Caso Monmouth Inc

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JULY 31, 2010

THOMAS R. PIPER
HEIDE ABELLI

Monmouth, Inc.
Harry Vincent, executive vice president of Monmouth, Inc., was reviewing acquisition candidates
for his company’s diversification program. One of the companies, Robertson Tool Company, had
been approached by Monmouth three years earlier but had rejected all overtures. Now, however,Robertson was in the middle of a takeover fight that might provide Monmouth with a chance to gain
control.

Monmouth, Inc.
Monmouth was a leading producer of engines and massive compressors used to force natural gas
through pipelines and oil out of wells. Management was concerned, however, over its heavy
dependence on sales to the oil and gas industries and the violent fluctuation of earningscaused by
the cyclical nature of heavy machinery and equipment sales. Although the company’s long-term
sales and earnings growth had been above average, management believed that its cyclical nature had
dampened Wall Street’s interest in the stock substantially.
Initial efforts to lessen the earnings volatility were not entirely successful. Monmouth acquired a
supplier of portable industrialpower tools, a manufacturer of small industrial air and process
compressors, a maker of small pumps and compressors, and a producer of tire-changing tools for the
automotive market. The acquisitions broadened Monmouth’s markets but still left it highly sensitive
to general economic conditions.
The continued volatility prompted a full review of the company’s acquisition strategy. After
severalmonths of study, three criteria were established for all acquisitions. First, the industry should
be one in which Monmouth could become a major player. This requirement was in line with
management’s goal of leadership within a few distinct areas of business. Second, the industry should
be fairly stable, with a broad market for the products and a product line of “small ticket” items. Thisproduct definition was intended to eliminate any company that had undue profit dependence on a
single customer or several large orders per year. Finally, it was decided to acquire only leading
companies in their respective market segments.
This new strategy was initially implemented with the acquisition of the Dessex Rule Company,
the world’s largest manufacturer of measuring rules and tapes.Monmouth acquired a quality
________________________________________________________________________________________________________________
HBS Professor Thomas R. Piper and HBS MBA Heide Abelli prepared this case solely as a basis for class discussion and not as an endorsement, a
source of primary data, or an illustration of effective or ineffective management. This case, though based on realevents, is fictionalized, and any
resemblance to actual persons or entities is coincidental. There are occasional references to actual companies in the narration.
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Harvard Business Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part ofthis publication may be reproduced,
storedin a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording,
or otherwise—without the permission of Harvard Business Publishing.
Harvard Business Publishing is an affiliate of Harvard Business School.

This document is authorized for use only by claudio velasco inAdministraci?n de Finanzas sep 11 taught by Dr.
Oscar Tamez from September 2011 to December 2011.

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4226 | Monmouth, Inc.

product line, an established distribution system of 15,000 retail hardware stores throughout the
United States, and plants in the United States, Canada, and Mexico. It also gained the services of
Michael Rudd, president of Dessex, and Jim...