Watts Industries, Inc. History

Company Perspectives:

Watts's goals for the 1990s are to achieve growth of 15 percent each year and become a $1 billion company which responds to and anticipates the needs of customers all over the world.

Company History:

Watts Industries, Inc., is one of the country's leading designers, manufacturers, and sellers of valves that regulate air, gas, water, steam, and oil. It includes more than 40 wholly owned subsidiaries throughout the United States, Canada, Europe, and South America.

A New Frontier

When Joseph Edwin Watts was 17 years old, he emigrated from Cheshire, England, to the newly built town of Lawrence, Massachusetts. The town was founded in 1845 by a group of industrialists and entrepreneurs whose idea was to build "The Great Stone Dam" across the Merrimack River to harness the river's immense water power for industrial textile production.

The first records of Joseph Watts's employment were in 1867 as a machinist at the Pacific Mills in Lawrence. He worked there until 1874, when he left to go into business for himself. From his shop on Essex Street, he contracted work supplying parts and fittings for machinery at the nearby textile mills. He advertised himself in local trade publications as "Joseph E. Watts, Machinist and Brass Finisher, Manufacturer of Steam and Water Pressure Regulators." By 1893 Watts had constructed a block-long brick building on Lowell Street to house the Watts Regulator Company.

By that time Watts had become more than a machinist and manufacturer. He was also an inventor, and between 1881 and his death in 1894, he received 18 patents for valves that proved essential to almost every manufacturing concern in the area. Soon manufactures from all over the United States, Canada, and Europe were installing and using Watts valves.

After Watts's death the company was purchased by Robert E. Pickles and his partner, George W. Dodson. When Dodson left the company a few years later, Pickles brought in his brother Charles. Using advances in technology and improved materials, Robert Pickles was able to redesign many of Watts's valves so that they could be used not only for large industrial and municipal purposes but also for commercial household plumbing and heating.

1918-1945: A Family Business is Born

In 1918 Robert Pickles sold the Watts Regulator Company to a trio of investors who had each put up $25,000. They were Burchard Everett Horne, his uncle Herbert W. Horne, and their friend Norman Anderson. Within a year Burchard had bought out both his uncle's and Anderson's shares.

In the early 1860s the Horne family had moved from Lowell, Massachusetts, to Lawrence, where they had established the George W. Horne Roofing Company, which was eventually controlled by Burchard (better known as B.E.) Horne. By the time B.E. purchased the Watts Regulator Company, the textile industry, upon which the town of Lawrence had been founded, was in deep decline. The advent of steam power (as opposed to waterpower) meant that textile mills could be set up anywhere that fuel was available. Other technical advances, plus high labor costs and taxes in the North, drove the textile industry farther and farther south.

Robert Pickles had begun the diversification of the Watts Regulator Company, and B.E. Horne quickly capitalized on his emphasis on plumbing and heating uses for Watts valves. In fact, they were so determined to accentuate their flexibility that, in their 1919 catalog, the company stated, "We claim to be able to regulate and control any temperature or pressure of any fluid for any purpose and under any conditions."

A major development in Watts's expansion--and a major setback--came in the 1920s, when the company hired John G. Kelly, Inc., to handle its national distribution. Within a short period of time, Kelly landed the company a contract with Consolidated Gas of New York, manufacturers of mechanical refrigerators powered by gas. A Watts valve was installed in every Consolidated Gas refrigerator, which created a boom for the company. That boom lasted only a short time before Consolidated redesigned the refrigerator, eliminating the need for the Watts valve.

The company's breakthrough came in the late 1920s, when B.E. Horne and an inventor named Chetwood Smith developed and patented a combination temperature and pressure relief valve, which came to be known as the T&P Valve. The valve was an important development in the safety of hot-water supply tank systems. Overheated hot-water tanks (without these safety valves) had periodically exploded, causing extensive property damage and even fatalities. Although earlier valves had dealt with the problems of internal pressure building in the tanks, none had withstood the extremely high temperatures the water sometimes reached. The T&P Valve was not perfect, but it provided a level of safety never before reached in hot-water tanks. This valve became the staple of Watts's business; the company even licensed other manufacturers to make the valve and received a royalty for every valve sold.

By 1936 B.E. Horne was becoming dissatisfied with the national sales effort of the John G. Kelly company. When his son George graduated from college, B.E. appointed him head of marketing for Watts. It was George Horne's job to educate the plumbing and heating industries about the dangers of overheating hot-water systems and the relief provided by the T&P Valve. To that end he traveled the country setting up explosion demonstrations. He would mount a tank in a field, put it inside the shell of a house, and overheat the tank until it blew. This convinced people in the industry--who still thought that excess pressure was the only danger--of the necessity of the T&P Valve. As the word spread, sales at the company began to rise dramatically, despite the sluggish economy of the Depression. As a result, George Horne finally convinced his father to give up the roofing business, which he continued to run, and to devote himself solely to Watts. By the time World War II broke out, U.S. Army Engineers required T&P Valves on all Army hot-water supply tank installations.

1945-1972: The Great Expansion

After the war the Watts patents on the T&P Valve expired, and the company was forced to concentrate on developing and marketing new products. In 1951 B.E. Watts, always an avid sportsman, set off on a fishing expedition from which he never returned. He suffered a gallbladder attack while fishing, fell in the lake, and drowned. Control of the Watts Regulator Company was passed on to his son George. At the time Watts sales totaled about $3.5 million a year.

Where B.E. Horne had been a conservative businessman, his son George was dedicated to progress and expansion. He expanded his sales force nationwide and often brought salespeople to Lawrence for training and new product education. He was constantly asking his sales force for ideas on new products. In the 1950s George Horne opened a fluid power division to make valves and control devices used on machine tools powered by air pressure.

