Incorporated: 1983 as Sudbury Holdings Inc.
Sales: $305 million (1995)
Stock Exchanges: NASDAQ
SICs: 2992 Lubricating Oils and Greases; 3321 Gray & Ductile Iron Foundries; 3322 Malleable Iron Foundries; 3363 Aluminum Die-Castings; 3364 Nonferrous Die-Castings, Except Aluminum; 3479 Coating, Engraving, & Allied Services, Not Elsewhere Classified; 3492 Fluid Power Valves & Hose Fittings; 3531 Construction Machinery & Equipment; 3541 Machine Tools, Metal Cutting Types; 3545 Cutting Tools, Machine Tool Accessories, & Machinists’ Precision Measuring Devices; 3559 Special Industry Machinery, Not Elsewhere Classified; 3713 Truck & Bus Bodies
Sudbury Inc. manufactures and sells a broad range of industrial products, including: iron, aluminum, and zinc castings; coating applications; cranes, truck bodies, and related equipment; and oil and chemical industry services like storage and processing. In the mid-1990s the company operated through six subsidiaries with operations throughout much of the United States and parts of Canada. Sudbury emerged from bankruptcy in the early 1990s and began posting profits in 1994.
Sudbury Inc. was incorporated in 1987 as a subsidiary of a company called Sudbury Holdings Inc. Sudbury Inc. subsequently purchased its parent company as part of a plan to reorganize Sudbury’s diverse group of more than 30 companies that had been assembled since the early 1980s. Indeed, after incorporating in 1983, Sudbury Holdings pursued an aggressive growth strategy that propelled it from a small, defunct meat packing company to a diversified conglomerate with more than a half-billion dollars in revenues.
Sudbury Holdings Inc. was founded in 1983 by a group of businessmen that included founders of Alco Standard Corp., a hugely successful manufacturing and distribution conglomerate. Leading the start-up venture were Tinkham Veale II, a founder of Alco, and Charles W. Walton. Their goal was to build a conglomerate similar to Aleo using a relatively simple strategy. They would purchase small and medium-sized companies involved in industrial products and services industries. They would then allow the companies to continue operating relatively autonomously, but would take over routine corporate and administrative tasks. By consolidating and streamlining administrative and recordkeeping tasks of several subsidiaries, Sudbury’s founders hoped to achieve economies of scale that would boost overall profitability.
The start-up venture’s first purchase was American Beef Packers, Inc. Sudbury’s founders acquired the company in August 1983 and changed its name to Sudbury Holdings Inc. American Beef Packers was a relatively small and basically defunct beef and pork business that had been incorporated in Iowa in 1965. The business clearly did not complement Sudbury’s goal of buying industrial businesses, rather, it was purchased for its tax credits. Walton and Vale quickly parlayed that modest beginning into a sizable enterprise with a rapid spate of acquisitions during the next few years. Between 1984 and 1988, in fact, Sudbury borrowed about $200 million to acquire more than two dozen companies. The companies were involved in industrial industries ranging from coatings (e.g., paints) and machine tools to rubber manufacturing and chemical processing.
Sudbury bought most of the companies in its portfolio during the mid-1980s through arrangements that involved both cash and profit-sharing. For example, Sudbury might pay the owner $15 million for a company that was valued at $20 million. But the owner would be able to earn as much as, say, $10 million more if his company met certain performance objectives. Thus, in that example, if the owner met his goals he could end up with $5 million more than the actual worth of his business, while Sudbury would benefit from higher income from the subsidiary. Using that acquisition strategy, Walton, Veale, and other executives at Sudbury Holdings managed to add 28 companies to their roster by 1988.
Sudbury sustained a relatively laissez-faire operating strategy. Sudbury managers required subsidiary heads to provide periodic reports, but basically allowed them to operate independently. “We get the managers together twice a year, with each discussing past performance and future goals,” Chief Executive Walton said in the February 15, 1988 Industry Week. “They don’t like to stand up at two meetings in a row and tell their partners they didn’t do very well.” Sudbury also tried to provide technical, administrative, and marketing support to its companies. The goal was to create a “synergy” that made Sudbury greater than the sum of its parts.
The acquisition and operating strategy of Sudbury Holdings appeared to be highly effective during the mid-1980s, allowing it to post gains reminiscent of the success enjoyed by its model Alco Standard Corp. Following Sudbury’s restructuring in 1987, to become Sudbury Inc., company sales rose to an impressive $531 million for the 1988 fiscal year from $200 million in 1986. Meanwhile, net income grew to $5 million in 1986 and, along with sales, more than doubled by 1988 to about $11.3 million. By mid-1988, Sudbury was operating about 30 companies grouped under six divisions: auto and truck parts, solid waste and material-handling equipment, steel tubing, machining, lubricants, and miscellaneous companies.
