Applied Power Inc.

1910–1999

Applied Power Inc. is a global manufacturer with two principal segments: APW Electronics and APW Industrial. APW Electronics, which the company rapidly built up through late 1990s acquisitions, is a leading global maker of electronic enclosure systems. These systems organize and configure electronic components, and house, protect, and insulate the resulting electronic systems in such areas as computer networking, semiconductors, and telecommunications. In conjunction with its enclosure systems, APW Electronics also makes power supplies, thermal management products, racks and subracks, and ergonomic work environment furniture for computer operations, engineers, scientists, and manufacturing personnel. APW Industrial makes a wide range of niche consumer and industrial products related particularly to hydraulics, electromechanics, rubber/elastomer molding, and magnetic and electronic controls. In October 1999 Applied Power announced that it was exploring a sale of APW Industrial in order to concentrate on its rapidly growing APW Electronics segment.

Early History: From Hand Grinders to Hydraulic Products

Applied Power was founded in 1910 in Milwaukee, Wisconsin. The company got its start as American Grinder and Manufacturing Company, a producer of hand grinders that sharpened tools used in agriculture and other fields. The company's advertisements claimed that its products were suitable for use in 'Ship Yards, Construction Work, Lumber Camps, Mining and Engineering, Signal and Line Repair Work, Machine Shops, Garages, etc.' When the United States entered World War I, American Grinder began to manufacture water and oil pumps for use in engines that powered trucks and other military vehicles. At the end of the war, the company decided to continue its manufacture of these products, offering them to the general automotive market that was then beginning to take root and grow.

By the end of its first decade, American Grinder had expanded its line to include hand tools as well as pumps, a move made at the behest of the company's distributor. For this new line, American Grinder chose the trade name 'Blackhawk,' in reference to the Blackhawk Army Division, which had fought with distinction in World War I. The line's logo featured an arrowhead with the silhouette of an Indian and the slogan 'Service, Quality, Finish.' Many of the tools sold, such as sets of socket wrenches in different sizes, were designed for use in automobile repairs.

After American Grinder chose to call its engine pumps and mechanic's tools Blackhawk, this trade name began to establish a reputation in the automotive field. In 1925 American Grinder officially changed its company name to Blackhawk, and, shortly thereafter, the company sold off its line of tool grinders, as it reoriented itself towards the automobile industry. Eventually, however, Blackhawk water pumps were made obsolete, as car manufacturers began to include this equipment in their vehicles as a matter of course. After discontinuing its pump operations, Blackhawk sought out a replacement business. In 1927 the company purchased a small hydraulic jack manufacturer, the Hydraulic Tool Company, in Los Angeles, California, which fit the bill. After acquiring these operations, Blackhawk marketed the Hydraulic Tool Company's products under the Blackhawk trade name.

As Blackhawk grew, its products gained a wider reputation, and its trade name became known across the country. In the late 1920s, Blackhawk expanded its line further when a snowplow manufacturer asked the company to help it develop a hydraulic pump to replace the hand winch then used to raise and lower the plow. In response to this request, Blackhawk developed a hydraulic system, made up of a hand pump, a long bending hose, and a hydraulic cylinder, which it marketed under the name Power-Packer. This line was soon expanded to include other remote-control hydraulic systems for use in different kinds of equipment. By the end of the 1920s, the company's logo&mdash+aced on its expanded line of products--had evolved to feature an Indian's profile in a large feathered headdress, placed inside an abstract representation of an arrowhead.

In the mid-1930s Blackhawk further expanded its product offerings when it used the technology developed for use in snow plows to make products for the collision repair market. Calling this line 'Porto-Power,' Blackhawk marketed hydraulic tools to be used in repairing auto bodies. The Porto-Power line featured a set of pumps and cylinders, with a variety of attachments that could be used to perform different pulling, pushing, and straightening tasks to fix damaged cars. In the late 1930s, Blackhawk marketed its Porto-Power line of products to a wider pool of customers, offering them for use in industrial and construction fields, through various distributors. The company tailored its products to different tasks and industries, creating special pumps and cylinders that could be used as building blocks for different applications.

to a group of French investors for $2.1 million.