In 1959 the company had outgrown its Lawrence premises, and George Horne opened a plant in Franklin, New Hampshire. The Lawrence plant continued to operate until 1970, but the workforce gradually shrank from 300 to 50. In addition to opening the Franklin plant, George Horne began to implement a professional management structure with two important hires. He brought in Robert Chaffee to take over the position of manager of sales, and he hired his son Tim as an all-around executive troubleshooter. In 1960 Watts, using an early generation IBM punch-card-operated computer, became one of the first companies to computerize its record keeping.

Robert Chaffee was in charge of revitalizing the sales force. He introduced regional company offices in Boston, Detroit, New York, San Francisco, Los Angeles, and Chicago. Another method Watts used for expansion in the 1960s was a "private label" program, which allowed companies to offer Watts products under their own names. One of the most successful aspects of the program was the relationship with Sears, Roebuck, in which valves, manufactured by Watts, were sold under the Sears name in their stores and catalogs.

By 1962 the company was expanding internationally, constructing a plant in Stroud, Gloucestershire, England, and another in Canada. In 1967 sales had risen to more than $17 million a year, and Tim Horne was promoted to vice-president and assistant general manager. Five years later Robert Chaffee resigned, and Tim Horne was named executive vice president.

1972-1984: New Products, New Markets

In the early 1970s Colorado state sanitation inspectors approached George Horne to help them find a solution to backflow problems. Backflow is the reversal of the normal flow of water in a system. For example, opening one water source might create a vacuum in another water-supply line, which could be dangerous if the water-supply line is connected to a contaminated source. These potentially hazardous "cross connections" occur everyday in such common areas as a garden hose connected to a tank of swimming-pool-treatment chemicals. Watts had already been manufacturing two simple, inexpensive backflow prevention connections, but they did not protect against high-pressure backflow conditions.

Watts then began an intensive period of research and development to design a more effective, less expensive valve than the ones that were already on the market. Within a year the company was producing the Watts Model 900 Backflow Preventer. This marked the beginning of the company's move into the waterworks industry; Watts soon became a leader in the backflow prevention field, a position it maintained into the 1990s.

In 1976 Tim Horne became president of the company, and in 1978, when George Horne retired, Tim became both president and chief executive officer. One of Tim Horne's first moves was to sell off the fluid power division and to develop a line of industrial ball valves, which allowed the company to move into the chemical-processing industry. Although sales rose from $39.5 million in 1978 to more than $100 million in 1984, inroads into the chemical-processing industry were difficult to navigate, and it took the company more than ten years to establish itself in that field. That led Tim Horne to believe that the way of the future lay not only in new product development but in the acquisition of complementary companies.

Into the 1990s and Beyond

The year 1984 saw Watt's first acquisition--Spence Engineering, a manufacturer of steam regulators, which had $6.7 million in sales. Next came Hale Oilfield Products, a company that brought Watts into the oil and gas pipeline industry. Watts interrupted its acquisitions program in 1985 to prepare for its first public stock offering. In 1986 Tim Horne became chairman of the board and chief executive officer of Watts Industries, Inc., trading as WATTA on the NASDAQ exchange with shares offered at $16.50 each.

Throughout the 1980s and into the 1990s, Watts continued its strategy of acquiring small niche companies to fill out its product line. In the early 1990s Watts began acquiring companies in Europe. In the decade from 1985 to 1995, Watts Industries made 28 acquisitions.

The mid-1990s saw ups and downs for the company. According to a 1994 Forbes article, Watts suffered an economic downturn in 1993 mainly from a "sharp slump in aerospace and Navy contracts." By 1994, however, the company's annual report stated that Watts had achieved "another record year for both sales and earnings." And in October 1994 Money magazine chose Watts Industries as one of "Eight Small Stocks for Big Gains." In 1995 Watts announced a joint venture with the Suzhou Valve Factory of the People's Republic of China. One year later the company announced that Tyco International Ltd. had agreed to buy the waterworks valve business of Watts Industries. But in 1997 Watts was back in an acquisitions mode, acquiring the Ames Company, a leader in the design, manufacture, and marketing of backflow prevention valves.

In the company's 1994 annual report, Chairman of the Board Tim Horne stated, "We remain committed to our goal of double-digit growth with the ambitious objective of reaching $1 billion in sales by the end of the decade ... With more financial resources allocated to new product development, the prospect of improving markets for more of our business segments, and our ongoing acquisition search, we are optimistic about future growth prospects."

Principal Subsidiaries: Watts Automatic Control Valve, Inc.; Watts International Sales Corp.; Watts Regulator Company; Watts Industries (Canada) Inc.; Watts Industries Europe B.V. (Netherlands); Watts Industries France S.A.; Watts Ocean GmbH (Germany).

Further Reading:

• Lyon, David, The Watts Way, North Andover, Massachusetts: Watts Regulator Company, 1994.
• Mao, Phillipe, "We Are in a Mode to Create Jobs," Forbes, January 3, 1994, p. 113.
• McAvoy, Kenneth J., "Watts Acquires Ames Co. Inc.," Business Wire, January 6, 1997.
• Scherreik, Susan, "Eight Small Stocks for a Big Gain," Money, October 1994, p. 96.
• "Watts Industries, Inc.," Oil and Gas Journal, May 22, 1995, p. 67.
• "Watts Industries Sells Unit to Tyco International," New York Times, Sept. 6, 1996, p. D5.

Source: International Directory of Company Histories, Vol. 19. St. James Press, 1998.

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