Two years ago, J. William Melsop led a management buyout of the Austin Co. with more than 20 other managers, hoping the acquisition could be paid off within three years.
The team put its own personal resources on the line to purchase the Austin Co., banking on the fact that its leadership would inspire a dramatic transformation of the company in a short period of time. The level of success the new management achieved within the first 19 months following the buyout surpassed even its own expectations.
Seven months after the deal was inked, the architectural engineering firm paid off the entire acquisition cost. Today, the company is debt free, with a net worth of $15 million and investment capital of $13 million.
Melsop, chairman and CEO of Austin Holdings Inc., attributes the company’s quick success to good management, a steady market and two multimillion dollar contracts which provided extra financial punch. But the company’s biggest achievement the past 24 months has been paying off the acquisition in such a short period.
“We are debt free and have a very strong balance sheet,” says Melsop. “That gives us a lot of confidence.”
The extraordinary success of Austin Holdings was led by Melsop; Vice President and COO Patrick B. Flanagan; and Vice President and CFO M. Glenn Hobratschk.
In April of 1997, Melsop — who had been employed by Austin Holdings since 1967 — sought partners for a management buyout of the troubled company. A month later, he had nearly two dozen partners and bank financing that would allow the acquisition cost to be paid over a five-year period. The new management had plans from the beginning to take care of that debt as early as possible.
“We invited 20 other people to participate in the purchasing group and we all invested our funds for a down payment,” says Melsop. “When we set up the financing, we were pretty confident we could pay the debt in three years. The worst thing for a company is not being able to meet your financial obligations.”
Soon after the company officially changed hands in May 1997, Melsop and his fellow managers took the first steps in what would ultimately become a dramatic turnaround for the company. The first order of business was to rejuvenate enthusiasm in the 120-year-old firm that had long suffered from a large corporate culture that hindered individual creativity.
Management worked to instill the belief in employees that the company was not as successful as it could be given the industry’s healthy market. Soon after the buyout, new business was booked, existing contracts fulfilled and unneeded company assets sold off in an effort to streamline the operation.
Austin Holdings, which builds projects for aerospace, pharmaceutical and other technical industries, then received two multimillion dollar contracts that provided an enormous boost to the company’s finances. The firm received a $300 million contract from Boeing to work on the Delta 4 rocket project in Decatur, Ala., and a $275 million contract to serve as construction manager for a Lucent Technologies project in Chicago.
Those multimillion dollar contracts and a steady market were key factors in allowing the company to pay the acquisition debt so quickly.
“In addition to the two large jobs, we’ve gotten our normal workload,” Melsop says. “Our business is cyclical and we are at the top of that cycle right now.”
Attempts by management to rejuvenate the company and snare a bigger portion of the market had paid off well by the end of 1998. Shareholder equity tripled between the acquisition date and the end of 1998.
Austin Holdings employs about 1,350 people, with 600 working at its Cleveland Heights office and 700 others working in the field.
Judge’s comments: “It was inspiring to see the president, who came on board 30 years prior with the dreams and hopes of one day being a part owner and president. He never lost sight or focus of that vision. And as the company was bought and sold several times, he emerged as an owner and a president. It’s a great example of goals focus and perseverance.” Martin Tarr