Growing Lean and Maple Mean
October 1 1997 by Steve Bergsman
Allister Graham, chief executive of Oshawa Group, Ltd. BERGSMAN has been feeling very confident about the direction of his company-and with good reason. As
Refocusing is not exactly a business school concept, but in general parlance it has come to mean concentrating on the core, growth industries of a company and divesting the rest. Refocusing requires a good deal of patience because it generally involves becoming smaller and larger at the same time. It is also often financially tricky because divestiture and acquisition coincide, capital must be raised, but incoming capital has to be distributed. As with any acquisition, the market sometimes reacts negatively or, in other cases, there exists the possibility of being outbid.
The challenge is to find a core business and actualize its growth potential, while shedding ancillary units in a way that does not hurt the company going forward. Contraction is generally easier than expansion, because if there is inherent value in the unit to be divested, specialists can usually find a buyer. In the case of manager buyout, the company has to consider whether it would help fund the acquisition by its managers.
It is most critical, once the process has begun, not to get caught in a deal-making frame of mind and begin buying firms abstractly in the old ITT model; rather you should stick to the goal of finding the acquisitions that fit a narrower definition of what the core company intends to be.
When the C$6 billion
UDI was founded in 1882 as Dominion Bridge Co., and was proudly involved in many of
In June, the company announced three transactions that Chairman and Chief Executive William Holland thought would complete the refocus. It sold the last of three building product units, which amounted to $455 million of the company’s 1996 sales, while announcing its intention to buy IMO Industries and Core Industries, manufacturers of niche industrial and commercial total $770 million.
“The refocus is over because we are now a diversified manufacturer of engineered products,”
Refocusing can be expensive, but neither
UDI has moved from 8x or 9x multiples to 13x multiples. TD Securities, a Canadian brokerage, likes the direction the company is taking, noting “UDI took its cyclical, low-margin businesses and replaced them with less cyclical, higher margin businesses with better growth potential.”
Steve Bergsman is a Mesa, AZ-based freelance business writer who has written about corporate finance for reuters, Barron’s, Global Finance and Corporate Finance