The New Owners Speak German

The next time someone offers to buy your company, there's a one-in-five chance that he'll be from another country.

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Bob O'Brien went to the 1978 International Sanitary Supply Association trade show in Atlanta determined to write some big orders for his fast-growing cleaning equipment company. The big orders came in as expected, but one buyer handed O'Brien a surprise -- an offer to buy his whole company.

Almost as surprising was the buyer himself. The distinguished, impeccably dressed stranger who approached O'Brien was Tyll Necker, president of a West German cleaning equipment firm that was in the market for a healthy North American subsidiary.

The next day, O'Brien and Necker got down to some serious talk. O'Brien's American Cleaning Equipment Corp. was certainly for sale, but the idea of a foreign buyer hadn't occurred to him until Necker walked up to his trade show booth.

Two years later, the deal with Necker's company, Hako Werke, went through -- and Bob O'Brien had learned more than he ever thought he would about how to deal with the overseas buyers who are becoming increasingly interested in acquiring smaller American firms.

By the time Necker chose American Cleaning as his acquisition target, a hired consultant had studied over a hundred potential candidates for the German firm. "He knew who he was talking to. He knew a lot about the company," says O'Brien.

For American Cleaning, O'Brien says the experience was almost totally positive. During their first year of ownership, Hako Werke pumped more than $500,000 into the U.S. subsidiary and plans to spend several million dollars more in the next few years to expand the facility for manufacturing the entire Hako line in the United States.

Equally important, O'Brien adds, the new owners haven't spent all their time tinkering with the basic products, since their satisfaction with the quality of these products is what drew them to the firm in the first place.

For Hako Werke, a manufacturer of floor sweepers, scrubbers, and other maintenance equipment, the attraction was in an established marketing network, and a complementary product line. The companies' product lines dovetailed nicely, with Hako tending to specialize in somewhat larger equipment than American Cleaning. The German firm had been exporting its products to the United States via a marketing subsidiary, but a major entry into the U.S. market required a manufacturing presence here. At the same time, the Germans were looking for a company whose products might find applications in Europe.

Founded in 1950 by Jim McSheehy and Mat Zmudka, American Cleaning had evolved from a seller of blowers to a manufacturer of a full line of industrial scrubbers, sweepers, and vacuums. This year's sales are expected to be more than $6 million.

O'Brien credits the company's growth to the founders' decision to sell to industry, rather than competing head-on with larger firms seeking such commercial accounts as hotels and office buildings. In 1952, as part of its industrial slant, the company introduced the first vacuum attached to a 55-gallon drum. American Cleaning was also one of the first firms to build a critical filter vacuum, which is aimed at laboratories, hospitals, and nuclear power plants where even the smallest particles must be captured. O'Brien estimates that American Cleaning holds about 50% of the market for critical filter vacuums and smaller shares of other floor care markets. "A small company can live on a specialized market. But for a big company, that market is meaningless," O'Brien says. "That's what I was counting on. Our competitors couldn't afford to pay attention to it."

O'Brien had bought into the company in 1974. An engineering graduate of Purdue University, he worked for Chrysler Corp., Continental Can, and Lockheed before becoming a consultant. After several years in consulting work, the most recent heading up a Cleveland subsidiary of Booz, Allen & Hamilton, O'Brien got the itch to own his own company. In 1972, he left Booz, Allen for Chicago in search of a company to buy

McSheehy had died a few years earlier and Zmudka wanted to sell the firm, but the McSheehy family, which owned the majority interest, balked. O'Brien worked out a deal to buy half the firm, including Zmudka's share, and took over as president on the first day of 1974.

Less than five years later, there were enough reasons to sell the firm for both O'Brien and the McSheehys to entertain inquiries. Interest rates were high and rising, the company was completing a year that would produce a marginal loss, and expansion was simply not affordable. So selling to a larger firm became a significant possibility. O'Brien recalls that for his company the timing of the West German overture was a major factor in the decision to sell.

"We could see that with the finances and the power that Hako Werke could bring into it, the whole name of the game would change," he says.

Tyll Necker visited the company's plant in Addison, Ill., a Chicago suburb, in December of 1978 to study the facility, and O'Brien visited Hako's facilities in Bad Oldesloe, West Germany, the following month. While Hako and American Cleaning were negotiating, two more firms -- one foreign and one American -- began talking with O'Brien about a possible sale.

All three of the firms were in the cleaning equipment field, but Hako was special, O'Brien says. Besides being a sound company with people who impressed O'Brien as highly competent, Hako's size was attractive. At around $70 million in yearly sales, Hako was large enough to add capital to American Cleaning but not so big as to swallow the firm without a gulp. One of the other suitors was about the same size as Hako, the other much larger, but neither was as aggressive in seeking a deal as Necker.

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