There is a special and mysterious excitement about the birth of anything new. Whether it's a person, an idea, an invention, a work of art, or a business, the limitless possibilities of the future heighten the thrill of the event. Will the newcomer make any more difference than a thousand or a million others? How much and to whom? For good or ill? Or a little of both?
With about 500,000 new business formations a year, it is inevitable that there will be stillbirths and infant deaths. And inevitably some will come into the business world with a far better chance for survival than others. A few are fortunate enough to spring to life full grown by way of the corporate spin-off route. Sometimes we find these particular ventures (even if they are a little light in the profit department at first) a great antidote to the dreary excesses of corpulent corporate merger hogs.
Take a newcomer expected to arrive by the end of the year. Because it is yet to be formally christened, we call it "Child of Itek." Itek Corp. (in which we hasten to say we own no stock; if we did we would tell you) reported its coming blessed event to our neighbor, the Boston Globe.
Itek itself has an impressive and honorable history as a technology growth company. One part of its business has been in the consumer market, making and selling eyeglass lenses and frames. In the past year or so, this division has not done as well as it used to; after earning about $2 million a year in profits on about $60 million in sales, it lost about $100,000 in 1980.
Itek management apparently made some effort to sell the operation, but concluded after a fair test that its stockholders would do better in another way. It is spinning off $40 million of Itek assets plus at least nine of its own executives into a new company that will start life owned by the same stockholders. The new venture starts with 1,500 skilled employees in plants in North Attleboro, Mass., Reading, Pa., Philadelphia, Pa, and Fort Lauderdale, Fla.
The chairman and chief executive officer of the new firm will be Salvadore Macera, presently running three Itek industrial, governmental, and consumer operations with sales of $175 million."Child of Itek" will start life, he estimates, with sales of $50 million. A step down for an executive vice-president of a $355-million sales company? He surely doesn't sound like he thinks so:
For some time I've wanted to run my own company. I have been deeply involved in working with a team and making joint decisions but now is the time for me to get my name out there and call the shots.
I turned 50 and I remember my father saying that was the time to do something you always wanted to do, and for some time I've wanted to run my own company.
Three other things make us think the Itek stockholders may be unusually fortunate in their management. One is that "Child of Itek" is starting life debt-free; the parent is even keeping for later disposition an overseas plant that has been a cash drain. Another is the explanation for the step given by Itek's chairman and CEO:
It is the kind of business that demands a lot of entrepreneurial techniques that a large corporation is not suited for.
Finally, whatever the outcome, the Itek stockholders who paid for the assets and the seasoning of the management are going to be the beneficiaries of the new entrepreneurial try. No hassle about whether the price paid by an outsider was high or low. No wondering whether the basis of exchange is really fair or whether or not you should tender. No costly legal contests, antitrust headaches, investment bankers, and the rest of the merger noise. No big plant shutdowns, employee layoffs, or management purges. No wondering about whether it's better or worse for insiders, outsiders, arbitrageurs, or sharks. And the ongoing parent management is free to do more of what it thinks it does best.
As for the American economy, it gets what it needs most: another competitive marketplace entrant out to do the best possible job for its customers and stockholders.
Maybe we're missing something but we think this ought to happen much more often than it does.There probably ought to be some more tax incentives to encourage it -- some things that make the creation of a new and independent business by spinoff much more attractive than the tax-free merger or exchange.
We plan to write about "Child of Itek" again, whatever the future brings it. We'd like to hear from readers about other spinoffs, already tried or being considered. Forty million in assets is a bit bigger than those other 500,000 entrepreneurial newcomers. INC. wishes it and all the others the same hearty "Happy birthday and many happy returns of the day!"
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