710 Route 46 East, Suite 206
Measurement Specialties (AMEX:MSS) is a leading designer and manufacturer of sensors and sensor-based consumer products.
With its headquarters located in Fairfield, New Jersey, Measurement Specialties, Inc. (MSI) designs and manufactures sensors and sensor-based consumer products. MSI's sensor division offers a wide range of sensors and transducers using a number of technologies--piezoresistive, piezopolymers, electro-optic, electro-magnetic, micro-electromechanical systems, application specific integrated circuits, and strain gauges--to measure pressure, motion, force, displacement, tilt, flow, and distance. These products are used in such industries as automotive, medical, commercial building, appliances, banking, traffic control, power and utilities, industrial machinery, and aerospace and defense. MSI's consumer division produces bathroom scales, the Accutape brand of distance estimators, Accutire tire pressure gauges, and Park-Zone parking gauges. The company maintains manufacturing facilities and engineering centers in Virginia, France, and China. It also has engineering centers located in Wayne, Pennsylvania; Plainfield, Illinois; and San Jose and Torrance, California. MSI is a public company trading on the American Stock Exchange under the symbol MSS.
Company Shifts from Consulting to Manufacturing in 1980s
The men behind the founding of MSI were Damon Germanton and Donald Weiss, who lived across the street from each other in Kinnelon, New Jersey, and became friends. Weiss held a degree in Economics from City College of New York and was the cofounder of Alkalite, a maker of disposable flashlights. Germanton, on the other hand, was an engineering graduate of Fairleigh Dickinson University and employed at Kulite Semiconductor Products, Inc., where he worked as an engineer and served as operations manager, involved in micromachined sensor technology used in military and aerospace applications. Semiconductor-based sensors, so prevalent in today's products, were in their infancy around 1980 when Germanton took Weiss for a visit of the Kulite facilities. Weiss was immediately impressed with the potential of micromachines and decided he wanted Alkalite to become involved in the field. He began working on Germanton and eventually wooed him away from Kulite. In March 1981 Germanton incorporated Measurement Specialties, Inc. to serve as an engineering consulting firm in sensor technology. His only client was Alkalite and he worked out of the Alkalite offices. In 1984 Weiss sold his share of Alkalite to his partner and joined Germanton at MSI.
Weiss and Germanton were considering keeping MSI as a consultancy, but soon decided to turn to manufacturing. They spent several months thinking about how to apply micromachined silicon strain gauge technology to consumer products and eventually settled on a bathroom scale. They developed a prototype and on that basis were able to raise some private financing. They also convinced Philips Electronics to commit to buying a significant quantity of the scales for its consumer products division. Manufacturing at this stage was done through a subcontractor. MSI was now able to raise further money through an initial public offering (IPO) of stock, conducted in July 1986, netting about $2.5 million. After initially trading on an over-the-counter basis the stock moved to the NASDAQ.
Dissatisfied with the work of its subcontractor, which was not willing to manufacture to MSI's specifications, Weiss traveled to Hong Kong in September 1986, intent on using the money raised from the IPO to establish the company's own manufacturing facility. He built a plant from scratch and remained in Hong Kong to run the company as chairman and chief executive officer, while Germanton, the chief technology officer, remained in New Jersey. Out of necessity Weiss developed a unique business model in Hong Kong that was a key element in the company's early success. While most American companies employed agents to deal with Chinese suppliers and distributors, Weiss, to save money, became a primary actor. But because the Chinese saw middlemen as little more than parasites, albeit necessary ones, he found himself in an advantageous position. Although an ex-patriot, he was still regarded as part of the local business community and could build personal relationships that were of great benefit. MSI had no support from its banks, but was able to develop a way to become self-financing through the use of letters of credit issued by distributors as soon as products shipped. The company could then order more supplies and build the business at an accelerated rate. Weiss was also able to improve the company's finances by taking advantage of its manufacturing capacity to do subcontracting work. As a result of these factors, MSI was able to competitively price its electronic bathroom scale compared to the mechanical ones consumers were more familiar with. Weiss also drummed up sales by directly contacting Hong Kong-based buyers for major retailers. Early on, MSI had more success selling into Europe because U.S. retailers were more reliant on traditional distributor relationships. As the electronic scale became more accepted by consumers, however, the United States emerged as the company's leading market.
