The Tranzonic Cos. History

Address:

30195 Chagrin Boulevard
Pepper Pike, Ohio 44124
U.S.A.

Telephone: (216) 831-5757
Fax: (216) 831-5647

Public Company
Incorporated: 1946 as Ace Cigarette Service Co.
Employees: 1,201
Sales: $148.9 million (1995)
Stock Exchanges: American
SICs: 2676 Sanitary Paper Products; 3581 Automatic Vending Machines; 2211 Broad Woven Fabric Mills, Cotton; 2297 Nonwoven Fabrics; 2392 House Furnishings Except Curtains; 2655 Fiber Cans Tubes Drums; 3089 Plastics Products, Not Elsewhere Classified; 2511 Wood Household Furniture; 2542 Office and Store Fixtures Except Wood; 2541 Wood Office and Store Fixtures and Shelves

Company History:

The Tranzonic Cos. manufactures products in four highly fragmented business segments: personal care products (Maxithins and private-label feminine napkins, as well as diapers), industrial textiles (disposable wiping cloths and work clothes), housewares (travel, storage and laundry accessories), and industrial packaging (paper tubes and sleeves). First established as a vending and distributing company, the firm underwent a series of acquisitions and divestments in the early 1980s that transformed it into a manufacturing enterprise. Although Tranzonic stock is publicly traded, descendants of the founding Golden family continued to control over 80 percent of the company's stock through the mid-1990s. In light of the slow growth projected for its core businesses, Tranzonic CEO Robert S. Reitman planned for future growth to come from acquisitions, both within and without the company's four primary operating areas.

The business was founded in 1933 by Louis B. Golden, who had emigrated to Cleveland, Ohio, from Russia in 1892 at the age of 17. Golden earned a bachelors degree from Case Western Reserve University and a law degree from the John Marshall Law School, but eschewed a legal career to found the Golden Tobacco Co. in 1931. With the help of wife Miriam and an $800 initial investment, Golden ran the business--renamed Ace Cigarette Service Co. in 1933--from his kitchen table.

Ace Cigarette was incorporated in 1946, by which time it was already one of America's largest cigarette vendors. From this early foundation the company expanded into candy and soft drinks. A registered dietitian and longtime company executive, Miriam probably influenced the firm's move into automatic food service. In the late 1950s, the company acquired a half-interest in the Industrial Vending Co., and began to sell food prepared at its Cleveland headquarters through vending machines in local factories. Annual sales surpassed $6.5 million by 1957, when profits totaled about $83,750. While sales remained flat through the remainder of the 1950s, profits multiplied to $174,500 by 1959. The family took the company public and changed its name to Ace Vending Co. to reflect its broadened activities in 1961. A 1962 name change, to American Automatic Vending Corp., anticipated an acquisitive push that took the firm nationwide.

American Automatic Vending (AAV) used the proceeds of its initial public offering to fund a decade-long spate of acquisitions that expanded its business interests beyond vending into personal care products and manual food service. Before its first fiscal year was out, the company had purchased Cincinnati's American Vending Service Inc. and Detroit's Market Vending Co. In 1962, the company acquired Consumers Cigarette Service Co., Seaway Vending Co., and Hospital Specialty Co., a business that would prove key to AAV's long-term growth. At the time it was purchased, Hospital Specialty had over 80,000 vending machines in all fifty states and brought with it valuable contracts to vend leading Kotex and Tampax brands of feminine napkins and tampons, as well as its own Gards, She, and Soft n' Thin labels. Hospital Specialty had been founded by the Ensheimer family, called "pioneers in the vending industry" by a 1962 Plain Dealer article. Swifty Food Commissaries, Inc., a Cleveland catering company, was acquired in 1963, by which time AAV ranked as "Ohio's largest operator of vending equipment."

The ensuing years brought a relative lull in the pace of acquisitions. AAV bought Deegan-Denham Candy and Tobacco Co., a distributor of tobacco, candy and over-the-counter drugs, in 1965, and expanded its vending reach into Kentucky and Indiana with the acquisitions of Southern Automatic Music Co., Wagg Vending Co., and Toledo Music and Novelty Co. in 1968. AAV rounded out the busy 1960s with the purchases of Nursing Homes Council, Budd, Inc., and Catering Management Inc. Renamed American Nursing Home Consulting Company, Nursing Homes Council formed the core of AAV's institutional food service division, which also catered to schools and factories.

Fueled by the growth of the overall vending industry, which doubled from $3 billion in 1963 to $6 billion in 1970, as well as its string of acquisitions, AAV's sales nearly doubled from $14.3 million in 1962 to $37.67 million in 1969. During that same period, net income nearly tripled, from $392,000 to $1.2 million. By 1971, American Automatic Vending boasted over 20,000 vending machines in Ohio, Michigan, Indiana, Kentucky, and Florida, and ranked among the top ten players in the industry. In 1972, the company formally abbreviated its name to AAV Cos. to reflect its expansion beyond vending. Having surpassed many of his growth goals, Golden moved to Florida in 1970 and was succeeded by his son-in-law, Robert S. Reitman, that same year. Golden continued as chairman until 1973, when Reitman assumed that title as well.

Reitman continued his father-in-law's acquisition strategy into the early 1970s, purchasing Scan-O-Vision, a closed-circuit television security service, in 1971; Standard Cigar & Tobacco Co., a Washington, D.C. distributor, in 1972; and Beaver Falls Candy and Tobacco Co., a Pennsylvania distributor, in 1974. AAV's sales burgeoned over the course of the decade, from $40 million in 1970 to $73.8 million in 1979. But while the company's profits grew steadily to $1.8 million in 1976, AAV endured three consecutive annual earnings declines from that point through 1979, by which time net income had halved to $834,000. Mitchell Gordon, an analyst for Barron's magazine, blamed the erosion of AAV's profits on "the deteriorating industrial economy in the upper Midwest region, where its vending and distribution activities were located."

