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SPX Corporation is the world leader in the specialty service tool and equipment market and a North American leader in the production and marketing of automotive parts and components. From its headquarters in Muskegon, Michigan, SPX monitors subsidiaries and affiliates in 14 nations worldwide. SPX became a Fortune 500 company in 1983 when its sales topped $400 million. By 1993 sales had climbed to over $800 million and its specialty service tools were being used by professional service technicians in more than 120,000 vehicle repair facilities around the world. The specialty service tools segment of SPX, which accounted for 54 percent of its revenues in 1993, is operated through its Kent-Moore, Power Team, Dealer Equipment and Services, OTC, Robinair, and Automotive Diagnostics divisions. SPX's original equipment components group, previously called Sealed Power Technologies, was separated from its parent in 1989 but was reacquired in 1994. This group of companies, which in 1994 included SPX's Contech, Hy-Lift, Acutex, Sealed Power, and Sealed Power Europe divisions, together posted 1993 annual sales approaching $460 million.
SPX's foundations were laid on December 20, 1911, when two friends, Charles E. Johnson and Paul R. Beardsley, each deposited $1,000 in the National Lumberman's Bank of Muskegon, Michigan. The money was to serve as the initial working capital of their new single product firm, The Piston Ring Company. Johnson, a mechanic, and Beardsley, a salesman, foresaw the need for automotive parts for the burgeoning automotive industry in Michigan. The two partners personally delivered the first piston rings manufactured in their rented 30 by 60 foot factory to the firm's first customer, Continental Motors Corporation. In its first years, the aptly named The Piston Ring Company devoted itself entirely to the production of piston rings for leading engine builders. The advent of the first World War brought a huge increase in the demand for engine parts for the war effort, and The Piston Ring Company responded by undertaking a major plant expansion.
In the years between the two World Wars, The Piston Ring Company began a series of acquisitions and expansions, a pattern of growth for the company for the next 60 years. In 1923 they bought the No-Leak-O Piston Ring Company, which allowed the firm to further increase its production of the crucial engine component. By 1925, they were able to begin exporting their product and to enter the increasingly lucrative replacement parts market. The acquisition in 1931 of the Accuralite Company, a maker of pistons and cylinder sleeves, would mark a crucial step for the growing firm. This diversification of their product line would become a fundamental component of the company's strategy in later years. In order to reflect this new diversity, the company also changed its name from the simple "The Piston Ring Company" to the more evocative "Sealed Power Corporation."
The post-World War II years were a period of major expansion for Sealed Power. In 1946 the company opened its first plant outside Muskegon with the construction of a piston ring machining facility at St. John's, Michigan, closer to the huge Detroit automakers that were its primary customers. Two years later the company built a cylinder sleeve machining facility in Rochester, Indiana, and in 1957 it added a Replacement Distribution Center in LaGrange, Indiana. This distribution center, which serviced 33 smaller distribution outlets in key cities throughout the United States and Canada, was indicative of the growing role of replacement parts marketing in the company's business strategy. By 1959, replacement parts accounted for about 50 percent of Sealed Power sales and served as an important hedge against the highly cyclical original equipment market. The automotive aftermarket is not only relatively free from the sharp ups and downs of the original parts industry but actually tends to increase during downturns in the original automotive market. When people are not in a position to buy new cars they have their old ones repaired instead.
Sealed Power's relatively rapid expansion in the 1950s led to the company's first public offering of common stock in 1955. The company also increased exports, distributing their original and replacement parts in 78 countries by the end of the decade. Even more significantly for their global presence, by the dawn of the 1960s Sealed Power had opened plants in Stratford, Canada, and in Mexico City. This expansion in both production and market diversity was accompanied by a major product breakthrough in 1956 when Sealed Power introduced the first stainless steel piston ring. The ring quickly achieved 100 percent original and replacement market acceptance, according to company sources.
At the beginning of the 1960s, in spite of product diversification over the previous 50 years, the sale of piston rings for both the original and replacement markets still accounted for over 65 percent of Sealed Power's sales. These sales made up about one quarter of the total U.S. market for piston rings and made Sealed Power the second largest manufacturer of piston rings in the country. Cylinder sleeves and pistons made up the bulk of the company's remaining sales, although by this time it was also producing a variety of small engine parts, such as valves and tappets. By the end of the decade, Sealed Power, determined to decrease its reliance on a single product, implemented a planned program of product diversification. In 1968 the company acquired another cylinder sleeve plant in Mexico as well as the Consolidated Die Cast Corporation (since renamed Contech), a Michigan firm that produced precision die castings. During the next six years it acquired a manufacturer of valve tappets (since renamed the Hy-Lift Division), a manufacturer of transmission fluid filters (since renamed the Filtran Division), and a manufacturer of small alloyed castings. It had also opened a sealing ring plant in Franklin, Kentucky, a tappet facility in Zeeland, Michigan, and a new piston ring plant in Liege, Belgium, to serve the European market.