1955–1981

International Expansion in the Postwar Era

In 1955 Blackhawk sold off its original line of hand tools, as its business evolved away from that area into more complicated systems. Late in that decade, the company decided to further restructure itself to provide more definition for each of its different parts. The two lines of products, Blackhawk and Power-Packer, became separate business units within the company. In 1960 the company's industrial and construction lines were set apart and given the name Enerpac in an effort to strengthen their identity within their respective markets.

Also in 1960, Blackhawk began an effort to expand its markets beyond the borders of the United States. Although its products had long been sold in other countries through importers and distributors, Blackhawk began to set up its own direct overseas operations, to both sell and manufacture goods. Its first targets for growth were the United Kingdom and continental Europe.

In 1961 Blackhawk changed its corporate name to Applied Power Industries, Inc. in an effort to better reflect the different aspects of its operations. In the 1960s, the company expanded through acquisitions of other companies in its field. In January 1966, it bought Rivett, Inc., and two years later, Applied Power purchased Branick Manufacturing, Inc. In 1969 the company acquired the Big Four division of the Studebacker Company. In May 1970, Applied Power added the operations of the Bear Manufacturing Company, and later that year, the company added another business unit to its corporate profile, taking over the Marquette Corporation. This company was a maker of diagnostic systems and service equipment, including products designed especially for use with batteries, for automobiles.

Also in 1970, Applied Power increased its geographical scope further when it opened a subsidiary in the Netherlands. This trend continued the following year, when Applied Power made a number of purchases that increased its international holdings. The company acquired Bear Equipment & Services, Ltd., of Scarborough, Canada, and renamed it Applied Power Automotive Canada, Ltd. In addition, Applied Power bought 80 percent of two French companies, Matairco, which eventually became a separate business unit of its parent company, and Société-Hydro-Air S.a.r.L. Three years later, Applied Power completed its acquisition of these properties, increasing its stake in them to 100 percent. In January 1973, Applied Power Industries became Applied Power Inc.

Following the simplification of its name, Applied Power also streamlined its corporate structure. In the mid-1970s, the company fine-tuned its operations, shedding businesses that did not fit with its larger corporate identity, or that were not as profitable as others. In 1975 the company sold Hydralique Gury S.A. to a group of French investors for $2.1 million. Five years later, the company divested itself of its Bear Wheel Service and Marquette Engine Diagnostic Equipment Product Lines, reaping $8 million.

In 1981 Applied Power added the last of its major brand groups when it purchased Electro-Flo, Inc. This company supplemented Applied Power's Power-Packer unit in providing specialized hydraulic products for use in the manufacture of other kinds of heavy equipment. Electro-Flo used electronic controls of hydraulic systems to enable precise movement and positioning of machinery. Electro-Flo technology, which included microprocessors, flow control valves, and electronic sensors, was used in the precise laying of asphalt by road-reconditioning equipment and in the movement of booms on materials-handling machinery.

1985–1996

Mid-1980s Through Mid-1990s: Acquisitions and Restructuring

By 1985, Applied Power's 75th year in business, the company had become a solid operation closely held by the members of its founding family. Lacking new blood, however, the company had begun to stagnate. While its operations returned a steady profit, the company had ceased growing. In an effort to remedy this situation and increase Applied Power's financial returns, company leaders brought an outside executive aboard, hiring Richard G. Sim, a former General Electric Company executive, as president and CEO.

Among the first steps taken in the mid-1980s were a series of acquisitions. The company bought half of the Toyo Hydraulic Equipment Company, of which it already owned the other half, and also added Electro-Hydraulic Controls, Inc., for which it paid $2.6 million in cash. In 1986 Applied Power divested itself of one of its core businesses--and the line of products with the longest heritage of any made by the company--when it sold its Blackhawk automotive division to the Hein-Werner Company for $9.3 million. One year later, in August 1987, the newly defined Applied Power offered stock to the public for the first time, tendering 1.8 million shares, which traded on the NASDAQ. With the proceeds from this sale, the company moved to reduce part of the debt it had amassed through its long string of acquisitions. At the end of 1987, Applied Power reported a loss of $1.6 million.