CEO Reitman must have concurred. In 1981, he began to execute a reorganization strategy that shed two-thirds of his company's operations and created an entirely new corporate focus. That year's $9.5 million acquisition of Cleveland Cotton Products Co. was a pivotal factor in the new corporate scheme. Founded in 1921, this family-owned firm had grown to lead the industrial wiping cloth business by the late 1970s. Industrial wiping cloths, which Reitman called "new rags" in a 1988 Crain's Cleveland Business article, are tailored to customers' requirements for strength, absorbency and texture. The disposable cloths are used in health care, food service, auto repair and auto body, oil-drilling, and electronics. When Cleveland Cotton Products' second-generation company leaders died within six months of one another in 1979, the private firm became an asset of their estate, and executor Larry L. Wymor sold Cleveland Cotton Products to AAV in 1981. Wymor went on to become president of Cleveland Cotton Products, which formed the core of the parent company's Industrial Wiping Division, contributing over half of total annual revenues by 1983.

In 1982, Chairman and CEO Robert S. Reitman decided to sell off AAV's traditional vending machine business, as well as its tobacco and candy wholesaling and food service operations. Crain's Cleveland Business called the spun-off businesses "regional cash cows that in recent years drained each other." Reitman's original deal with Edwin M. Roth's Electronic Theatre Restaurants Corp. fell through, but before the year was out, AAV sold the businesses to Crescott, Inc., a New York firm, for $5.6 million in cash and $6.3 million in notes. In order to keep its bond payments coming, Reitman's firm continued to provide Crescott with support such as public and shareholder relations and financial services through the ensuing few years.

Reitman retained the Personal Care Division and expanded its product line from the core feminine hygiene goods into elastic-leg disposable diapers, sterile obstetrical pads for hospitals and nursing homes, and an adult incontinent diaper. While AAV's share of the disposable diaper market stood at less than one percent, CEO Reitman told Crain's Cleveland Business that he expected the company's own-label diapers under the "Best Buy," "Precious," and "Happy Bottom" names to "come into their own" in the 1980s. Indeed, the $1.9 billion private-label disposable diaper market was advancing at about eight percent each year during the early 1980s, and this became "one of AAV's fastest-growing segments" mid-decade.

Reitman changed his company's moniker to Tranzonic Cos. in 1983. Flush with cash from the divestment, the CEO started aggressively seeking out acquisition candidates, eyeing at least six companies from 1983 to 1985. Left with two core businesses, industrial textiles and personal care, the company hoped to focus its future efforts on other "low-cost, repeatable goods." In 1987, Reitman told Barron's reporter Richard J. Maturi that Tranzonic was "looking for a complementary firm with growth opportunities and a reasonable price." Although the firm had trouble finding a good takeover target, its stock was one of Forbes magazine's 100 best-performing stocks for 1987, ranking 66th on that year's list.

After suffering a net loss during the transition from vending to industrial wiping, Tranzonic's sales increased steadily from $43 million in 1983 to $58.6 million in 1987. Profits grew erratically, from $1.2 million in 1983 to a high of $4.1 million in 1986, then declined to $2.4 million in 1987.

Tranzonic made its first post-reorganization acquisition the following year, a transaction that heralded a rash of corporate purchases in the late 1980s and early 1990s. American Homeware Inc. was a Dallas company whose line of personal travel organizers, garment bags, sweater drying racks, clothes hampers, and other storage items were made overseas and shipped directly to retailers, thereby eliminating warehousing expenses. American Homeware became the nucleus of Tranzonic's Housewares Division. The 1989 purchase of J.C. Baxter Co. formed the core of Tranzonic's industrial packaging division, which made spiral-wound paper tubes and cores for industrial and consumer markets.

In 1992, Tranzonic bought Tambrands Inc.'s Maxithins sanitary pad business, giving the company a nationally-recognized addition to its line of feminine hygiene products. The parent increased its holdings in the household goods business with the purchase of Ever-Ready Appliance Manufacturing Co., a top producer of ironing boards and step stools, the following year. The 1995 acquisition of Plezall Wipers, Inc., complemented Tranzonic's Industrial Textiles Division.

These acquisitions fueled a 113 percent increase in sales, from $69.7 million in 1988 to a record $149 million in 1995. Profits slid from $3.9 million in 1988 to $2.8 million in 1994, then reached a record $5.3 million in 1995. Tranzonic's fiscal 1995 annual report laid out CEO Reitman's plan to more than triple annual sales to $500 million by fiscal 2001. While the corporate leader expected internal growth to contribute to the realization of this "admittedly ambitious" objective, his 1995 letter to shareholders acknowledged that the firm "will not achieve [its] growth goal without acquisitions, given the slow-growth nature of our existing markets."

Principal Subsidiaries: Hospital Specialty Co.; CCP Industries Inc.; Cleveland Cotton Products Co.; Design Trend, Inc.; Ever-Ready Appliance Mfg. Co.; Plezall Wipers Inc.; Tranzonic Cos.; Pressing Supply Co.; Baxter Tube Co.; American Homeware Inc.

Principal Divisions: Personal Care Division; Industrial Textiles Division; Housewares Division; Industrial Packaging Division.

The Tranzonic Cos. History

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