Specialty Equipment Companies, Inc.
Specialty Equipment Companies, Inc.
1245 Corporate Boulevard, Suite 401
Aurora, Illinois 60504
Fax: (630) 585-9450
Web site: http://www.specialty-equipment.com
Sales: $433.1 million (1998)
Stock Exchanges: NASDAQ
Ticker Symbol: SPEQ
SICs: 3556 Food Products Machinery; 3589 Service Industry Machinery, Not Elsewhere Classified; 3999 Manufacturing Industries, Not Elsewhere Classified
Specialty Equipment Companies, Inc., is a leading designer and manufacturer of cooking, refrigeration, and sanitation equipment for the foodservice industry, and the world’s top manufacturer of softserve ice cream, shake, and frozen yogurt machines. Its products include espresso/cappuccino coffee machines, warm-air hand dryers, freezers and refrigerated cabinets, electric grills, and roll warmers. Its customers include quick service restaurant chains, convenience stores, supermarkets, specialty stores, soft drink bottlers, international breweries, and institutional foodservice operations. The company operates its business through Specialty Equipment Manufacturing Corporation, a wholly owned subsidiary, its four operating divisions (Beverage-Air, Taylor Company, Wells Manufacturing/Bloomfield Industries, and World Dryer) and Gamko Holding N.V., another wholly owned subsidiary. In fiscal year 1998, international sales accounted for over 32 percent of the company’s $433.1 million in revenues. Malcom Glazer, owner of the Tampa Bay Buccaneers football team, owns about 42 percent of the company.
Early History, 1920s–50s
Specialty Equipment Companies can trace its history back to the 1920s, when Wells Manufacturing in South San Francisco started producing its first waffle bakers. A few years later, in 1926, Taylor Freezer was founded in Rockton, Illinois, and that same year sold its first ice cream freezer to a restaurant. In the 1950s, Taylor began supplying shake machines to McDonald’s. Beverage-Air first started making refrigerated cabinets in 1944. World Dryer was established in 1950 in Illinois, and introduced its first warm-air hand dryer in 1951. During that decade, Bloomfield Industries of Chicago introduced its coffee service products. Market Forge Industries, Inc., of Everett, Massachusetts, was founded as a metal forging company in 1896, and after World War I began making bicycle carriers, bicycle stands, baby hammocks, and florist racks. During World War II, the company shifted to making steam cooking systems and stainless steel hospital equipment.
The Beatrice Years, 1960s-83
Over the years, Beatrice Foods company acquired Taylor, Wells, Bloomfield, World Dryer, and Market Forge as part of its strategy of accelerated growth and diversification under president William Karnes. Beatrice bought small companies, expanded their markets, and, in keeping with its long-standing policy, left them alone to be managed by their own, local executives, whose intimate knowledge of their own conditions, Beatrice believed, produced the best business decisions. During the 1970s, for example, Market Forge emerged as one of the leading suppliers of steamers and ovens, and later introduced sterilizers for hospitals.
After spending twenty years building its profitability on acquisitions, in 1983, Beatrice Foods announced it was getting out of the industrial field and would be selling more than fifty of its three hundred companies in the next several years. That move was accelerated in 1984, when Beatrice assumed $3.5 billion in debt in its acquisition of Esmark Inc., and had to sell off assets to pay down some of that liability. The list included chemical, specialty apparel, agri-products, and cookie and bakery operations, as well as those companies that manufactured commercial cooking and food handling equipment.
Management Buyout I, 1984–87
In November 1984, Beatrice announced it was selling its five foodservice equipment businesses for $116 million to Gibbons Green van Amerongen, a New York investment banking firm that specialized in buyouts. The firm incorporated Specialty Equipment Companies before the end of the year, and in January 1985, acquired Wells, Taylor, Bloomfield, World Dryer, and Market Forge from Beatrice. Current management continued to operate the business, and Daniel Greenwood, president of Taylor Industries with a 30-year history at that company, was named chairman and chief executive officer. William Dotterweich, group president of Beatrice’s commercial equipment division, was elected president.