In 1988 Applied Power returned to its roots, reentering the field that had launched the company decades before, when it purchased a manufacturer of hand tools, Garner-Bender, Inc., for $31.4 million. This company was subsequently renamed GB Electrical, Inc. The next year, Applied Power made its most ambitious purchase to date, when it engineered the hostile takeover of the Barry Wright Corporation for $147 million. This purchase doubled the size of Allied Power and increased its debt sixfold. Barry Wright, an ailing manufacturer based in Watertown, Massachusetts, made equipment for use in computer rooms and devices that controlled vibration. The company's earnings had dropped in the previous year from $8.4 million to $1.3 million as its sales stagnated. Applied Power's executives hoped that their acquisition could come to dominate certain niche markets profitably. Such previous successes helped Applied Power notch sales of $245 million in 1989, up from $100 million just four years earlier.

In integrating Barry Wright with the rest of its operations, Applied Power faced a challenging task--it sought to streamline Barry Wright's product line and cut its manufacturing costs. The first of the new acquisition's units to face the ax was Barry Wright's Wright Line division, a maker of furnishings and enclosures for technical environments. Applied Power attempted to sell this business in 1992, taking a $25 million write-down charge, but ended up selling only portions of it. These developments followed a year of lackluster results in 1991, when earnings fell to $12 million, hurt by the overall high costs of absorbing the Barry Wright operations and by a general recession. As a maker of tools for use in construction, Applied Power was hurt in particular by the slump in that industry. While its GB Electrical unit and its Enerpac operations continued to contribute strongly, another company unit, Apitech, which had been recently inaugurated to develop high-tech valves and other equipment to improve automobile suspensions, continued to eat up millions of dollars in research and development costs.

This trend continued in 1992, as Applied Power reported a loss of $24.4 million. In an effort to strengthen its positions, Applied Power reorganized certain aspects of its operations, altering the structure of its Barry Controls division in California and changing the nature of its Power-Packer operations in Europe. In addition, the company moved forward aggressively in foreign markets, purchasing the remaining portions of its joint venture operations in Mexico and Germany. Anticipating dramatic growth in Asia, Applied Power hired a new executive to run its Asian operations in Korea and Japan, with the intention of intensifying marketing efforts in those countries.

This thrust toward foreign markets continued in 1993, as Applied Power entered into a joint project with the Detec Design and Industrie Company in Germany to manufacture hydraulic products. That year the company's stock moved from the NASDAQ to the New York Stock Exchange. Applied Power began recovering from its early 1990s doldrums in 1994, when it posted profits of $16.6 million, its best year since 1990. The following year, revenues surpassed the $500 million mark for the first time, and the company began pursuing larger acquisitions again. San Diego-based Vision Plastics Manufacturing Co. was acquired that year for $21.5 million. Vision was a producer of plastic cable ties which GB Electrical distributed. In early 1996 Applied Power spent about $10 million to acquire CalTerm Inc., a supplier of electrical products for do-it-yourself automotive repairs, based in El Cajon, California. Like Vision, CalTerm fit in well alongside the GB Electrical unit.

1989–1999

Late 1990s and Beyond: The Rise of Electronic Enclosures

The late 1990s were marked by Applied Power's rapid acquisition-led expansion into the electronic enclosure products and systems sector. Unlike many of the company's other businesses--including Enerpac, Barry Controls, and Power-Packer--which were cyclical in nature, the enclosures business was growth-oriented, expanding at an annual rate of 35 percent in the late 1990s. The enclosures sector also offered higher margins than other Applied Power sectors, and was a highly fragmented industry, rife for consolidation. Applied Power set out to be the enclosure consolidator.

