In the sometimes-dry corporate world of mergers and acquisitions, ``excitement'' isn't always the first word to crop up among deliberations over bottom lines, profit/loss statements and bean counters.
Now that the sale of Hercules Tire & Rubber Co. is a fait accompli, however, executives of the tire wholesaler/private brand tire marketing group are promising ``excitement ahead'' for the company's wholesalers and dealer customers.
The transaction that took Findlay-based Hercules from a cooperative with 33 shareholder/owners to a company under the wing of new majority owner FdG Associates L.L.C., a New York City private equity firm, was consummated May 11 for an undisclosed amount. The new group running Hercules-which includes FdG executives and a small group of Hercules management-bought 100 percent of the stock of the previous shareholders, who unanimously voted to accept the sale. Those stockholders included three or four original members from when Hercules was founded in 1952 in New York City by a group of 21 retreaders.
Executives would not divulge a breakdown in the number of shares owned by the former stockholders-saying only that there was no concentration of ownership in one camp and the largest block of shares might have been about 5 percent. But Chief Financial Officer Larry Seawell, who has been named president and COO of the ``new'' Hercules, reassured the company's many customers that ``Hercules Tire & Rubber is still Hercules but with a different group of shareholders and board-the same company doing business in similar ways.''
In a conference call interview with Tire Business from Findlay and FdG's headquarters in New York, Mr. Seawell, Craig Anderson, Hercules CEO and board vice chairman, and FdG Managing Director Mark S. Hauser provided a wide-ranging look at what precipitated the deal, the strengths of the company and what Mr. Anderson described as the ``excitement'' that lies ahead.
Striking a deal
As Hercules' sale awaited an up or down vote by shareholders meeting in Detroit, executives were calling it a ``recapitalization plan.'' Therein lies the roots of what FdG does, according to Mr. Hauser. ``FdG's history is engaging in two types of transactions: We work either with private families who want to recapitalize their business, or we work with management teams who would like to find a partner to buy their business and grow it to the next level,'' he said.
``We don't focus on any industries. We focus on the people,'' he said. ``Here, we got to spend time with Larry and Craig and the rest of the senior management team, and they had a vision for not just buying out the shareholders but for buying out the company. We spent a lot of time getting to know them and them us, and that's really (FdG's) business model: finding people we can partner with, where we share the same vision and strategy of growth. We're certainly not tire experts, but we're involved in other distribution businesses that distribute other products....''
While sources told Tire Business some 250 possible suitors-including large tire wholesalers-were considered before Hercules settled on FdG, Mr. Anderson said in the end no tire-related firms were still in the running when final discussions ensued.
``Our stockholders gave us a two-part set of instructions,'' Mr. Seawell said. ``One, they were looking for liquidity and also a strong financial partner who would provide a strong tire program going forward. In this transaction they got both.''
``We wanted the brand and the Hercules programs to survive,'' Mr. Anderson added.
Why sell Hercules?
Mr. Anderson said shareholders' wishing to cash out their investments was not really a reason for the sale. ``Most of them have their own businesses and most will continue in those businesses. Our hope is they invest some of the proceeds that they've received in their businesses and become the strongest set of dealers in the country that we can service.''
Some of the original stockholders are second- and third-generation owners, he continued. ``There was an emotional tie to Hercules that a lot of them had to overcome. Hercules has been a part of their family, so they were very concerned the Hercules program would continue to exist-and that's the commitment we got from FdG.''
What precipitated the deal? Mr. Anderson said Hercules has ``a great platform for distribution. As any mid-size company, there's always a capital requirement, and for our company to really take advantage of its customer and purchasing arrangements we needed to solidify our capital base.''
Having 33 owners with different objectives, sometimes it was difficult ``to get everyone aligned'' and on the same page to move the company forward, he acknowledged. ``You've got 33 guys running 33 businesses 40 different ways, so there's always conversations. Our board was very supportive in the growth strategy of our programs the last few years.
``But there's always a requirement in any growth strategy that becomes pressing, and FdG put a real solid piece under the company, a platform to grow from.''
He predicted that the next decade could very well be ``the golden years for Hercules. We have our visions, we know where we're going, we know who we are, and now we have a partner with the same vision pushing us. I think it will be exciting for the employees and owners.''
Hercules has about 350 employees in the U.S. and Canada and ``a couple'' in China, according to Mr. Seawell, who emphasized that layoffs are not part of the acquisition. ``Our strategy is a growth strategy, to expand our brand and supplier relationships and be a better supplier to our customers. This is not a cost-cutting backward view but a going-forward growth strategy.
``We need the valuable employees who have helped us grow the company this far, and we'll probably grow our employment down the road.''
Whether there could be another sale of Hercules in the future also is a possibility.
FdG's Mr. Hauser said the firm manages an investment fund, started in 2004, that has ``a 10-year investment life'' with an ability to extend that another three years. ``Legally, between 10 and 13 years we have to show returns for our investors.
``In practice, we work on a five-year strategic plan with each portfolio company. Five years is one lengthy business cycle.''
Although nothing stipulates FdG must exit its ownership of Hercules at the end of that period, that could happen, he said. ``Thirteen years is the real deadline, but we tend to work toward an average of five.''
Within five years, Mr. Hauser explained, several things could happen: Hercules could be taken public; it could be sold; ``management could replace FdG with someone else.'' In whatever case, FdG's involvement in Hercules is unlikely to go 13 years. ``If it did, we have a requirement with our shareholders to give them some liquidity, but I've never seen that happen to a private equity firm....''
FdG was formed in 1995 originally as an investment vehicle for its founding partners, the Fisher and de Gunzburg families. Mr. Hauser said the firm has three- to four-member teams assigned to run each portfolio company while he and the partners oversee the overall investment picture.
As for Mr. Anderson, in February he'll mark his 30th year with Hercules. Mr. Seawell jokingly calls himself ``the new guy-I've only been around for 11 years.'' He joined the company from the petroleum industry, where he worked for a large wholesale and retail petroleum firm.
Mr. Anderson expects to ``be fairly active through this year working through customer and supplier transitions'' and will give a status report to the board later this year. He said he plans to be available next year ``to Mark, his team and Larry,'' adding with a laugh that ``things will be going so good they'll probably send me to Florida to retire'' so he can spend time with the old so-called ``gum dippers from Firestone.''
With Mr. Seawell's promotion to president, he'll oversee day-to-day operations.
``Craig's left a great foundation for us to continue to grow on,'' he said.
Steven E. Buck, longtime tire division vice president and general manager, also will remain with Hercules as vice president of sales. He'll be ``working on special projects with suppliers and customers on the transition,'' Mr. Anderson said, noting there were a number of projects in the pipeline at the time of the buyout that need to be implemented. ``Steve's great in the field,...knows the dealers around the country and will provide a service for us in increasing our business and transitioning our current business.''
Rounding out the new corporate structure are: Mike Distel, president of Hercules U.S. Tire; Rob Keller, president of Hercules Canada; and Joe Recchia, president of Hercules International, its export division in Kitchener, Ontario.