition of companies in its own field or complementary fields. In 1966, Sterling purchased the Carl G. Peterson Company, a manufacturer of coil-handling machinery founded in 1946. This purchase grew out of the close cooperation between Sterling engineers and Peterson workers, who sought together to make more efficient and sophisticated machines for metal-stamping.

By 1967, Sterlings work force had grown to 220 employees. Two years later, the company entered the fire and smoke damper business (a field related to its core heating industry operations) when it purchased Phillips Aire. This company made fire damperssafety systems used in commercial or industrial buildings which detected flames or smoke and responded to the threat of fire by sealing off air ducts and sending smoke out through a ventilation system. Because of Reeds previously developed expertise in metal forming, and Sterlings network of sales agents and distribution channels, the fire damper industry was a natural avenue for expansion.

In 1975, Sterling substantially augmented its operations in the gas-fired heater industry when it purchased a manufacturing plant in Farmville, North Carolina. This factory allowed the company to offer an improved and greatly expanded line of products that included gas unit heaters, rooftop duct furnaces, and steam unit heaters. With the purchase of the Farmville facility, Sterling became one of the three leading companies in the gas-fired unit heater market.

One year later, Sterling also moved to expand its operations in the metal-stamping machinery field, when it purchased Cooper-Weymouth, a New England-based firm that made machinery for use in factories. Cooper-Weymouth equipment handled giant rolls of steel sheets known as coil stock. This purchase complemented Sterlings earlier acquisition of the Peterson company, and Sterling combined the two into a unit known as its Cooper-Weymouth, Peterson division. At this time, the company also changed its name from Sterling Radiator Company to the Reed National Corporation, which better reflected its broadened scope of activities.

Two years later, Reed took a leading place in the damper industry when it purchased Air Balance, Inc., a fire safety company, in 1977. With this move, the company substantially broadened its line of products and acquired another prestigious name brand in the fire damper field. Air Balance manufactured its fire damping equipment in plants in Wren, Georgia, and Los Angeles, California, giving it an important toe-hold in the burgeoning West Coast building market. Later in the 1970s, Reed also broadened its holdings in the steel-manufacturing machinery field, acquiring the Dickerman Company, which made machines to feed coiled steel into other machines for stamping and other forms of manipulation.

Despite this diversification, the core of Reeds business continued to be fin-tube manufacture for use in hot water or steam heating. In 1982, the company expanded its scope of operations in this industry when it bought one of its competitors, Beacon/Morris, which made steam-unit heaters, convectors, and heaters marketed under the brand name Twin-Flo. As part of Reeds Specialty Hydronic Heat Distribution division, Beacon/Morris unit heaters were used to heat warehouses, stores, factories, and other large open spaces. In addition, the company offered forced hot water and two-pipe steam heating convector products for use in hospitals, hotels, office buildings, schools, or apartments.

Two years later, Reed also bought Vulcan Radiator, the company which had first pioneered the use of finned-tube heating for commercial and industrial spaces. At the end of that year, 1984, Reed purchased Pacific Air Products from a company called PAPCO, for $1.4 million. Pacific Air developed and marketed energy-efficient dampers for use in the air-conditioning systems of commercial buildings. In addition, the company developed products to cool air in power plants.

In addition to these acquisitions, Reed also bought another company, to expand its operations in the coil stock machinery business. With the purchase of the Coil-Matic line of air feeds for sheets of steel, Reeds Cooper-Weymouth, Peterson division was able to offer the widest selection of such machinery in the industry.

By the mid-1980s, Reeds operations had expanded to the point where the company set up a special engineering group. This arm of the company was responsible for designing and developing new products, and also for locating new sources of raw materials and monitoring their quality.

At the end of 1985, Reed completed an agreement to complete a reverse-merger with another company, Mestek, Inc. Mestek was a publicly held manufacturer of steel mill equipment based in Pennsylvania that had been known as the Mesta Machine Company until, having been driven into collapse by its heavy debt burden and high overhead, it declared bankruptcy on February 9, 1983. Subsequently, the company was re-organized. Its heavy steel mill equipment business, which had been badly battered by the cheap costs of labor for its foreign competition, was pared away, and its two profitable subsidiaries, an engineering services unit and a computer operation, emerged from bankruptcy on February 20, 1985, under the name Mestek, Inc.

Under the terms of the reverse merger, Reeds owners took over ownership of more than half of Mestek, and the combined operations of the two companies were called Mestek. The deal was completed on July 31, 1986. Mestek in its transformed state consisted of the old heating, ventilating and air conditioning operations of Reed National; Cooper-Weymouth, Peterson, Reeds steel coil machinery arm; and two units contributed by Mestek: the Chester Engineers, and MCS, Inc.

The Chester Engineers were a consulting firm that specialized in environmental engineering. The firm concentrated on waste management projects, and wastewater treatment. The company had extensive computer-aided design facilities, as well as an environmental laboratory to detect minute particles of contaminants in water. MCS, Inc. developed and marketed computer systems for order processing and accounts receivable for companies in the durable medical equipment industries, and for retail lumber and building material dealers.

