National Service Industries, Inc. - Company Profile, Information, Business Description, History, Background Information on National Service Industries, Inc.

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History of National Service Industries, Inc.

A diversified manufacturing and service company, National Service Industries, Inc. operates as a holding company for an amalgamation of companies involved in six divergent industries. Originally a linen supply and rental business, the company evolved into a conglomerate with substantial investments in lighting equipment manufacturing, textile rental, specialty chemicals, insulation service, envelope production, and marketing services, all businesses the company entered through three decades of acquisitions. Its three core businesses--lighting equipment, textile rental, and specialty chemicals--contributed the bulk of the company's $1.80 billion in revenues in 1993, a sales volume that ranked National Service as the 255th largest industrial company in the United States. Aside from owning the largest lighting fixture manufacturing company in North America, Lithonia Lighting, and the largest multi-service textile rental supplier in the United States, National Linen Service, the company represented one the few perennially successful U.S. conglomerates in a business community populated by narrowly focused, streamlined companies.

The history of National Service Industries may be traced to the formation of the National Linen Service, which rented linens and uniforms and was owned by a prominent Atlanta family named Weinstein. In 1928, National Linen Service was incorporated to acquire three Atlanta, Georgia-based companies: Southern Linen Supply Corporation, the linen supply departments of Atlanta Laundries, Inc., and Laundry and Dry Cleaning Service, Inc.

Roughly 40 years separated the formation of National Linen Service and the creation of National Service Industries, a span during which National Linen Service developed into a formidable force in the linen supply industry. Positioned as one of the few large, publicly traded companies competing in a highly fragmented and densely populated industry, National Linen Service grew to such an extent that the U.S. Justice Department intervened in 1958, setting stringent restrictions on the company's further expansion. Although the company, then led by Milton N. Weinstein, would continue to acquire small linen supply companies, the ruling by the U.S. Justice Department led to its diversification into other business lines, marking a significant turning point in the company's history and forever changing the scope of its operations.

Other leading linen supply companies were diversifying too, enriched by the dramatic growth of the textile rental industry, which nearly doubled in size between the 1950s and the 1960s as the concept of renting rather than buying durable goods became popular following World War II. Of these other leading linen supply companies, perhaps none were as successful in their diversification efforts outside the industry as National Linen Service, which entered the 1960s entirely devoted to renting linen and uniforms and exited as a full-fledged conglomerate with multifarious investments in service and manufacturing. Instrumental to this transformation was a former neighbor of Milton Weinstein's named Erwin Zaban, the president of National Linen Service's first acquisition outside its field of expertise, Zep Manufacturing Company.

By the time National Linen Service acquired Zep Manufacturing Co., Zaban already had invested 26 years of his life in his family's business, a janitorial supplies company started by his father. Zaban began working for his father full-time at an early age, dropping out of high school at age 15 in 1936 to help his father's company withstand the debilitative effects of the Great Depression. The company survived, and by the early 1960s, with Zaban serving as its president, the company had expanded into selling cleaning and sanitation products. This was the company Milton Weinstein selected as National Linen Service's first non-linen supply acquisition, an acquisition that served as a model for future acquisitions and marked the beginning of a new era for National Linen Service and Erwin Zaban.

Growth would come quickly after the merger of Zep Manufacturing Co. and National Linen Service in 1962, but not at the expense of incurring potentially crippling debt. Virtually every acquisition that brought National Linen Service into a new business line was paid for through stock, the acquisition of Zep Manufacturing Co. being no exception. Zaban's company received 382,218 common shares of National Linen Service stock, giving Zaban and his company's management a vested interest in the future profitability of National Linen Service. This financial stake was particularly important to the future success of National Linen Service, because with each acquisition the acquired company's management was absorbed as well and granted virtual autonomy in the running of their company. Again, the acquisition of Zep Manufacturing Co. was no exception to this acquisitive philosophy. Not only was Zaban allowed to retain control of the successor to his father's business, but within four years he was selected as president of the parent company, by then known as National Service Industries.

