Newell Case

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Newell’s vision was to grow to a level with a market capitalisation of  ~$10 billion. Newell believed that this would provide them required attention in the market, a higher PE multiple and potentially a greater bargaining power. Newell was good at making high volume/low cost product and selling them to large retailers.

Dan Ferguson wanted to consolidate the retail business hence via acquisition he tried to open up new customer relationships with volume retailers. He also envisioned that using this relationship, Newell could not only continue to sell the product range bought via acquisition but also sell the existing product range via new retailer.

Post 1972 when Newell went public and had access to capital markets. This allowed Newell to pursue the strategy of growth via acquisition. Newell, with two pronged approach, would acquire low technology manufacturing companies (question marks from BCG matrix), with non-seasonal, noncyclical, non-fashionable products with shelf presence throughout the year. These targets would also represent strong brands with either 1 or 2 position in their markets. After acquisition these companies went through a process called “Newellization” to align them to Newell operations. The ultimate goal of this process was to increase operating margin from below 10% to above15% via a streamlining process with strong focus on operational efficiency and profitability.

To be considered successful this needed to be achieved in a period less than 18 months. The companies targeted needed to offer products whom had operations similar in nature to Newell existing line of products but yet had to offer growth opportunities to grow the company as a whole. This allowed Newell to achieve integration of these companies quickly and help achieve the overall efficiencies.

Newell’s logic behind various acquisitions was that they would add value to company’s already powerful multiproduct offering and make Newell a more important supplier for the largest retailer, increasing Newell’s “added value” along with consolidating industry capacity. Newell also created new relationships with retailers attached to the acquired brands and hoped to sell products from existing product family to end customers via these new retailers.

Upon acquisition, Newell provided an integrated financial system, sales and order processing system and flexible manufacturing system to the target. Their aim was to transfer processes and technology to these acquired companies to deliver the same products in more efficient manner without reducing quality. These efficiencies helped improve the overall profit margin.

Newell was also able to utilise their existing economies of scale as they sold large volumes to mass retailer. This provided further cost advantage, increasing value add provided by “Newellization”.