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Hoosier Castings CorporationThe Dynamics of Transitioning a Family Business

Hoosier Casting Corporation Written by: Justin A. Wolfort, MBA Class of 2012 Under the supervision of: Professor David C. Haeberle

Hoosier Castings CorporationSituation OverviewWhen Brendon Morris arrived early at his office on the morning of December 21, 2011, he knew he would have only a couple hours of time to himself to collect his thoughts and prepare for the Companys annual Board of Directors meeting later that afternoon. As the President of The Hoosier Castings Corporation (HCC), the 45 year-old was responsible for the Companys day-to-day operations and also managed the Companys largest customer account. Having been recruited to join HCC upon his graduation from the MBA program at Indiana University in 1996, Brendon knew that this afternoons annual Board meeting would be unlike any other he had seen in his 15-year tenure with the Company. During this afternoons Board meeting the Companys Chairman, David DeWitt, had invited the Investment Bank Riverdale Partners to give a presentation regarding the potential sale of the business. A few weeks prior, David had received an unsolicited bid to buy the Company from their long time competitor Ridgecreek Industries. Additionally, Brendon had known of Davids desire to sell HCC since his health scare six months prior, but was unsure how a company such as HCC would be perceived by a potential buyer. He wondered if Riverdale Partners would be able to deliver a premium price for the 66 year-old family business. Was a sale to Ridgecreek Industries in the best interest of HCCs stakeholders? Furthermore, having been privy to previous Board meetings and family politics, he knew there would be significant challenges to the sale process as other members of the DeWitt Family may not be emotionally prepared to relinquish majority ownership and control of HCC.

The BusinessIn 1945 after returning from service in World War II to their home town of Indianapolis, Indiana, brothers Abraham and David DeWitt founded The Hoosier Castings Corporation to provide various iron, steel and brass castings to the growing automobile industry in the Midwestern United States. Having started from the humble beginnings of a back yard workshop, the DeWitt brothers had managed to grow Hoosier Castings into a business with annual revenues of $10 million by the beginning of 1980. After years of profitable growth the DeWitt brothers decided that they had outgrown their original location and HCC relocated to a 180,000 square foot greenfield facility, which opened in the fall of 1980. Situated on 25 acres of land at the edge of downtown, the new Burnham Road Facility would allow for substantial manufacturing growth and flexibility in the years to come. Unfortunately, during the spring of 1981 tragedy struck the DeWitt family as older brother Abraham was killed in an unfortunate automobile accident while leaving the plant late one evening. With the death of his brother, closest friend, and business partner David decided to ask his oldest son Gregory, who was graduating from the engineering program at Purdue University, to join the family business in hopes of filling Abrahams void. Although he had no previous business training, after a short deliberation Gregory enthusiastically accepted his fathers offer. In an effort to alleviate the financial stress that Abrahams

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untimely death had placed on his family, David generously offered and completed the purchase of half of his late brothers ownership in t business from his widow Mabel. Additionally, in order to provide the n Mabel with a source of continual income, it was decided that she would retain 22% ownership in the business and be entitled to a modest annual salary, although not technically employed by the Company. From 1981 to 2005 HCC took active steps to expand the Companys customer base from the domestic automotive industry towards a more diversified set of businesses. By the end of 2005 HCC was es. 200 successfully manufacturing a portfolio of castings f numerous Original Equipment Manufacturers for (OEMs) including agricultural and mining equipment, gas exploration and collection equipment, electric cluding equipment power generation equipment, military defense equipment and alternative energy production. In early 2006 business seemed to be looking up for HCC (Historical Income Statement data in Exhibit III). The Company had successfully . diversified from the declining automotive industry; management had recently reported a record fiscal year; and the Companys robust order backlog coupled with a strong manufacturing economy pointed towards another record year. Given the strength in his business and having recently celebrated his 80th birthday, David DeWitt decided it was time to hang up his entrepreneurial spurs and pa pass the reigns of the Company onto the next generation. In January 2006, David retired from the day day operations of the business named his , day-to-day son Gregory, President of HCC. Additionally, recognizing the numerous contributions made over his years of service to HCC; David promoted Brendon Morris to the newly created position of Executive Vice ice President and awarded him with a 5% percent ownership stake in the business. This newly created position made Brendon the only the second non-family member to own shares in HCC and solidified his ares position as the Companys Second in- Command. SecondWith his succession plan in place, David transitioned to the title of Chairman of the Board, modified his work schedule to a part-time consulting role and began to enjoy his retirement at the youthful age of 80 time years-old.