The name change from National Linen Service Corporation to National Service Industries, Inc. occurred two years after the acquisition of Zep Manufacturing Co., in 1964, when National Linen Service acquired Atlanta Envelope Co. and Southern Envelope Manufacturers, Inc., which would form the foundation of the company's envelope manufacturing division. One month after acquiring these two companies, paid for with 116,000 common shares, National Linen Service effected the name change in recognition of its more diversified interests. These interests then represented three separate business lines: the mainstay linen supply business, Zep Manufacturing Co. (later organized as part of its chemical division), and the envelope manufacturing operations.

A fourth line was added in 1966, when National Service ceded 103,736 common shares to acquire North Brothers, Inc., an insulation service company. By this time, National Service was the largest linen supply company in the United States, with roughly $100 million in annual revenues, a total that was nearly twice as much as its closest competitor, F.W. Means & Company. Buoyed by its dominant position in the linen supply industry, National Service augmented its investment in insulation services, a business line entered into with the acquisition of North Brothers, Inc., by paying cash for Jackson, Mississippi-based Mid-South Insulation Co. in 1967.

The transition from linen supply to chemicals, envelopes, and insulation appeared void of any synergy, and, indeed, Zaban's intent was not to create an assortment of interdependent companies positioned to dominate a particular market, or even dominate four markets. Rather, he focused on acquiring profitable companies, regardless of their expertise, targeting companies with managements compatible with National Service's corporate philosophy, since more often than not acquired companies would continue to be led by extant executive officers.

With these criteria guiding National Service's diversification, the company continued to widen the range of its operations, purchasing Selig Chemical Industries with 88,667 common shares in 1968, which bolstered the company's chemical division. The following year, National Service made a pivotal acquisition, relinquishing $6.2 million and 419,156 shares to obtain Lithonia Lighting, Inc., a manufacturer of lighting fixtures. Lithonia formed National Service's fifth operating division, a division that would become the company's largest revenue contributor in the 1990s, when Lithonia became the largest lighting fixture manufacturer in North America. By 1970, the company's sixth division was added, as National Service gave 803,891 shares of its stock to acquire Southern Binders Inc., Brown Printing Co., Acme Display Co., Tufted Sample Co., and Southern Sample Service Inc., while forming a marketing services division to provide marketing aids for the carpet, home furnishing, and commercial printing markets.

As National Service entered the 1970s, each of the core business lines that would support the company in the 1990s were established. Diversification had also brought the company into markets it would later abandon. Entering the furniture market in 1969, with the purchase of five furniture manufacturers, National Service formed its Duchess Furniture Division, which was discontinued in 1976. National Service also had formed a packaging division during the late 1960s, beginning with the acquisition of Flexi-Pak, Inc. in 1968 and strengthened by the addition of Color Wrap of Colorado the following year. This division also was sold, as were properties that represented other National Service business lines, including a furniture leasing division and a recreation division.

Many of these other companies were sold during the 1970s, although the company's furniture leasing division continued to grow and operate until 1986, and its men's apparel division, established in 1972, remained a part of the company until 1991. These acquisitions underscored Zaban's willingness to acquire any type of company, provided that company was profitable. Once a company became unprofitable it was divested; a simple strategy that meant National Service did not attempt to rescue floundering companies or acquire companies operating at a loss to increase market share in a particular market. Zaban sought only profitable, well-managed companies, which explained a history of acquisitions that otherwise appeared predicated on whimsy.

Those lines that proved most profitable were the five divisions established within the first eight years of his arrival at the company as well as the original line of business, textile rental. In the early 1970s, the company's textile rental division contributed the bulk of its revenues and profits. In 1972, its original linen business generated roughly 40 percent of the company's total revenues and more than 50 percent of its profits. However, the relative importance of this division would diminish somewhat as National Service augmented its investments in its other primary business lines.