In November 1986, Specialty purchased Beverage-Air from Gerlach Industries, Inc., in order to expand its offerings. The acquisition moved Specialty Equipment into beverage refrigeration, and the company planned to develop customized refrigeration products for the major chains. The new division’s products, sold under the Beverage-Air® and Marketeer® brand names, included vertical and horizontal reach-in beverage coolers, freezers, refrigerators, pizza and food preparation units, school milk coolers, self-contained beer dispensing units, and delicatessen and floral display cases. For the fiscal year ending January 31, 1987, Specialty had sales of $225.1 million, with net income of $5.3 million.
In July 1987, the company went public, offering $44 million in new and existing shares. According to Crain’s Chicago Business, Specialty Equipment was one of the best-performing initial public offerings in 1987, and revenues that year increased to $287.9 million, with net income jumping more than 17 percent to $14.2 million.
Management Buyout II, 1988–91
The company was doing so well that its two biggest shareholders, Prudential Insurance, with 36 percent, and a limited partnership controlled by Gibbons Green van Amerongen, with 29 percent, decided to get their money out. “The environment is right to take a look at our options,” president Dotterweich told Crain’s Chicago Business in March 1988.
Later that year, company executives led by James Knoll formed SPE Acquisition, Inc., and bought Specialty for $500 million in a leveraged buyout. In completing the transition, SPE Acquisition Sub, a wholly owned subsidiary of SPE Acquisition, merged with Specialty. The buyout left the company with a debt of some $400 million, as the new owners invested just $8.3 million of their own money.
The company enjoyed strong annual growth initially, but by the end of the fiscal year in January 1990, Specialty had a net loss of $6.5 million. That amount ballooned to $37.6 million in fiscal 1991.
Specialty’s losses could be traced to three problems. First, the foodservice industry was feeling the effects of the recession as stores and restaurants began failing. Second, the industry was experiencing a general maturation. As the yogurt craze waned, for example, sales of Taylor’s yogurt machines fell by more than 16 percent. These conditions resulted in greatly increased price competition, and when combined with the third factor, Specialty’s heavy debt from the 1988 leveraged buyout, caused the company to default on its obligations. Both Specialty and SPE Acquisition had to seek Chapter 11 bankruptcy protection in 1991.
The company emerged from Chapter 11 in March 1992, with SPE Acquisition merged into Specialty Equipment. The company paid all its trade creditors in full, but holders of prebankruptcy stock in Specialty Equipment and SPE Acquisition received no distribution in the bankruptcy cases. The original executives re-took control of the company. In November Daniel Greenwood resumed his position as CEO, and in December William Dotterweich was elected president again and also assumed the duties of chief operating officer.
The company came out of bankruptcy just as the market for foodservice equipment began a gradual recovery, led by quick service restaurant chains. The chains were not only opening new sites in the United States and overseas, but were also modernizing their equipment and remodeling existing locations as they added new items to their menus and changed their layouts to be more competitive.
The company underwent several major changes during 1993, including being listed on the NASDAQ exchange. Specialty combined the operations of Wells Manufacturing (electrical cooking equipment) and those of Bloomfield Industries (coffee and tea beverage products) at the Wells facility in Verdi, Nevada, creating the Wells/Bloomfield division. The company also announced it was closing its Market Forge division, after having had it on the market for eight years. But instead of that occurring, the 150 employees of Market Forge bought the division, saving their jobs. In selling the division, Specialty kept FM Manufacturing, Inc., its wholly owned subsidiary, although operations obviously ceased.
At the end of the year, Specialty completed a refinancing plan, consisting of a $50 million line of credit, a $15 million term loan, and a $185 million public offering of senior notes. The company owned about $215 million in long-term debt, a heavy burden for an organization with sales of $320 million.
Specialty Equipment has built its position with our customers by striving to provide Total Customer Satisfaction Through Integrated Engineering and World Wide Service, supported by an experienced hands-on management team.
