Buyouts – October 28 2013
- Restructured for success
- Revitalized a tired culture
- Focused on innovation for growth
Turning around a century-old iconic brand that had been the gold standard for a product with origins in the third millennium B.C. might seem counterintuitive at first blush. But Sun Capital’s five-year effort to transform kitchen and bath leader American Standard Brands and position it for the next 100 years is a testament to what can be achieved when smart restructuring allows innovation to take the lead.
When Sun Capital acquired American Standard in 2007—the height of the housing bubble—the company was a neglected division of a global business. To position the company so it could take advantage of the eventual housing market rebound, we first had to lay a foundation. Right-sizing the cost structure and undertaking a complete review of the product portfolio were essential, stabilizing steps.
We worked with management to optimize the physical assets to reduce annual operating costs by $70 million. We phased out unprofitable SKUs, upgraded the remaining products and integrated existing Sun portfolio companies, Crane Plumbing and Eljer to diversify the catalog.
These initial steps positioned American Standard with a streamlined financial structure, an efficient supply chain, and a more robust product portfolio. Most importantly, we were able to recapitalize the balance sheet to improve liquidity and operating flexibility, which gave the company the ability to execute on a plan for growth through innovation.
Accelerating new product development was vital, as we focused on high-performance products that could boast the highest water conservation, and that demanded a premium price. We also acquired Safety Tubs, which yielded new technologies in a high-margin and high-growth segment, and another company, Decorative Panels, that provided access to a new product category altogether.
The new American Standard was equipped with an even stronger product portfolio, centered on innovation as a brand-building platform that elevated American Standard to a premium brand position. As the company was transformed we were able to breathe new life into that and drive demand. The technologically advanced, “virtually clog-free” Champion line of toilets illustrates that focus.
The company leveraged this innovation through its “Be a Champion, Buy a Champion” program, in which, for every Champion toilet sold it donated a life-saving sanitation pan to people in developing countries. This effort helped increase Champion sales 62 percent from 2012 to 2013, and helped an estimated 2.5 million residents improve their quality of life through safe sanitation facilities.
To achieve the growth desired, we worked to build a highly-engaged organization by instilling a culture of pride. Prior to acquisition, the company’s culture had grown tired and lacked direction. We undertook efforts to instill a set of values that would serve as the underpinnings of our growth strategy. Measurement showed a vastly improved culture, with renewed confidence and conviction in the Company’s future.
The increased demand that grew out of American Standard’s product innovation and social responsibility initiatives enabled the company to increase its U.S. retail presence through expanded partnerships with Home Depot and Lowes, and the addition of major new retailers including Costco and Amazon. Special focus was also placed on penetrating the U.S. wholesale market.
June marked the culmination of an innovation-driven turnaround for American Standard, with improvement of the company’s EBITDA from a loss of $34.2 million at acquisition in October 2007 to $48.5 million for the twelve months ended May 31, 2013: a positive reversal of more than $80 million.
Beginning in the second half of 2012, the revitalization of American Standard began to generate the attention of strategic and financial suitors. We had put a lot of work into the company, but believed that there was more to achieve before selling. After meeting with executives from LIXIL in Tokyo this year, however, we reconsidered.
We were impressed with their integrity, and quickly found that, as owner of the American Standard brand in Asia, they shared in our vision for the company. In June, LIXIL purchased American Standard Brands for $542 million.
A business that a few years ago some were predicting would be shuttered was successfully turned around and has emerged as an innovative business that its new owner has made a platform for growth in North America.