Incorporated: 1966 as Saturn Industries, Inc.
Sales: $128.3 million (1996)
Stock Exchanges: New York
SICs: 7374 Data Processing & Preparation
Once a Fortune 500 company with more than $1 billion in sales, Tyler Corporation operates as an information services company, providing computerized information systems to small counties and municipalities throughout the southwestern United States. Originally a diversified industrial conglomerate with leading market positions in pipe manufacturing, trucking, and industrial explosives, Tyler went through dramatic changes during the late 1980s, when all of its industrial-oriented business were sold. In late 1997, the company began its push into information services, acquiring Business Resources Corp., The Software Group Inc., and Interactive Computer Design, Inc.
During its first two decades of existence Tyler grew steadily and strongly, rising from the ranks of the corporate unknown to the prestigious class of America’s industrial elite. A company that began its corporate life with no assets, it celebrated its twentieth anniversary as a $l-billion-in-sales industrial conglomerate, a fixture among the country’s Fortune 500 corporations. It was a prodigious rise, the evolution of an upstart into an industry stalwart with leading market positions in trucking, industrial explosives, and sewage pipes. Tyler’s fall was equally stunning. Less than a decade after the company held sway as an industrial giant, it was a $100-million-in-sales firm without any industrial businesses, struggling to define its identity. Remarkably, both eras of Tyler’s history were led by the same individual, the company’s founder, Joseph F. McKinney. McKinney orchestrated his company’s prolific rise and he engineered its precipitous fall, making Tyler’s first 30 years a singular chapter in the history of U.S. business.
A Jesuit-educated, Harvard graduate, McKinney earned some of the money he used to start Tyler by recording astounding success with an investment concern he founded with another business partner in 1960. Named Electro-Science Investors, McKinney’s venture capital firm invested in high-technology companies that promised high returns, but also represented high risks. Betting on long shots paid off, however, and by the end of Electro-Science’s first year, McKinney was a millionaire. He had yet to reach his 29th birthday.
Five years after starting Electro-Science, McKinney founded another company named Saturn Industries, Inc., which made its debut with three military supply businesses obtained from McKinney’s business partner in Electro-Science, Jimmy Ling, head of a conglomerate named Ling-Temco-Vought (LTV). Combined, the three LTV companies generated $11 million in sales, the financial foundation upon which Tyler was built. McKinney quickly sold the three military suppliers, wishing to avoid dependence on one customer (the U.S. government) for his business, and with the proceeds gained from the sale of the former LTV companies he acquired the first of Tyler’s numerous businesses, C&H Transportation.
Acquired in 1966, C&H operated as a heavy-freight hauler. Unlike the companies with which McKinney had financially involved himself through Electro-Science, C&H was not a high-risk investment capable of registering either meteoric growth or catastrophic losses. C&H was an established company, a steady money earner, a company engaged in a basic industry bereft of the flashy appeal of high-growth, high-technology business. C&H also provided a blueprint for McKinney’s future acquisitions. All of the companies that would later compose Tyler, as an industrial conglomerate, would be similar to C&H: established companies, proven money earners, and operating in what McKinney referred to as “down-to-earth” industries.
With the money gained from the reliable, revenue-generating engine that C&H represented, McKinney was able to acquire his flagship business, Tyler Pipe, in 1968. A manufacturer of sewage pipe with $43 million in sales at the time of its acquisition, Tyler Pipe instantly became the greatest contributor to McKinney’s company’s annual revenue and earnings totals. In recognition of Tyler Pipe’s pivotal role, McKinney’s soon-to-be conglomerate took its name from its mainstay business.
Dozens of acquisitions followed the purchase of Tyler Pipe, each financed primarily with conventional bank loans and bond offerings. By 1975, the first year Tyler became a Fortune 500 company, a burgeoning industrial empire had been created. Additional acquisitions followed during the latter half of the 1970s, as Tyler’s annual revenue total swelled and the company’s shareholders applauded. Earnings per share in Tyler increased an average of 23 percent during the decade, providing tangible evidence that the strategy of pursuing growth by purchasing proven money earners entrenched in industrial markets was working well. For those who put their financial faith in McKinney’s enterprise, the ensuing decade would take them on a roller-coaster ride, but the turbulence ahead enriched all who held on to their stock and put their trust in McKinney.
