Growing against the odds

In 2002, Michael Kady, president and CEO of Quipp Inc., was faced with a problem: How do you grow a company if the industry it’s in isn’t growing?

Quipp Inc. designs, manufactures and installs material handling equipment for the newspaper industry. As the Internet and other new technology grew in popularity, newspapers experienced a decline in advertising revenue.

During the first six months of 2002, Quipp’s sales had fallen to levels it hadn’t experienced since 1993. With a goal of increasing revenue by 20 percent each year, Kady came up with a strategic plan — which included acquisitions and the development of new products — to increase sales.

“In a slow-growth market like the newspaper industry, we can’t count on expansion of the market to allow us to achieve those kinds of growth objectives,” says Kady. “That is the primary reason why we are looking toward acquisitions to maintain this pace of growth.”

The company began to turn around during the second half of 2002 — revenue increased from $16.4 million in 2002 to $19.1 million in 2003; by 2004, it had reached $24.6 million and it continues to grow.

Smart Business spoke with Kady how he faced the challenges of growing a company in a slow-growth industry and why he chose acquisitions as his growth strategy.

What business strategies have you used to help grow your company?
We set some growth objectives for our business a few years ago that are actually quite aggressive given the maturity of our market. We developed two important strategies to support our growth objectives.

First, we said that we are going to invest in R&D to develop new products that address emerging customer need. Second, we said that we are going to seek acquisition opportunities to expand our product offerings.

Those were our two primary growth strategies that we developed a few years ago and have been pursuing since then.

How have you done those things?
We have developed and introduced a new product that stacks, wraps and straps newspaper into neat bundles and identifies the bundles’ destination with an ink jet printer. It is called our Quipp PACKMAN machine.

We also acquired a company that manufactures inserting machines for small to mid-sized newspapers and direct mailers. For the past three years, our sales have grown at more than 20 percent per year.

In the last couple months, we acquired Newstec Inc., a manufacturer of high-speed inserting machines that are popular with the mid- to larger circulation newspapers. This acquisition alone will increase our sales by another 40 percent and add to profit and cash flow.

So far, I believe our growth strategies have been appropriate and effective.

Are you planning to acquire more companies?
Yes, we are. The strategies we established three years ago are working, and we plan to stay the course. We have the financial resources to pursue additional acquisitions and invest in key R&D projects.

However, we do recognize that there are limits to how much market share we can capture in the newspaper post-press segment. It is a limited size market, and we have a very high market share in certain machines used by that market segment.

We understand that we can’t increase market share continuously. We are also open to acquisition opportunities that provide reasonable market diversification.

How do you decide which companies would make good acquisitions?
Our overriding philosophy has been that there must be some kind of synergy, such that the combination of companies results in more than a direct addition of each company’s sales and net income. For example, Newstec has a product that fills our line and offers us the opportunity to provide complete systems to many of the newspaper customers that we serve.

On the other hand, we have a national sales force that will be able to promote the Newstec product more aggressively than Newstec would on their own. In addition, we have the resources to invest in research and development activities for the development of new products. This also would have been difficult for Newstec to do on their own.

The combination of our two products will give us a more complete system that we can provide nationally to all of our major newspaper companies.

How will you integrate employees from Newstec into your corporate culture?
I think corporate culture is a very important piece of successful acquisitions. We are ultimately going to consolidate operations from the Newstec operation in Massachusetts to our facility here in Miami. We have offered positions to many of the Newstec employees.

I recognize that it is not likely that all of them will want to move from Massachusetts to Florida, so we will have to hire some new people here locally. When we look at corporate culture, the dominant culture will be the Quipp culture.

We have developed our strategy for growth and our strategy for increases in shareholder value. All of the new employees that join us will be given information regarding our strategies, and they will be incorporated into the process of developing objectives to support those strategies.

HOW TO REACH: Quipp Inc., www.quipp.com

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