In the late 1970s and early 1980s, National Service increased the magnitude of its lighting division with three acquisitions. In 1979, the company purchased the outdoor aluminum lighting pole business belonging to Kaiser Aluminum in Louisville, Kentucky. The following year, the company purchased the indoor lighting business of ITT Corp. And, in 1981, it purchased the assets of Major Corp., a Chicago-based supplier of anodized parts. Also during this time, National Service acquired a linen supply company, Champa Linen Service, and Robert P. Gillote & Co., a distributor of filing systems, which the company added to its envelope division. Subsequent additions to the lighting and insulation divisions included the Acme Manufacturing Co., a manufacturer of commercial and residential florescent lighting fixtures, and Extol of Georgia, a manufacturer of pipe covering and insulation materials.

As acquisitions continued unabated throughout the 1980s, National Service benefitted from the fundamental advantage of existing as a conglomerate, yet avoided the usual trap that stifled a conglomerate's growth. Its diverse business mix shielded it from pernicious economic cycles to a great degree, with one division compensating for losses suffered by another, giving the company the financial stability to enable further acquisitions. At the same time, its diversity did not engender superfluous, bureaucratic layers of management, as Zaban's emphasized maintaining profitability and retaining existing management.

In 1987, the company's stewardship passed from Zaban to Sidney Kirschner, who was selected as National Service's chief executive officer that year. Kirschner had joined the company in 1973 and, consequently, owned a substantial amount of National Service stock. After becoming chairperson in 1992, when Zaban retired due to health problems, Kirschner surprised many at National Service by abruptly resigning, giving up his positions as the company's president, chief executive officer, and chairperson. In an interview with the Wall Street Journal, Kirschner enigmatically related that his decision to leave National Service was "a choice I made that I'd rather do something else."

Zaban, by then 71 years old, came out of retirement to fill the void created by Kirschner's departure and served as the company's president, chief executive officer, and chair until a successor was found later that year. Elected as chief executive officer in January 1993, D. Raymond Riddle, National Service's banker for many years, assumed control of the company as it emerged from the economic recession of the early 1990s.

During this time, National Service generated the bulk of its revenue and profits from three of its six divisions: lighting equipment, textile rental, and chemicals. The greatest contributor, the company's lighting equipment division, generated 38.4 percent of National Service's total annual revenue and 29.4 percent of its operating income, while National Linen Service, the company's linen supply business, contributed 30.3 percent of National Service's total revenues for the year and 37.4 percent of its operating income. The company's chemical division, comprising Zep Manufacturing Co., Selig Chemical Industries, and National Chemical, supplied 17.6 percent of National Service's revenue and 25.4 percent of its operating income, more than three times the amount of income generated by National Service's three smaller divisions: insulation service, envelopes, and marketing services.

National Service thus entered the mid-1990s looking to strengthen its investments in each of its operating divisions rather than to diversify into new business lines. As it planned for the future, the company's management envisioned a greater presence in Europe, where it maintained a foothold in the European chemical market through Zep Manufacturing Co. This stake overseas was increased significantly in 1992, when the company acquired Graham Group, Europe's second-largest specialty chemicals company and National Service's first solo venture overseas. Graham Group was absorbed by National Service's chemical division, a business that demonstrated encouraging growth and was likely to be augmented in the future.

Principal Subsidiaries: NSI Holdings, Inc.; Selig Co. of Puerto Rico, Inc.; National St. Louis Redevelopment Corp.; Lithonia Lighting Products Co. of Arizona; Lithonia Lighting Products Co. of Georgia; Lithonia Lighting Products Co. of Nevada; NSI Insurance (Bermuda) Ltd.; Corisma Group, Inc.; South Insulation Co., Inc.; I.A. Enterprises, Inc.; Zep Europe B.V. (Netherlands); NUS, Inc.

Additional Details

Further Reference

"National Service Chief and President Quits; Zaban Steps Up Again," Wall Street Journal, October 13, 1992, p. B8."National Service Stumbles," Financial World, November 7, 1973, p. 22."Profitable Services," Financial World, December 22, 1965, p. 14.Smith, William, "Inside Georgia's Most Powerful Corporate Board," Georgia Trend, February 1994, p. 24."Throwing Away the Rule Book," Forbes, November 15, 1972, p. 67.Willatt, Norris, "No Washday Blues," Barron's, September 27, 1965, p. 5.Zipser, Andy, "Conglomerate and Proud of It!," Barron's, June 8, 1992, p. 18.

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