Growth and Innovation, 1994–97
Specialty aimed at strengthening its financial picture with a four-step business strategy: focus on major national chains, expand international opportunities, leverage long-term relationships with major customers, and enhance the core product lines by adapting customized equipment innovations. Within the company, each division operated separately, with its own management, marketing, manufacturing, and product development teams. Specialty’s business and growth can best be understood by examining each division.
When Specialty Equipment acquired Taylor from Beatrice, the division was producing “cold” equipment, such as ice cream freezers and dispensers for frozen yogurts and frozen cocktails. Within a year, Taylor expanded into “hot” equipment and began designing and manufacturing cooking equipment such as flat grills and customized hot and cold food preparation and holding cabinets. In cooperation with McDonald’s, Taylor developed the automated “clam shell” grill, incorporating upper and lower grill plates that grilled both sides of a hamburger patty (or other food) simultaneously. Although Taylor held a joint patent for this grill with McDonald’s, the company was able to develop a similar grill that it marketed to other quick service restaurants.
Taylor also held a patent on its Softech® technology. This was an integrated memory system that automatically controlled the hardness or softness of a frozen product. With its Labor Saver™ heat treatment equipment, developed during the early 1990s, the division produced softserve and shake freezers that only needed to be taken apart and cleaned every other week, not daily as was the case with standard machines. Taylor also developed two specialized ovens for baking and holding applications, and frozen, non-carbonated beverage equipment.
Taylor sold and serviced its machines through a worldwide network of more than 140 independent distributors, whose sales and service staffs doubled from 300 in 1995 to 600 in 1997. In 1995 Taylor initiated a long-range service plan, called Service 2000, to achieve service excellence. The first step was a communication network to track service performance and provide a benchmark for measuring improvement. That was followed, in February 1997, with the opening of the Taylor Technical/Development Center at the division’s manufacturing plant in Illinois. In addition to providing training for its sales and service personnel, the facility served as a technical resource center. That same year, Taylor embarked on its Freezer and Grill of the Future development program, to produce a new generation of equipment.
The Beverage-Air division manufactured refrigeration equipment for the soft drink bottling and foodservice markets. When Specialty Equipment bought Beverage-Air in 1986, the division sold its equipment primarily to soft drink bottlers, which bought coolers to put in supermarkets and convenience stores. Over the years, the division worked with the bottlers to customize these coolers to meet special marketing needs, such as Coca-Cola’s Fast Lane™, used in the express checkout lines at supermarkets. Other innovations included the Maxi-Marke teers®, a line of curved-front vertical merchandisers introduced in 1995, and the Contour Cooler™, an eight-foot cooler in the shape of the traditional Coca-Cola bottle, for the international bottler market.
As part of Specialty, Beverage-Air’s sales to foodservice companies grew substantially. Products for that market included stainless steel refrigerators and freezers, deli display cases, pizza and food production tables, refrigerated display cases, and beer dispensing equipment. In addition to restaurants, customers included hotel kitchens, university cafeterias, supermarkets, convenience stores, and florists.
In 1996 Beverage-Air opened a 60,000 square foot manufacturing facility in Honea Path, South Carolina. In 1997, when the federal Food and Drug Administration changed its unified food codes, Beverage-Air completely redesigned its existing core product line, generating replacement equipment sales, especially to quick service restaurant chains. During fiscal 1998, Beverage-Air became the company’s top-selling division, moving ahead of Taylor with 43.4 percent of net revenue.
Under the Wells name, the Wells/Bloomfield division produced a line of electric countertop and built-in cooking appliances, including fryers, griddles, food warmers, broilers, and waffle bakers, which it sold to restaurants, hotels, schools, and hospitals. Wells also developed larger, specialized products, such as Crispy Lite™, a unit combining a pressure fryer, rotisserie oven, and storage, that enabled grocery and convenience stores to offer fried and roasted chickens to customers who didn’t have the time to cook.