Sales rose steadily during the 1960s and 1970s as Sealed Power expanded. From annual sales of $25 million in 1960, the company's sales had grown to over $200 million by 1977. Although sales grew, earnings remained heavily dependent on fluctuations in the auto industry. In 1974, for instance, a year in which American car and truck production plummeted, earnings fell to $1.46 per share from the previous year's $2.19. Diversification had meant that piston rings made up a smaller percentage of sales than it had in the early 1960s; nonetheless, Sealed Power's original engine parts group, which now included sealing rings, valve tappets, and transmission filters in addition to the company's long standing engine products, still accounted for 42 percent of sales in 1975. With over three quarters of these sales coming directly from the auto industry, Sealed Power's fortunes were inextricably tied to that of the major American automakers. In a 1980 press release, company president Edward I. Schalon stated that "as a supplier of engine parts to the motor vehicle industry we are adversely affected by the proliferation of cars and trucks imported into the United States. This situation is compounded by the growing number of vehicles which bear domestic nameplates, but are powered by engines manufactured overseas."
Diversification continued to dominate Sealed Power's long-term business strategy in the 1980s. In early 1982, the company acquired Kent-Moore Corporation in a cash and stock transaction valued at $70 million. Kent-Moore, headquartered in Warren, Michigan, was a major manufacturer of specialized service tools, equipment, and diagnostic instrumentation for the transportation industry. An important step in Sealed Power's campaign to diversify its product line, the acquisition of Kent-Moore provided a new direction for Sealed Power's relationship with the auto industry. Although Kent-Moore dealt directly with the same automakers that Sealed Power had supplied since its beginnings in 1911, the specialty tools that it produced relied on the introduction of new automotive models rather than on the volume of production. Each new car model requires a set of specialized tools with which dealers can service the vehicles, and the Kent-Moore division works directly with manufacturers before new vehicles are introduced. Kent-Moore also had significant overseas operations, including a partnership in Japan, that allowed Sealed Power to expand its foreign presence. In 1982, the first year of the acquisition, Kent-Moore contributed some $86 million to Sealed Power's $366 million sales total.
Sales continued to grow during the 1980s, topping $400 million in 1983 and placing Sealed Power on Fortune's "500" listing. Earnings, however, continued to fluctuate. In 1983 and 1984, when domestic automobile production soared, Sealed Power earnings rose an impressive 27 percent and 17 percent only to fall back again in 1985 and 1986 when both the original equipment and replacement markets flattened out. By 1985, as it became clear that the American auto industry would be unstable for at least the immediate future, stock analysts began to stress the advantages of the aftermarket. "At this point in the automobile cycle," a parts industry analyst for Merrill Lynch was quoted as saying in a 1985 New York Times article, "we believe that the aftermarket is more attractive than the original equipment segment." After the Kent-Moore purchase the proportion of sales contributed by each of Sealed Power's product groups began to shift. In 1982, the year of the Kent-Moore acquisition, aftermarket sales made up 39 percent of total sales, original equipment contributed 35 percent, and specialty service tools took over 22 percent of total revenues.
In 1985, Sealed Power further expanded its specialty tool product segment through the acquisition of the Owatonna Tool Company and its subsidiaries, now the Power Team and Truth divisions of SPX. Owatonna, a producer of specialty tools and electronic repair equipment, allowed Sealed Power to expand its market in this area. Power Team and Truth further diversified Sealed Power's product line with the addition of high-pressure hydraulic pumps and other equipment for industrial applications as well as window and door hardware for the home construction industry. Also acquired in 1985 was the V.L. Churchill Group of Daventry, England, a major supplier of specialty tools and service products in Europe, further expanding Sealed Power's overseas presence. In order to respond to the growing threat of Japanese automobile imports, Sealed Power also set up a joint agreement with the Riken Corp., Japan's largest manufacturer of piston rings, to allow Sealed Power to distribute Riken's engine parts for repair and maintenance of Japanese cars in the United States. Sealed Power continued its program of diversification and expansion through acquisitions into the late 1980s. In addition to a number of smaller companies, the company purchased the piston ring operations of TRW in 1987, resulting in a reorganization and consolidation of Sealed Power's piston manufacturing plants and the laying off of some 400 employees.
The late 1980s were a critical period for Sealed Power. By 1988 Sealed Power's products ranged from piston rings to door hardware and were sold to a wide range of markets. Original equipment motor parts sales had fallen to only 28 percent of total company revenues, whereas replacement parts constituted 36 percent of sales, service products and specialty service remained steady at 22 percent of corporate volume, and window and door hardware now assumed 14 percent of total sales. In recognition of the changing nature of the company, the decision was reached to change the company name from the Sealed Power Corporation to the SPX Corporation. Robert D. Tuttle, then company chairman and CEO, stated in a press release that the name change was necessary because the Sealed Power name did not reflect the scope of the company's diversity in products and markets nor the range and depth of its vision of the company's future.
