VideoIf you see Bill Alldredge, CFO of Newell Co., in Wal-Mart, he's more likely to be shopping for companies than for socks.
Newell, a Freeport, Illinois-based manufacturer and marketer with $2.9 billion in revenues, has acquired 16 businesses in the past five years, including 5 so far this year. Among those were Rolodex, the office-products maker; Kirsch, a manufacturer of drapery hardware and custom window coverings; and the office products business of Rubbermaid. What's more, Newell buys only product lines that can be marketed to its current customers, the biggest of which is Wal-Mart.
Investors might wonder how much longer Newell can successfully pursue such a strategy, but Alldredge harbors no doubts. And neither do analysts.
Thirty years ago, Newell was a small manufacturer of drapery hardware with $15 million in sales. Since then, it has bought more than 50 businesses, making acquisitions the company's primary growth vehicle. Newell has increased both sales and earnings approximately 20 percent per year during that time. Says Connie Maneaty of Bear, Stearns & Co., in New York: "None of the companies I follow has been as effective as Newell at integrating acquisitions. They have a very disciplined approach."
Part of Newell's advantage lies in having arrived very early to the party. As far back as the mid-1960s, when downtown variety stores predominated, Newell saw the writing on the wall. It began buying up suppliers, figuring that retailers would favor those that could achieve great economies of scale. Newell could position itself better by selling the expanding businesses more product.
"This company was ahead of many others in recognizing the increasing share of retail business being done by large, efficient mass merchants, and the challenges in doing business with such chains," noted Marc Gerstein of Value Line, in New York, in a recent report. That vision still guides corporate strategy. "Few consumer products companies will be able to supply the sheer volume of goods these retailers require to keep their shelves filled," states Newell's latest annual report.
What's more, Newell, for the most part, sticks to its knitting. Granted, its range of products is wide. It sells housewares, home furnishings, office products, and hardware and tools to volume purchasers ranging from Home Depot to Office Max and the warehouse clubs. But all acquisitions have been of branded, staple product lines-- market leaders, such as Levolor window treatments, Anchor Hocking glassware, and Mirro cookware. Alldredge says that Newell rarely makes a purchase that doesn't work.
"We stay pretty close to the stuff we know," he explains. "It's the same customers; the same kinds of products, all low-ticket, consumer durables; and the same low-tech manufacturing content."
BUYING SALES
Newell's minimum acquisition goal is to buy at least 10 percent of its prior year's sales every year. Lately, it's done more (see chart, below). Because of its discipline, Newell knows how to add value. For example, an acquiree may have been too small to compete successfully in a consolidating market. Perhaps it lacked the resources and expertise to track customer service levels. Newell's systems can improve customer service and relationships substantially. Its advanced technology allows it to ship 98 percent of all orders within three days.
The company has also been among the pioneers in electronic data interchange (EDI), which links a retailer's computer to its own. Purchase orders, invoices, and payments can then be transmitted--reducing errors, shipping lead times, and clerical processing. The system also enables Newell to check a customer's supply of its products and to send additional goods as required, eliminating out- of-stocks while meeting just-in-time demands.
Acquisition candidates must have the potential to get to at least 15 percent operating margins within a couple of years. "Most acquisitions are a long way below that," says Alldredge. "But Newell is very good at enhancing underperformers. We get a lot of improvement in earnings per share from doing that."
Example: When Newell acquired Stuart Hall in 1992, the paper-based office-and- school- supplies maker operated in two antiquated buildings, with a distribution center and several warehouses located elsewhere. Newell consolidated Stuart Hall into one facility, cutting total space from 1 million to 500,000 square feet. Operating income more than doubled in a couple of years.
PLUGGED IN
The company refers to its fix-up process as "Newellization." But that's really just its name for consolidation. Newell's credit and accounts receivable operation, for example, serves all the businesses. Divisions don't even have bank accounts. "We just plug new acquisitions into our system," says Alldredge. "It gives us control advantages, because we are using a common language for all 20 operating businesses," and the centralized structure is a "great advantage in achieving initial improvements in profitability."
Centralization also leaves operating people free to focus on operating issues. In contrast to many companies, the acquisition team is made up of just two people, Alldredge and chief executive officer William P. Sovey. Incentives help, too. "At the divisional level, managers have a heavy financial incentive that's based on only their performance-- not that of other divisions or the company as a whole," explains Alldredge.
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