First Product Launch: Late 1980s
It was while Weiss and Germanton were sitting in a diner that they conceived of a way to build an application-specific integrated circuit (ASIC) to measure distances. The concept would result in MSI's second product: a digital distance measuring device, which would be sold under the Accutape label as well as retailers' private brand names. After being developed from 1986 to 1987 the product was introduced and began to build up sales. Business became so strong that the company opened a larger manufacturing facility in Hong Kong. But the company's fortunes then slipped unexpectedly. One of its major customers for the measuring product, Stanley Works, was disconcerted about declining margins, unaccustomed to the nature of electronic products. Faced with numerous competitors in the market, it asked MSI for an exclusive on Accutape but was denied. Stanley then decided to simply drop the product, selling its stock of several-hundred-thousand units to a liquidator for under $5 apiece. At the time, MSI was wholesaling the item from $14 to $17 apiece, and now had to contend with a multitude of product being dumped onto the market retailing around $10. As a result, orders immediately dried up; MSI was stuck with far too much capacity in its new Hong Kong plant and saddled with untenable overhead costs.
Weiss returned to the United States to deal with the unfolding crisis. The company's credit lines were withdrawn and the price of the company stock plummeted, eventually dipping as low as 25 cents and leading to the company being delisted from the NASDAQ. MSI also had to contend with a group of dissident shareholders who sued the company. According to Weiss in a 2005 interview, they were attempting to manipulate the stock price for their own benefit in what amounted to a "greenmail" effort. He maintains that the group's attorney even asked at what point, "What's it worth to make us go away?" The matter went before a court and the dissidents were sanctioned, and MSI's management was content to let the matter rest rather than countersue. Weiss and Germanton had to decide whether they should simply shut down the company or attempt to regroup and develop new products. They chose the latter option, cutting staff and paring down its manufacturing operation, while also developing a third product: a digital tire air pressure gauge, which the company introduced in the early 1990s. Other companies had tried to market similar handheld tire gauges but only MSI, by taking advantage of its low-cost manufacturing operation in Hong Kong, was able to make money at it. The company also picked up much needed revenue by licensing some of its technologies to Dresser Industries.
MSI rebuilt its business, enjoying success with the tire gauge and increased interest in the bathroom scale, although sales of the Accutape product continued to languish. In 1993 the company's stock was able to regain a listing, this time on the American Stock Exchange's Emerging Company Marketplace. In 1995, which ended on March 31 of that year, the company posted record sales in excess of $17 million. By now there was no doubt that the company had turned the corner, but to Weiss MSI had reached an important juncture: It could either make some significant changes to go to the next level or adopt a more-of-the-same strategy. One of his ideas was to close down the Hong Kong plant and move manufacturing to China. Weiss had been at odds with the board for several years, primarily because of his strong support for MSI's sales manager, which many of the board members were inclined to blame for the company's misfortunes earlier in the decade. Now Weiss and Germanton no longer agreed on their vision for the company. Germanton aligned himself with board member Joseph Mallon, recommending a more conservative approach to growing MSI. In effect, the rest of the board mediated the matter and came down on the side of Germanton and Mallon. Weiss decided it was now prudent to leave the company, and in April 1995 he was replaced as chief executive officer by Mallon.
Mallon was well qualified to take the helm at MSI, the M.B.A. on his resume the least of his achievements. He brought three decades of experience in micromachined sensor technology, including a 20-year stint at Kulite. In 1985, with financing from oil services company Schlumberger, he cofounded NovaSensor to make pressure sensors to monitor blood pressure as well as fuel levels. He sold out in 1990 and joined MSI's board in 1992. All told, he had 40 patents to his credit.
For the first three years, Mallon followed the more-of-the-same approach in running MSI, and business grew at an incremental pace. In 1997 sales topped $25 million and net income totaled almost $1.2 million. Then in August 1998 he completed the first of several acquisitions in an attempt to accelerate company growth. At a cost of nearly $4 million MSI added the Sensors Division of AMP Incorporated, which produced piezoelectric polymer sensors for industrial, consumer products, instrumentation, military, aerospace, and medical uses. MSI was now reorganized into two divisions, Sensor Products and Consumer Products, as the company embarked on a new strategy to sell high-volume sensor products to original equipment manufacturers (OEMs) in addition to consumer products. The company also looked to move production from AMP's plants in Valley Forge, Pennsylvania, to its low-cost Chinese plants.