Ironically, given that the company had attempted to sell it in 1992, Wright Line was Applied Power's entrance into this sector. By the mid-1990s Wright Line had sales of $95 million, representing about 18 percent of overall sales, and was one of Applied Power's fastest growing and most profitable units. The company then made a number of acquisitions in the late 1990s, most of which were enclosure-related. In September 1996 Applied Power completed its largest purchase since 1989 when it spent $52 million for Everest Electronic Equipment, Inc., a maker of custom and standard electronic enclosures based in Anaheim, California. For the fiscal year ending in August 1997, Applied Power posted revenues of $672.3 million, 28 percent of which was generated by the company's enclosure products and systems unit.

Applied Power acquired Racine, Wisconsin-based Versa Technologies, Inc. (Versa/Tek) in October 1997 for $141 million. Versa/Tek included several businesses, some of which fit in with Applied Power's engineered solutions unit, which included Barry Controls and Power-Packer. These were Power Gear, maker of hydraulic leveling systems for the recreational vehicle market; and Mox-Med, which made silicone rubber products for medical equipment. Other Versa/Tek units included Milwaukee Cylinder, a maker of hydraulic cylinders that fit alongside Enerpac and the company's tools and supplies division; and Eder Industries, a maker of electronic control systems for a variety of industries. Eder Industries had synergies with both the engineered solutions and the enclosures segments, but was initially placed within engineered solutions.

Applied Power next acquired VERO Group plc in June 1998 for $191.7 million (fending off a competing bid by Pentair, Inc.) and ZERO Corporation the following month in a merger valued at $386 million. Based in the United Kingdom, VERO manufactured electronic enclosures and related products, including racks, backplanes, and power supplies. VERO, which in 1997 had sales of $170 million and earnings of $17 million, helped Applied Power broaden its line of products in the European market. ZERO, which was based in Los Angeles and had 1997 revenues of $260 million, was also active in the electronic enclosures market; its system packaging, thermal management, and engineered cases served the telecommunication, instrumentation, and data processing markets. These major acquisitions helped increase Applied Power's fiscal 1998 revenues to $1.23 billion, an increase of 37 percent over 1997 results. The company's enclosure products segment was now its largest segment, accounting for 39 percent of overall sales. Net income for 1998 was reduced to $26.7 million because of a $52.6 million charge relating to acquisition costs, plant consolidations, and other restructuring costs.

In September 1998 Applied Power completed its third major enclosure acquisition in the span of four months, with the $371.5 million purchase of U.K.-based Rubicon Group plc , one of the leading manufacturers of electronic enclosures in Europe. Rubicon brought to Applied Power a new segment of the enclosure market, that of automated teller machines, and it manufactured safes, the surrounding enclosure, and other ATM component parts as well as providing assembly services. With this latest acquisition, Applied Power was now the number one worldwide supplier of custom electronic enclosures, a position it had attained in an astonishingly short period.

In early 1999 the company received another boost when it landed a ten-year, $200 million contract to supply electronic enclosure systems for wireless base station equipment to Sweden-based Telefonaktiebolaget LM Ericsson. Applied Power announced a restructuring of its operations in May of that year, which involved the organizing of its operations into two segments: APW Electronics and APW Industrial. The former included all of the enclosure products and systems businesses along with McLean Thermal Management and Eder Industries. Applied Power's remaining operations, including most of its engineered solutions and tools and supplies units were grouped within APW Industrial. For the fiscal year ending in August 1999, APW Electronics generated $1.06 billion in revenues (60 percent of overall revenues), while APW Industrial contributed $696 million. Overall profits reached a record $79.4 million. With the company's future clearly resting with its fast-growing enclosures operations, Applied Power announced in September 1999 that it was seeking a buyer for APW Industrial so it could focus solely on APW Electronics. The completion of this divestment would mark the culmination of a dramatic--and remarkable rapid--transformation of Applied Power from manufacturer of a wide range of tools and industrial products and systems to a focused, global leader of a single industry segment, a segment it had entered only in 1989 and had only a small presence in as late as August 1996.