“We have built Sudbury around a core of hard-working dedicated entrepreneurs who are free to run their businesses in the efficient, profitable manner which made them successful,” Walton proclaimed in the Industry Week article. Indeed, heading into the late 1980s it appeared as though Sudbury was on the fast track to success. But those were some of Walton’s last words as chief executive of Sudbury. In reality, the strategy pursued by Walton, Veale, and fellow executives culminated in an unmitigated disaster that ultimately cost investors millions of dollars.
Sudbury’s underlying problems began to emerge in 1988 when the automobile industry, in particular, faltered. It soon became apparent that Sudbury’s ability to remain profitable during the mid-1980s, despite a massive debt load incurred during its acquisition campaign, was largely the result of strong markets in its core businesses. In fact, the synergy and economies of scale touted by Sudbury’s executive team never fully materialized. The company had become a loose conglomeration of subsidiaries that lacked direction and, in some cases, discipline and operating efficiency. As the economy began to plunge into a recession, Sudbury began to fall apart.
Walton resigned as president and chief executive in the summer of 1988. Veale, Sudbury’s chairman, replaced him with Douglas F. Johnston, a seasoned corporate executive who had served in top posts with several smaller and mid-sized corporations. Veale described Johnston as the “best businessman in America” at Sudbury’s 1988 annual meeting. Johnston, however, did not live up to this praise. His new strategy was two-pronged; he planned to jettison several of Sudbury’s companies in an effort to pare its staggering debt load and, at the same time, implement new electronic information systems and management controls that would boost operating efficiency. Although the tactic pleased investors, Johnston did not produce. Sudbury’s board sent him packing in 1990.
Johnston had made some progress, however. He reorganized Sudbury into a simpler structure, for example, with just two divisions: Industrial Products Group and Equipment and Systems Group. Johnston also succeeded in selling some of Sudbury’s companies and reducing its debt. Still, Sudbury was sporting an embarrassing debt ratio of 3.5 to 1 by mid-1990. Furthermore, the company had posted a net loss of $11 million in 1989. In 1990 Sudbury’s board hired Ross Lake as chief executive to speed up debt reduction and improve financial performance. Lake had formerly served as executive vice-president and chief operating officer.
Lake had hoped to divest many of Sudbury’s businesses quickly. Unfortunately, the recession during 1990 and 1991 squelched that effort. He was also unable to improve the overall operating performance and cash flow from Sudbury’s operating companies. Sudbury desperately reshuffled management in an attempt to avert disaster, but failed. Unable to meet its debt obligations, Sudbury filed for Chapter 11 bankruptcy protection on January 10, 1992. Many investors and the former owners of some of Sudbury’s subsidiaries were outraged. The former owners of Wagner Castings Company and Galbreath Escott, for example, filed suit against Sudbury executives, claiming that they had misrepresented Sudbury’s financial condition before cutting their acquisition deals.
The mission of Sudbury’s companies is to build profitable and solid businesses based on customer satisfaction, people involvement and constant process improvements. The companies are managed locally with support from the corporate staff, under operating plans designed to help them achieve their fullest potential.
With the battered Sudbury on the ropes and gasping, creditors brought in former Goodyear executive Jacques Sardas to clean up the mess left by Veale and other managers. The 62-year-old Sardas had recently retired from the number two position at Goodyear, but he was already bored and looking for a challenge. “It was not merely a challenge—it was a disaster,” he would later recall in the October 20, 1993 Knight-Ridder/ Tribune Business News. A week after Sudbury filed for bankruptcy, Sardas accepted the chief executive post and launched an aggressive reorganization initiative. Creditors gave the go-ahead to a plan that would rapidly jettison 20 of Sudbury’s companies and pay off $70 million of bank debt. Sardas went to work slashing overhead, selling subsidiaries, and reducing Sudbury’s debt.
Within nine months Sardas succeeded in selling 15 companies, or all but 6 of Sudbury’s subsidiaries. He also slashed the headquarters staff in Cleveland down to just 9 from 28, and he was able to get creditors to renegotiate some of the company’s debt. Importantly, Sardas convinced BankAmerica Business Credit to renegotiate a new credit line that allowed Sudbury to retain 3 subsidiaries that it otherwise would have been forced to sell. Sudbury posted sales of $222 million in 1993 and a net loss of $56 million (following a net loss of $64 million in 1992), which was largely the result of restructuring charges. But the company was poised for gains in the mid-1990s. “This has probably been one of the most successful turnarounds that I’ve seen in my 20 years in banking,” said Patrick Costello, a banker involved with Sudbury’s debt restructuring, in the May 10, 1993 Crain’s Cleveland Business.