Acquisition Binge Continuing in 2000
MSI picked up the acquisition pace in 2000, adding three more companies. In January it paid $800,000 for the ultrasonic parking aid product Park-Zone, from Exeter Technologies, Inc. A month later MSI spent nearly $12.4 million to acquire IC Sensors, Inc. from Perkin Elmer Inc., maker of silicon micromachined pressure sensors, accelerometers, and microstructures for use in the industrial, medical, and aerospace industries. In August 2000, MSI spent another $16.8 million for Schaevitz Sensors, which designed and manufactured industrial sensors using strain gauge, linear variable differential transformer (LVDT), reluctive, and capacitive technologies. Schaevitz sensor products were used to measure displacement, tilt, fluid level, pressure, and other factors. The company brought with it production facilities in Hampton, Virginia, and Slough in the United Kingdom. As a result of these acquisitions, MSI grew at a rapid clip. Sales approached $60 million in 2000 and topped $100 million in 2001. Net income, in the meantime, increased to $5.5 million in 2000 and nearly $9 million in 2001.
MSI added another company to the fold in 2001, paying $17.1 million for Terraillon Holdings, a European maker of bathroom and kitchen scales. To pay for the deal, the company completed a successful secondary stock offering in August 2001. The company was now recognized by Fortune and Business Week as one of the fastest-growing public companies, but to accomplish this growth, MSI took on $54 million in debt, mostly from banks, and below the surface the company's strategy was not unfolding as expected. The plan in a nutshell was to buy companies and move production to the China plants where extra margin could be squeezed out. But it took longer than expected to transfer production. In addition, the company was hurt by the bankruptcy of Sunbeam Corporation, a major customer accounting for 10 percent of sales, and the economy was turning sour. The company was forced to borrow even more money to keep its head above water, and then in February 2002 it was struck a staggering blow when it learned that its chief financial officer, Kirk Dischino, had failed to notify the company that it was in default of its bank debt. Dischino was promptly fired and replaced. After some study the new CFO concluded that MSI had also been overvaluing its inventory and when Mallon refused to restate prior results, he quit in protest. To make matters worse, it was also revealed that Dischino had sold 40,000 shares of stock shortly before the company's precarious state was revealed. He would eventually plead guilty to insider trading charges, and MSI would pay $7.5 million to settle a class-action suit and a $1 million fine to settle Securities and Exchange Commission(SEC) charges.
The American Stock Exchange halted trading on MSI's stock, and investors who bought shares in the August 2001 offering were quick to sue, claiming the company had been misleading in its prospectus. The banks were also displeased and forced Mallon to step aside as chief executive, replaced by turnaround artist Franklin Guidone. A mechanical engineer by training, he became a consultant with Andersen Consulting and Dallas-based George Group before cofounding a turnaround company, Corporate Revitalization Partners, in Dallas. The appointment of Guidone bought time with the banks, and in less than a month he had a plan to offer them, one in which he would make interest payments while shedding non-core assets and attempting to rebuild the business. The banks agreed to give MSI six months of forbearance, and Guidone went to work. He continued to live in Dallas but flew periodically to New Jersey and the company's other locations. He cut payroll and other expenses, shut down the U.K. operations, sold a California manufacturing plant as well as Terraillon. In 2004 he also sold off the company's Thinner bathroom and kitchen scale business. Operations were now consolidated in the two plants located in Hampton, Virginia, and Shenzhen, China.
Guidone's strategy panned out and MSI was soon on solid footing with its lenders. Sales rebounded, improving to $107.7 million in 2003 and $112.8 million in 2004. Debt was eliminated by the middle of 2003. The company returned to profitability in 2004, earning $21.6 million. MSI was now strong enough to return to a growth mode, and completed a series of acquisitions in 2005. It bought Elekon Industries USA Inc., adding optical sensors sold to the medical and security markets. It then added Entran Devices, Inc. and Entran SA, expanding MSI's presence in the race car and automotive crash-test markets. MSI also acquired Encoder Devices LLC, which used magnetic encoding technology to make fuel pump sensors and had the potential to be applied to medical syringe pumps, flow meters, military, motor, and other uses. In December 2004, MSI made two acquisitions in Europe. MSI acquired Humeril, a fast-growing Toulouse-based company with a proprietary humidity sensing technology that was winning business in the automotive and industrial sectors. The company also reached an agreement to acquire MWS Sensorik GmbH, a German distributor who had been repackaging MSI's accelerometers for the automotive crash-test market (the transaction closed in January 2005). The long-term potential for sensor technology was very promising, and because Guidone was not likely to make the mistakes of his predecessors by adding excessive debt and taking on fixed-cost facilities when making acquisitions, it was very likely that MSI's best days were yet to come.
Principal Divisions: Sensor Division; Consumer Products Division.
Principal Competitors: Bonso Electronics International Inc.; Danaher Corporation; Esterline Technologies Corporation.