Case Study: The Anchor Hocking Company
Monomoy Revitalizes America’s Oldest Glassmaker
The Anchor Hocking Company is one of America’s oldest glass-making companies and the second-largest supplier of tabletop glassware in the country. Anchor manufactures all its products in the United States — everything from beverageware to candle containers and lighting components for its own brands and for private labels — and markets them around the world.
Monomoy bought Anchor out of bankruptcy in 2007, negotiating revised agreements with critical suppliers, IT providers, major customers, existing creditors and all seven labor unions in just 32 days. We reduced annual operating expenses by several million dollars in our first 18 months of ownership, and two strategic acquisitions have enabled us to launch a new product line of houseware accessories. Monomoy has taken Anchor from near zero profitability to healthy EBITDA margins in two years, and the company is well-positioned to enjoy substantial growth over the next 18 months.
The Anchor Hocking story
Anchor designs, manufactures and distributes consumer glassware for the retail and food service markets, including tabletop glassware, bake ware, floral glass, candle glass and specialty containers. Anchor is the leading supplier of consumer glassware to the mass retail market (e.g., Walmart, Target, Dollar Store, and national grocery chains), the leading supplier of glassware to floral industry, and the second leading supplier of glassware to the food service industry and the candle industry. The company operates a manufacturing facility and a distribution center at its corporate headquarters in Lancaster, Ohio and a second manufacturing facility in Monaca, Pennsylvania.
The challenge: Neglected asset, enormous potential
Anchor was a tired brand and a neglected corporate asset of Global Home Products, Inc. that produced little EBITDA on $200 million of sales. Monomoy bought the business in April 2007 from the bankruptcy estate of Global Home Products for about its liquidation value with the goal of substantially improving EBITDA through a series of basic business improvements. To close the transaction, we fully documented sale and financing agreements and negotiated revised agreements with Anchor’s critical suppliers, IT providers, major customers, existing creditors and labor unions.
In November 2007, we acquired Indiana Glass, a $60 million glassware division of Lancaster Colony Corp., and integrated Indiana Glass’ manufacturing operations into Anchor’s existing facilities. In November 2008, Anchor acquired Alco Consumer Products, Inc., a $20 million distributor of imported houseware products to the mass retail channel. With the two acquisitions, we expect Anchor to produce substantial EBITDA on $260 to $270 million in sales in 2010.
We bought Anchor for three key reasons:
A business that deserves to exist. There is a limited amount of glassmaking capacity in North America; there are high capital costs to enter the market; and it is very difficult to import retail glassware from Asia — glass is heavy and it breaks on the water. As a result, Anchor is a critical supplier to important companies such as Walmart and Target. This is the sort of sticky or important company we like to own.
Problems we can identify and fix. Anchor ran a 1940s management operating system that ensured high operating costs and modest profitability. We believed that the Monomoy operations group could reduce basic operating costs at Anchor by renegotiating labor and IT contracts, improving basic shop floor productivity and staffing, consolidating vendors and rebidding supply contracts, reducing energy usage, rationalizing overhead costs and improving product mix. These are all familiar challenges that we have successfully addressed, over and over, in Monomoy investments.
An opportunity to create value. At a reasonable purchase price, we could create value for both Anchor and Monomoy’s investors, without assuming sales growth and without putting too much debt on the businesses, over the first 24 to 36 months of Monomoy ownership. In addition, once we helped make Anchor profitable, we could drive growth and upside for the company through a series of strategic acquisitions that extend Anchor’s reach in the houseware segment.
Improving the business: a culture struggle
Over the first 18 months of Monomoy ownership, we worked with Anchor’s management team to implement a dozen business improvement programs that reduced Anchor’s annual operating expenses. We focused our initial restructuring efforts on rebuilding the manufacturing operating system, re-sourcing the entire discretionary vendor base, implementing improvements in revised labor and vendor contracts and reducing the company’s product offering (or “SKU count”).
These are not easy changes to make in any business, and they were especially challenging in light of Anchor’s proud manufacturing culture. Management initially doubted that some of the Monomoy projects would work, and Anchor suffered as many setbacks as victories in the first few months of Monomoy ownership. However, both management and the workforce came to believe that the Monomoy system would restore Anchor to long-term prosperity. With the help of Monomoy operating professionals, Anchor accomplished its initial business improvement goals in a little over a year, transforming a struggling manufacturing unit into a profitable, entrepreneurial business.
Identifying areas for growth
As we stabilized Anchor through 2007 and into 2008, we identified several areas of potential expansion for Anchor in a mature housewares market. In November 2007, we acquired Indiana Glass and E.O. Brody (a floral distributor) from Lancaster Colony Corp. with a program to consolidate the two Indiana Glass plants into existing Anchor facilities. In February 2008, we sold E.O. Brody to an Anchor customer. Indiana Glass should add significant revenue and EBITDA to the Anchor platform. The company consolidated Indiana Glass facilities into Anchor between May and November of 2008, in the process becoming the largest supplier of floral glassware in North America.
In November 2008, Anchor acquired the assets of Alco Consumer Products, a distributor of non-glass housewares to Walmart and Anchor’s other mass retail customers. We will re-launch the Alco line as Anchor Home Collections in late 2009 with the expectation of adding substantial of sales to Anchor in 2010.
This is a characteristic progression for a Monomoy company. We buy good businesses and we make them better. Once we help create a cost structure and corporate culture that supports profitability, our businesses are well-positioned to grow organically and acquire weaker competitors. With the Indiana Glass and Alco acquisitions, Anchor will grow by well over 50% under Monomoy ownership — despite the current economic recession.
Finding success beyond the recession
No business is immune to the economic collapse that we have witnessed in the current business cycle, and Anchor’s sales declined with falling consumer demand in 2008 and 2009. For Monomoy, however, an economic recession — even the sharpest decline in consumer spending since the Great Depression — is simply another opportunity to improve and create value. At Anchor, we worked with management to implement an urgent recovery program in late 2008 focused on further improvements in manufacturing, supply chain savings and overhead rationalization. The program has worked and has allowed Anchor to increase EBITDA despite reduced sales. Anchor enjoyed its best year thus far under Monomoy ownership in 2009.
At this point, we have put in place our essential business improvement programs at Anchor and substantially enhanced its asset base, product mix and basic profitability. We have helped take Anchor from break-even to healthy margins in two and a half years, despite a recession-driven sales decline. Along the way, we have paid down debt, helped revitalize an iconic American brand, and greatly extended Anchor’s reach into the housewares market.
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