Illinois Tool Works (ITW) acquires companies like most folks buy groceries – that is, often. Last year it bought more than 50 companies, spending about $1.7B. During the 1990s ITW acquired about 100 companies.
The company may not meet the standard of empire-building by acquisition that Tyco International set in the 1990s, and I’m sure its management doesn’t want to emulate the disgraced Dennis Kozlowski in corporate malfeasance. Their model is more like General Electric — a smooth-running, well-managed, highly profitable enterprise. ITW doesn’t approach GE in size — the company posted 2006 sales of $14B, and it’s on track for $16B this year — but they’re working on it. Profit margins are consistently steady, at 7-12% in recent years.
The ITW acquisition model is to buy small companies, look for efficiencies in their operations, and make them as profitable as possible. A simple prescription, true, but not so simple to execute. Unlike other conglomerates that bought and sold businesses with equal fervor, like the old ITT or Gulf & Western, ITW borrows a page from Warren Buffett’s Berkshire Hathaway, buying and holding businesses for the long term. ITW divested its consumer products segment (which included fitness equipment) early in this century, but other than that, ITW has generally been a buyer for 95 years.
ITW’s businesses include Acme Distributor Sales (industrial packaging products), Click Commerce (supply chain management software), Foilmark (hot stamping foils and lamination products), Hobart (commercial food-service equipment), Instron (materials testing equipment), Speedline Technologies (electronics assembly equipment), Vulcan-Hart (restaurant kitchen equipment), Wilsonart International (countertop and flooring products), and Wynn Oil (automotive lubricants).
Illinois Tools Works — a company name that sounds prosaic, and a business model that sounds profitable.
Comments
John MacAyeal Says:
November 1st, 2007 at 9:43 am
I wonder what would happen if ITW was banned from any more acquisitions. Instead of acquiring Acme Distributor Sales they’d have to ramp up their R&D department and start their own industrial packaging division to compete with Acme Distributor. Then if ITW wanted to succeed in the industrial packaging business it would have to come up with a better product than Acme’s. This goes back to the old idea that competition benefits the consumer, but it seems to have become an idea so old that it’s now forgotten. It wouldn’t be bad if more companies were forced to develop their own products and compete instead of buying up their competition. I seem to be alone in this sentiment, though. As anyone would rightly guess, no one is calling for a ban on acquisitions. I typed “ban all acquisitions” in google and predictably received zero hits.
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