Tyler entered the 1980s as it left the 1970s, still in pursuit of acquisitions to bolster its stature. Two of the biggest deals in the company’s history were completed in 1981, when McKinney completed the purchase of Hall-Mark Electronics, a distributor of electronic components, and Reliance Universal, a specialty chemical coatings maker. Both companies became significant contributors to Tyler’s annual sales and earnings totals, and at least one analyst heralded the acquisition of Hall-Mark as McKinney’s shrewdest acquisition since the purchase of Tyler Pipe. Within two years, the two 1981 acquisitions were contributing 41 percent of the company’s total profits and 43 percent of its sales, proving to be instrumental in Tyler’s assault on the $l-billion-in-sales mark.
The only negative aspect of the 1981 acquisitions was the timing. The early 1980s were marred by escalating interest rates, recessive economic conditions, and trucking deregulation, all of which conspired to deliver a stinging blow to Tyler. The company’s earnings plunged 63 percent in 1982, sent downward, in part, because of rising interest rates associated with its purchase of Hall-Mark and Reliance Universal. The wounds were only superficial, however, thanks to the resiliency of the established, time-tested businesses within Tyler’s fold. In 1983 the company’s earnings more than made up for the preceding year’s fall, jumping up more than 80 percent to reach $18.5 million.
Tyler entered the mid-1980s as a healthy, diversified conglomerate with three of its six primary business units ranked as the leaders in their markets. Tyler Pipe set the pace among pipe manufacturers, C&H led the way in the heavy-freight industry, and Atlas Powder, a producer of explosives, had slipped past Du Pont to rank as the largest seller of industrial explosives in the United States. The company was one of the largest corporations in the country, a heavyweight with 10,000 employees and annual sales that reached $1.1 billion by 1987.
Turning Point in 1987
As it turned out, 1987 proved to be the company’s peak year in terms of size. The time had arrived, in McKinney’s mind, to undo all that had taken two decades to accomplish. In a few short years, Tyler would be stripped of nearly all its businesses. Payroll would be whittled down to slightly more than 1,000. Annual sales volume would plummet drastically, dropping to the $100 million range. The company’s 20 years of experience in industrial businesses would be forsaken for entry into a new line of business. Sweeping, wholesale changes were in the offing, but their arrival was not associated with any malfeasance on management’s part or the crippling effect of declining business. The changes were deliberate. McKinney had decided to destroy Tyler and create an entirely new type of company.
For the impetus to initiate his radical changes, McKinney took his cue from pervasive trends in the business environment during the latter half of the 1980s. Corporate takeovers were the rage and leveraged buyouts were rampant. Companies were acquiring assets with an insatiable appetite, paying what, in retrospect, were inflated prices. McKinney saw what was going on around him and made a strategic decision. He turned a deaf ear to exhortations to launch an acquisition spree and decided to sell Tyler’s assets, resolving that it would be better for shareholders if he liquidated rather than incurring debt by buying and holding on to businesses at inflated prices. Once that decision was made, McKinney never turned back and began disassembling the electronics distribution, pipe manufacturing, specialty coatings, explosives, and trucking conglomerate he had built.
Tyler Corporation’s primary purpose is to provide superior long-term rewards to shareholders. The company’s objective to pursue this purpose is to be an enterprise selling products and services through a few operating companies carefully selected for two main characteristics: superior return on assets employed and growth probability.
First to go was Tyler’s electronics distributor, Hall-Mark Electronics, which was sold to management in August 1988. The divestiture netted $211 million in proceeds, most of which went to shareholders as a special $10-per-share dividend. As McKinney’s version of a corporate yard sale ensued, shareholders in Tyler, which included McKinney, were the chief benefactors of the company’s asset sales. With each divestiture, the bulk of the proceeds was funneled to shareholders, as McKinney made good on his declaration that Tyler’s shareholders were Tyler’s customers. In 1989 the next Tyler business made its exit from the company’s portfolio of businesses. Reliance Universal was purchased by a Dutch chemical conglomerate in a deal worth $286 million. The following year, Atlas Powder, Tyler’s explosive manufacturer, was put on the auction block, stripping the company of another primary component of its operations. By the end of 1990, McKinney had sold more than four-fifths of Tyler’s businesses, distributing roughly $415 million in cash and stock to the company’s shareholders. In all, 12 businesses were sold, leaving the company with only Tyler Pipe as it entered the 1990s.