The Bloomfield part of the division specialized in equipment for making and serving coffee and tea. Working with major chains, Bloomfield designed specialized coffee and tea brewing systems, which were purchased by 7-Eleven, Boston Market, Wendy’s, and Hardee’s. In the mid-1990s, in the face of a national coffee craze, the division introduced its Cafe Elite™ line, a powder cappuccino dispenser and fully automatic espresso machine. That was followed, in 1997, with the Electronic Brew Control™ coffee equipment, and satellite brewing systems, multi-brewers, and docking stations to meet the growing demand for high-quality coffee in specialty coffee shops and convenience stores. As the market for fresh brewed tea increased, Bloomfield developed a new flavored tea system to attach to its tea brewers.
The World Dryer division’s wall-mounted, warm-air hand dryers can be found in public restrooms throughout the world. In 1994 World Dryer acquired Electric Aire™, a line of less expensive, plastic encased hand dryers, to augment its stainless steel and cast iron hand and hair dryers. The division developed the No-Touch™ dryer, which it incorporated into a hand wash station for use in kitchens and health care settings that enabled workers to wash their hands without having to touch the soap dispenser, faucet, or dryer. The station even had a built-in counting feature that recorded each hand washing, making it possible to monitor under federal and health codes.
In August 1997, Specialty announced it would purchase Gamko Holdings B.V., a Dutch manufacturer of refrigeration equipment for the beverage/beer markets. Gamko had been making coolers since 1965, and its brand names included Euro-Line™, Eco-Line™, Party-Cooler™, and Maxi Glass™. Its product lines included beverage and bottle display coolers, dispensing and keg coolers, and food display and waste disposal coolers.
Included in the $21 million cash purchase was CoolPart B.V., a separate refrigeration company operating in Eastern Europe, with business in Slovakia, the Czech Republic, and Poland. The purchase of Gamko, which had annual sales of about $25 million, gave Specialty its first manufacturing facility outside North America, positioned the company for both the West and East European markets, and added global breweries to its customer base.
In 1995 Greenwood resigned as CEO while William Dotter which assumed that responsibility along with his duties as president and chief operating officer. That same year, Malcolm Glazer used his shares in Specialty and Houlihan Restaurants as collateral to raise $66 million, part of the $172 million Glazer paid for the Tampa Bay Buccaneers football team. In 1996 Jeffrey Rhodenbaugh, president of Beverage-Air, was named president and chief operating officer. Dotterweich continued as CEO until his retirement in May 1997, at which time Rhodenbaugh assumed the CEO responsibilities as well.
In September 1997, the company decided it would buy back $10 million of its own stock. In a press release announcing the plan, president and CEO Rhodenbaugh explained, “With our stock trading at a deep discount to both the S&P 500 multiple and that of our peer group, we believe that the current price undervalues our company and presents an attractive investment opportunity to increase shareholder value. Our strong cash flow and our confidence in our long-term outlook are the driving factors behind this move.”
1998 to the Present
On January 31, 1998, Specialty organized Specialty Equipment Manufacturing Corporation as a wholly owned subsidiary to conduct the U.S. operation of its divisions. For the fiscal year, Specialty reported sales of $433.1 million, net earnings of $38.5 million, and debt reduction of $135 million. Its divisions continued to innovate, with Taylor introducing the Razzle®, a frozen dessert program that mixed hard candies or cookies into soft serve ice cream or frozen yogurt, and Beverage-Air marketing the Breeze™, a new soft drink merchandiser. People were drinking more coffee and tea, soft drinks, juices, and other beverages, and they wanted to be able to buy them quickly and conveniently. Specialty also began moving into the recreation market, to help supply the numerous new stadiums being built throughout the United States. By adapting its traditional products to meet its customers’ needs as well as changing eating and drinking habits, Specialty now dominated its niches.
FM Manufacturing, Inc.; Bloomfield Industries Canada Ltd.; Taylor Freezer International, S.r.l, (Italy); Taylor Freezer (Cyprus) Ltd.; Specialty Equipment Foreign Sales Corp.; Taylor-Chicago Corp.; CoolPart B.V.; Specialty Equipment Manufacturing Corp.; Gamko N.V. [principal—operating—divisions] Beverage-Air, Taylor Company, Wells Manufacturing / Bloomfield Industries, World Dryer.
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—Ellen D. Wernick