BENTON HARBOR — Faced with declining sales and changing customer buying habits, Midwest Timer Service Inc. needed to make some changes to its business.
The manufacturer of electromechanical components for the appliance industry and other sectors watched for years as its customers shifted to electronic alternatives. Then the company was forced into action when one of its key customers — Benton-Harbor based Whirlpool Corp. — “pulled the last of the production business” in late October 2017, according to co-owner Bruce Chapman.
The move drove Midwest Timer to “scale back immediately,” and the company went from 80 employees to roughly 35 people in the span of less than six months, he said. Losing the business also accelerated Midwest Timer’s ongoing efforts to acquire a synergistic business that would help it diversify and get it access to a growing market, Chapman said.
Midwest Timer tapped Grand Rapids-based M&A firm Calder Capital LLC in May 2017 to look for opportunities that would better utilize its manufacturing capacity. That search led to Carol Stream, Ill.-based distributor Lectro Components Inc., which also outsourced production of its own line of products under the Core Components brand.
Lectro, a distributor of electronics components, developed Core Components products for the building automation industry, including transformers, multi-voltage relay modules and power supplies. The line made up about 25 percent of the overall business at Lectro.
“There are some similarities, some synergies we believe in (Lectro Components’) customers,” Chapman said. “We believe that some of the Midwest customers might be able to make use of the products that Lectro Components offers.”
For Midwest Timer, acquiring Lectro Components and bringing the Core Components manufacturing in-house got it into a new distribution business, took up some of the idled production capacity and stemmed some of the company’s losses, Chapman said.
“Closing this deal is very timely,” Chapman told MiBiz. “Our existing business that we had been in since 1954, the market is just going through changes where we see declines in volume. It’s just simply a matter of electromechanical timers are largely being replaced by, you know, electronics.”
The Lectro acquisition closed in late December 2017. Terms of the deal were not disclosed.
According to a filing with federal securities regulators, the buyers raised $175,100 in equity from two investors for the acquisition.
FINDING THE RIGHT COMPANY
Patrick Robey, director of corporate development at Calder Capital, said the firm had been targeting opportunities for Midwest Timer that made sense from a “product standpoint.”
“We had looked at mostly distribution companies for our search,” Robey told MiBiz. “We looked at the space of Midwest Timer, saw they had about 60,000 to 70,000 square feet overall, most of which was warehousing space. We figured an easy acquisition could utilize this space.”
Calder Capital targeted multiple companies from various industries and a few distribution companies before finding Lectro Components, Robey said.
“Adding manufacturing capabilities — as they are able to do more and more of these products in-house — would definitely increase the amount of employment” at Midwest Timer, he said, noting he expects the company will hire four or five people as a result of the Lectro Components business.
LOOKING TO ACQUIRE MORE?
The Midwest Timer acquisition comes amid an active M&A market over the last few years.
Accounting firm Deloitte forecasts strong M&A activity is likely to continue in 2018 as “the steady growth in the U.S. economy is driving up the jobs rate and the rise in consumer spending.”
Similarly, Robey said Midwest Timer could seek other targets that align with the company’s vision for vertical integration.
“I think over time they are going to bring a lot this stuff into their facility … which will subsequently increase the amount of employment rather than decreasing the employment which they’ve only done over the last few years, ” Robey said.
The acquisition should also help reverse a trend of declining sales for Midwest Timer, whose business was split evenly between appliances and commercial/industrial applications, executives said.
The company expects annual sales to reach $12 million to $13 million in the next year or so, double-digit growth from 2016 before it lost the key Whirlpool business.
Midwest Timer is also jumping into a growing electronic components category, which is expected to reach $191.8 billion by 2022, according to a study by Global Analysts Industries Inc.
Chapman says the market for the company’s electromechanical timers — which can be found in dryers, washers, dishwashers and commercial ovens — still exists, but just “at a reduced level.”
In the future, the company will look to acquire more manufacturing- or machining-type companies “where they could further vertically integrate and therefore start machining some of the metal products … that are used in many of the products Core Components brings to the table,” Robey said.
For example, Chapman said this addition could be in the light-assembly market, where “we are continuing to look for manufacturing opportunities.”
Made in Michigan: Based in Benton Harbor, Mich., Midwest Timer manufactures electromechanical components that can often be found in many home appliances. The company entered the electronics market with the acquisition of the Carol Stream, Ill.-based Lectro Components and its brand Core Components, a line of electrical products for the building automation industry.