With only Tyler Pipe supporting the company, McKinney turned his attention toward reinventing Tyler, having swept away the company’s past through divestitures to make room for its future as a retail-oriented company. Tyler Pipe was sold in 1995—removing the last vestige of the company’s past as an industrial conglomerate—to help pay for two retail businesses, Forest City Auto Parts and Institutional Financing Services, Inc. Forest City operated a chain of 61 stores that sold automotive parts and supplies in Illinois, New York, Ohio, Pennsylvania, and Wisconsin. Institutional Financing Services operated as a national education fund-raising services company that provided products and gifts for students to sell to raise funds. These two companies composed Tyler, the former giant, as the company entered the mid-1990s. As replacements for more than a dozen companies that had consistently delivered sales and earnings growth to Tyler, Forest City and Institutional Financing Services were failures. In 1994 Tyler lost $4.7 million on $153 million in sales. The following year, losses totaled $16 million and sales slipped to $140 million. In 1996 the pattern of increasing losses and declining sales repeated itself. The company registered a staggering $61.3 million loss on sales of $128 million.
Clearly, the “new” Tyler was not working. McKinney, who had attempted to reinvent Tyler and failed, left the company in late 1996 and was succeeded as chief executive officer by Bruce W. Wilkinson. Wilkinson joined Tyler after a lengthy career of leading established, publicly held corporations to optimum sales for the benefit of shareholders. He had earned praise as chief executive officer and chairman of Houston-based CRSS Inc., a large, diversified design and engineering power company, and as chief executive officer of another Houston-based company, Proler International Corp. When he joined Tyler, Wilkinson declared, “I didn’t come here to keep the status quo.” He immediately began reevaluating the acquisitions made by McKinney. Wilkinson did not approve of either Institutional Financing Services or Forest City Auto Parts as the corporate vehicles for Tyler’s future. “These are two unrelated low-growth subsidiaries,” he told The Dallas Business Journal. “The history of Tyler is not in retail, and it’s not my history. I want to return the company to where the customer is another business.” Wilkinson wanted to return Tyler to its past, back to the company’s roots in the basic, down-to-earth industries that characterized much of McKinney’s era.
Wilkinson was in the process of moving Tyler’s corporate offices from Dallas to Houston and plotting the company’s future as a manufacturer or a distributor when Louis Waters, who had helped found Browning-Ferris Industries Inc., a huge waste services company, invested $3.5 million in Tyler in August 1997. Waters’s investment gave him a ten percent equity stake in Tyler and a seat on the company’s board of directors, but according to Waters the investment did not signal an attempt on his part to take control of the company. Waters claimed he was “transitioning” toward retirement, explaining, “I will be a very interested director joining them in the reevaluation of their strategic plan, but I won’t be a part of management.” Two months later, Waters was elected chairman of Tyler.
Between August and October 1997, a debate between Wilkinson and Waters centered on the issue of Tyler’s future. Wilkinson wanted to move into basic, industrial-oriented businesses. Waters wanted to reshape Tyler as an information services company. Waters won the debate and Wilkinson resigned after serving as chief executive for only six months. The management shake-up in late 1997 cleared the path for Tyler’s development into an information services company, and Waters wasted little time in bringing about what he envisioned. Before the end of the year Tyler signed definitive agreements to acquire Business Resources Corp. and The Software Group Inc., two information services companies that served roughly 200 county governments, primarily in the Southwest. “Our plan,” Waters explained, “is to consolidate the information industry for local governments. We are looking at smaller counties, municipalities, cities and appraisal districts or police and court systems. They need to computerize their record keeping, dispatch, tax collections, land records, deeds, probation; the possibilities are vast.”
With this objective determining the company’s future course, Tyler entered the late 1990s seeking to become an information services company. Several days before the end of 1997, the company acquired a third company to aid in its bid to become an information services provider for small communities, purchasing Interactive Computer Design, Inc., which provided integrated information management services and systems to 225 cities throughout Texas, Oklahoma, and Missouri. On the heels of this deal, Tyler prepared for its future, an era entirely unlike that of its past.
Business Resources Corp.; The Software Group Inc.; Interactive Computer Design, Inc.; Forest City Auto Parts Company.
Bork, Robert H., Jr., “The Survivor,” Forbes, February 27, 1984, p. 92.
de Rouffignac, Ann, “Big Board Firm Moving to Houston; Wilkinson Tapped To Revive Floundering Conglomerate,” Houston Business Journal, July 18, 1997, p. 1A.
——, “Once Great Tyler Now Troubled by Declining Sales,” Houston Business Journal, July 18, 1997, p. 1A.
——, “Tyler Management Shakeup: Wilkinson Out, Waters in as Dallas Firm Makes Acquisitions,” Houston Business Journal, October 17, 1997, p. 5A.
Mack, Toni, “A Man Who Thinks for Himself,” Forbes, April 2, 1990, p. 36.
“Tyler Corporation Announces Definitive Agreement To Acquire Interactive Computer Design, Inc.,” December 22, 1997, p. 12.
—Jeffrey L. Covell