Acquisitions had greatly increased SPX's total sales, which rose from $250 million in 1980 to $632 million in 1989. Net income, however, failed to rise as consistently and the still considerable original equipment segment continued to be tied to the fluctuations in the automobile industry. The acquisition in 1988 of Bear Automotive Service Equipment Company increased SPX's presence in the specialty service equipment field. In 1989 the company reached a major crossroads as it became apparent that diversification had transformed them from an engine parts maker with some other interests, to a replacement parts and specialty service tool manufacturer who also made piston rings.
A rumor was reported in early 1989 that corporate raider Arthur Goldberg was making a move towards SPX and had actually purchased a 4 percent stake in the company. Whether or not these rumors were heeded by SPX management, they clearly felt that strong action was needed to maintain shareholder confidence in the now diffuse company. That action came in April of 1989 when it was announced that the company would undergo a major restructuring. The key component of this restructuring would be the sale of a majority stake in all of SPX's original equipment operations.
A new partnership, to be called Sealed Power Technologies Limited Partnership, would be formed from four Sealed Power divisions specializing in original equipment manufacture. The partnership would be controlled by a joint agreement between Sealed Power, who would retain a 49 percent stake in the companies, and Goldman, Sachs & Co., a New York securities firm who would assume control of 49 percent of the partnership. The remaining 2 percent stake would be owned by company management. This partnership would operate independently of SPX's other operations and would leave SPX free to concentrate more heavily on its replacement and specialty service tools segments. In addition, SPX would establish an employees stock ownership plan, in an apparently defensive move, to make unfriendly takeovers more difficult. "The restructuring will allow SPX to concentrate fully on a market segment that has higher margins and is more resistant to recessions than the original equipment business," CEO Robert Tuttle was quoted as saying in an article in the Grand Rapids Business Journal.
The resistance to recession that SPX felt it would gain from concentrating its resources on the automobile aftermarket and construction industries failed to materialize. Instead, 1990 proved a very poor year for all sectors of SPX, with the exception of such environmentally driven products as refrigerant recycling equipment from their Robinair division. Net income dropped from $23.6 million in 1989 to only $17.7 million in 1990 (not including income or losses from Sealed Power Technologies), mostly due to a weak demand in the automotive replacement business and a major downturn in the housing industry. If 1990 was disappointing for the reorganized SPX, 1991 was disastrous. For the first time in over 50 years SPX recorded a net loss, totaling $19.4 million. Sales were down in all sectors, but continued losses in their Bear Automotive Service Equipment division were particularly worrisome.
Faced with increasing pressure to restabilize the company, Dale A. Johnson, SPX CEO since 1989, essentially reversed the restructuring that had taken place in the late 1980s. The first step in the repositioning of the company was the sale of their automotive replacement parts division to Federal-Mogul in September of 1993. Then, in late 1993, the company decided to repurchase the outstanding 49 percent stake in the Sealed Power Technologies Partnership. With the reacquisition of the four divisions that had made up the partnership, in addition to the sale of SPX's door and window hardware division, SPX was firmly back into the original automotive equipment market. The restructuring itself had, however, demanded a substantial outlay, and SPX faced another substantial loss by the end of 1993. Johnson, commenting on the $40.6 million loss in a press release, maintained that "operating performance for 1993 was sharply impacted by steps taken to complete the strategy for transforming the company into a global market leader in specialty service tools and original equipment components for the motor vehicle industry."
As the new SPX emerged in 1994, its operations were tightly focused in two distinct arenas. Specialty Service Tools made up 54 percent of sales and were produced and distributed by the Automotive Diagnostics (created by the merging of Bear Automotive with the newly acquired Allen Testproducts), Dealer Equipment and Services, Kent-Moore, OTC, Power Team, and Robinair divisions of SPX. The Original Equipment Components Group, formed by the Acutex, Contech, Hy-Lift, and Sealed Power divisions, contributed 46 percent of revenues. A substantial recovery in the motor vehicle industry occurred in 1994, making SPX's re-entry into the original equipment market seem well timed.
Principal Subsidiaries: Acutex; Contech; Hy-Lift; Power Team; Automotive Diagnostics; Dealer Equipment and Services; Robinair; Filtran; Kent-Moore Corporation; Sealed Power; OTC; Allied Ring Corporation (50%); Jurubatech (Brazil); Bear (Germany, Italy, United Kingdom); Euroline (Germany, Spain, Switzerland, United Kingdom); Sealed Power Europe (Germany; 70%); V.L. Churchill--OTC (England); Jatek (Japan; 50%); Promec (Mexico; 40%); RSV Corporation (Japan; 50%).
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