By 1993 Sudbury Inc. consisted of six companies that manufactured and sold a range of industrial products, roughly half of which were purchased by automobile and truck industries. Its three main companies were Wagner Castings Company, Iowa Mold Tooling Co., Inc., and Industrial Powder Coatings, Inc. Wagner, which alone accounted for nearly half of Sudbury’s entire revenue base, designed and manufactured engineered iron castings for automobile and commercial products industries. Iowa Mold Tooling designed and built service vehicles and related equipment for tire, mining, forestry, and other industries. Industrial Powder Coatings made coatings for automobile, appliance, and other industries. Sudbury’s three smaller units were the following: Frisby P.M.C. Incorporated, a maker of precision machine parts and components; South Coast Terminals, Inc., a provider of storage and processing services for oil and chemical industries; and Cast-Matic Corporation, a manufacturer of precision aluminum and zinc die castings. Those three companies generated combined sales of about $50 million in 1994.
Recovering markets and savvy management sustained Sudbury’s rebound in 1994 and 1995, allowing it to increase sales from its six companies to $250 million in 1994 and then to $305 million in 1995. Meanwhile, net income climbed to $6.8 million in 1994 and then to a respectable $13.6 million in 1995, as the company’s debt load shrunk significantly. In late 1995 Sardas declared that Sudbury’s recovery, repair, and renewal phase was complete and that the company was ready to begin growing. “As we say in Texas, you haven’t seen anything yet,” Sardas said in the September 28, 1995 Knight-Ridder/Tribune Business News. His plan was to grow the company through selective acquisitions that complemented existing operations and by expanding internal operations.
Wagner Castings Company; Iowa Mold Tooling Co., Inc.; Industrial Powder Coatings, Inc.; Frisby P.M.C. Incorporated; South Coast Terminals, Inc.; Cast-Matic Corporation.
Bishop, Floyd J., and Eaton, Henry E., “Sudbury, Inc. Announces Top Management Changes,” Business Wire, August 31, 1988.
Denney, Jon E., “Sudbury Inc. Financial Results,” Business Wire, August 11, 1988.
Drown, Stuart, “Cleveland’s Sudbury Finishes Restructuring: Ready To Grow,” Knight-Ridder/Tribune Business News, September 28, 1995.
——, “Akron, Ohio Executive Ends Early Retirement To Turn Sudbury Around,” Knight-Ridder/Tribune Business News, October 20, 1993.
Farrar, Mary C, “Sudbury Extends Contract of Chairman, Chief Executive Officer and President Jacques R. Sardas,” PR Newswire, July 31, 1995.
Gerdel, Thomas W., “Positive Thinking Pays at Sudbury,” The Cleveland Plain Dealer, September 1, 1993.
——, “Sudbury Inc. Keeps an Eye on Past for Future Growth,” The Cleveland Plain Dealer, October 11, 1994.
Jenke, Anita C., “Sudbury Gets New Top Execs in Debt Clash,” Metalworking News, July 16, 1990, p. 4.
Modic, Stanley J., “Money Talks in Motivating ‘Acquired’ Execs,” Industry Week, February 15, 1988, p. 26.
Prizinsky, David, “Sudbury Aims To Divest, Trim Its Long-term Debt,” Crain’s Cleveland Business, October 31, 1988, p. 3.
——, “Sudbury’s Up and Running,” Crain’s Cleveland Business, May 10, 1993, p. 6.
Shingler, Dan, “Changing Times: Tight Financing Makes It Tougher To Pull Off Business Acquisitions,” Crain’s Cleveland Business, October 8, 1990, p. 3.
——, “Roulston Ups Ante: Partnerships Already Show Sudbury Investment Gains,” Crain’s Cleveland Business, February 1, 1993, p. 1.
Stoyer, Lloyd, “Sardas Beats the Odds a Second Time,” Modern Tire Dealer, October 1993, pp. 30-32.
“Sudbury Responds Well Under Sardas,” The Beacon Journal, September 19, 1994.
Suttell, Scott, “Sudbury CEO Insists There’s More To Be Done,” The News-Herald, October 14, 1994.
Thompson, Chris, “Fast Sudbury Action Saved Cash: $3.7-million Bill Illustrates High Cost of Going Chapter 11,” Crain’s Cleveland Business, January 18, 1993, p. 4.
——, “Judge Decrees Sudbury Can’t Shield Principals,” Crain’s Cleveland Business, August 10, 1992, Section 1, p. 3.
——, “Sudbury Fees Top $5MM,” Crain’s Cleveland Business, April 6, 1992, p. 3.
Winter, Ralph E., “Sudbury Progresses with Reorganizing, Its President Says,” The Wall Street Journal, November 13, 1992.