In the wake of the merger, the new company moved rapidly to make two acquisitions. In November 1986, Mestek bought Alton/Applied Air from the Hussmann Corporation. This company made large industrial forced air heating units, evaporative coolers, and specialized heating-cooling units for use on rooftops. Its operations were complementary to those of Mesteks Gas-Fired Products Division.

One month later, Mestek bought the American Warming and Ventilating Company, which manufactured air control dampers and louvers. First founded in 1904, this company fit well with Mesteks existing Air Balance fire and smoke damper operations. At the end of 1986, after its rapid transformation, Mestek posted profits of $5.2 million on sales of $87 million.

In the following year, Mestek continued its policy of acquiring companies which enhanced and complemented its standing in the industries in which it operated. In January 1987, Mestek acquired Arrow Louver and Damper, a company based in New York which fit well with its other damper operations. In the middle of the year, Mestek bought the L.J. Wing company. Founded in 1875, this firm made heaters for commercial and industrial buildings. Aided by revenues from these two properties, Mestek finished 1987 with sales of $135 million.

By 1988, however, Mesteks program of rapid growth through acquisitions had begun to demonstrate some drawbacks. In an effort to keep the costs of the companies it purchased down, Mestek typically sought out companies in financial trouble, with significant operational or administrative hurdles, confident that it could make the companies profitable through superior management and expertise. This process, however, was not always instantaneous, and Mestek found its operating revenues fluctuating greatly during 1988.

This unexpected slowdown in financial performance made it necessary for the company to borrow $7 million in order to finance further acquisitions. With this money, Mestek bought Keystone Environmental Resources, a company that doubled its capacity in the municipal and industrial waste treatment field; the company then added Arrow United Industries, Inc., a louver manufacturer based in Pennsylvania and New York.

Despite these additions to the companys operations, Mestek experienced a second year of flat earnings in 1989. Three out of five of the companys damper and louver units reported losses, and the costs of integrating Keystone Environmental Resources acquisition turned out to be unexpectedly high. As a result, the pace of Mesteks further acquisitions slowed somewhat in 1989. The company bought a small Los Angeles-based manufacturer of specialty heating and air conditioning equipment, Air Fan Engineered Products, which strengthened its position on the West Coast. It also purchased nearly half of the common stock of H.B. Smith Company, a cast-iron boiler manufacturer founded in Westfield, Massachusetts, in 1853.

By 1990, Mesteks financial fortunes had rebounded strongly, despite a slump in the housing market. The companys commercial and industrial heating units, machine tool operations, and waste management arm all contributed strongly to revenues which topped $200 million for the first time. Mestek limited its acquisitions to firms in the companys fastest-growing area of operations, waste management. Its Chester Environmental Group, which had quadrupled in size in just four years, was augmented by two new units. NEA, Inc. was a Portland, Oregon, company that specialized in air quality control. GeoSpatial Solutions was a small firm that developed satellite imaging and mapping to enhance land use planning.

By 1991, Mestek had nearly tripled in size in the five years since its merger. The company made an ambitious number of acquisitions, despite a general recession in the building market, which hurt its heating, ventilating, and air conditioning operations, and caused a drop in profits. Mestek purchased Kamber Engineering, which supplemented its Chester group; the Hydrotherm Corporation, which made boilers and other heating products; and Temprite Industries, which manufactured heat-recovering devices, and, with its base in Ontario, helped Mestek to penetrate the large Canadian heating market. In addition, the company bought Dynaforce, which made air curtains.

In the following year, Mestek enhanced its research and development facilities when it began work on the Reed Institute, in Westfield, Massachusetts, to train members of the heating, ventilating, and air conditioning industry. Also inaugurated was a 15,000 square foot lab in Westfield, for testing products for this industry. This foundation for long-term growth did not prevent the companys profits from dropping for the second straight year, however, as the costs of absorbing recent acquisitions depressed earnings.

By 1993, however, a resurgence of activity in the building industry had helped Mestek to enhance its bottom line. In a move to consolidate its operations and focus on the heating industry, Mestek sold 70 percent of its interest in the environmental engineering unit, Chester Environmental, Inc., to Duquesne Enterprises. In its newly streamlined state, with the building market booming, and with a long history of solid management behind it, Mestek appeared to be well situated to prosper as it moved into the late 1990s.

Principal Subsidiaries:

Alapco Holdings, Inc.; HBS Acquisition Corporation; Hydrotherm Corporation; MCS, Inc.; Pacific Air Balance, Inc.; Peritek, Inc.; TEK Capital Corporation; Temprite Industries; Vulcan Radiator Corporation; Westcast, Inc.; West Homestead Joint Venture Corporation.

Further Reading:

Cairns, Linda, and Seward, Hilary, Tender Mercies and Small Increases, New England Business, June 1990.

Richards, Frank, Pittsburghs Top Ten Growth Companies, Executive Report, December 1990.

Robb, Charles C., From the Ashes, New England Business, June 1990.

Tascarella, Patty, On Top, Executive Report, December 1993.

Tascarella, Patty, Board Games, Executive Report, July 1993.

Thompson, Donald B., Executives on the Spot: Mestek, Inc., Industry Week, September 1, 1986.

Thompson, Donald B., Chapter 11: An Offensive Weapon, Industry Week, August 4, 1986.

Elizabeth Rourke