The Buckeye AcquisitionCastings are not enough! Having recently assumed the helm of the growing Castings business, Gregory was eager to make his mark on the Company and transition the business to the next level. Following several solid years of financial performance, HCC was flush with cash. After a routine visit from the Companys long time commercial banker Danielle Adams of Second National Savings, Gregory learned that even the traditionally conservative Evansville, Indiana based bank

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seemed poised to extend HCC a new credit facility with aggressive terms. Throughout the Companys hroughout history, David DeWitt, a child of the Great Depression, had shunned the use of leverage for growth growth; however, Gregory saw the current market conditions as a way to modernize HCCs capital structure. With a cash-rich balance sheet and a new credit facility at his disposal, Gregory began to look at rich egory diversifying the Company from castings and grow growing the business through acquisition. Although he initially objected to the idea of straying from HCCs core competency of castings production, Brendon production agreed to help Gregory in the search for a suitable acquisition target. rch After an exhausting six month search, Gregory and Brendon had identified Buckeye Truss, Inc., a Columbus, Ohio based manufacturer of residential trusses as an attractive acquisition target. Buckeye Truss, Inc., founded in 1975, was solely owned by the ed Yahska Family. Buckeye Truss specialized in the manufacture of a wide variety of pre-fabricated wooden trusses, which are fabricated triangulated architectural structures used to support the roof of residential homes. Through a n network of sales representatives, the Company sold its products primarily to large national homebuilders nationwide. In recent years, the Company had recorded record sales and profitability a their as network of loyal customers placed orders at an astonishing rate. Buckeye Trust was led by Bernie Yahska, who had immigrated to the United States in the late 1960s. Having built a successful business over the last three decades Bernie now in decades, his late 60s, decided it was time to enjoy some of his s success, retire and move full-time to his vacation home in Naples, time Florida where he could escape the harsh Ohio winters once and for all. Although they had been encouraged multiple times by their father, none of Bernie three children had ever displayed an interest in joining the family Bernies business. Thus when it came time for Bernie to move to the fairer climate and daily golf games of Florida, he had no choice but to sell the business. Not long after Bernie had made the decision to look for a buyer he was introduced to Gregory DeWitt by as Samantha Left, a local corporate attorney and board member of HCC. Soon after Bernie and Gregorys ttorney initial meeting, the two agreed on an acquisition price of $ , $14.3 million for Buckeye, which represented a 7.5x enterprise value multiple to the Companys 200 EBITDA (Buckeye Financial Data in Exhibit IV). The 2007 IV) transaction would be subject only to board approval at HCCs upcoming annual meeting (Buckeye Transaction Detail in Exhibit VII). During the December 2007 Board meeting, l long time board member Daniel Michaelson was the only one to strenuously bolster an object objection to the transaction saying Look we know a lot of things about Look castings and sure while we are all individually homeowners, we dont know the first thing about selling

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TO homebuilders! If we want to grow by acquisition, why dont we just wait until we can find another castings company? If the money is really burning a hole in your pocket, why dont we look at putting an expansion onto the plant or taking a special dividend? Despite the strenuous objections voiced by Daniel, with a vote of six to one the Board of Directors approved the $14.3 million acquisition, which successfully closed shortly thereafter.

Integration, The Great Recession and Recovery (2008 to 2011)Following the close of the Buckeye transaction, business resumed as normal for HCC. It was agreed that in order to fill the void left by Bernies retirement that Brendon would re