Acorn Products, Inc.

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Acorn Products, Inc.

390 West Nationwide Boulevard
Columbus, Ohio 43215
U.S.A.
Telephone: (614) 222-4400
Fax: (614) 221-8397
Web site: http://www.uniontools.com

Public Company
Incorporated: 1890 as Union Fork & Hoe Company
Employees: 450
Sales: $91.2 million (2002)
Stock Exchanges: NASDAQ
Ticker Symbol: ACRN
NAIC: 333112 Lawn and Garden Tractor and Home Lawn and Garden Equipment Manufacturing; 332212 Hand and Edge Tool Manufacturing; 551112 Offices of Other Holding Companies

Toolmaker Acorn Products, Inc. came into existence in the early 1990s as a result of a merger between Vision Hardware Group, Inc.—the parent company of tool wholesaler Union-Tools, Inc.—and an affiliate of the investment company TCW Group, Inc. Union Tools is Acorn’s primary operating subsidiary and source of the company’s revenues. UnionTools is one of America’s top three manufacturers of non-power lawn and garden tools, such as hoes, shovels, rakes, and hand tools. In addition to selling tools under its own brand names, which include Union, Razor-Back, Perfect Cut, and Yard ‘n Garden, the company makes private label tools for retailers such as Sears, Roebuck and Co. and Ace Hardware Corporation. Although Acorn has been struggling to achieve profitability during the late 1990s and early years of the new millennium, it has recently shifted its focus away from its traditional base of retailers to direct-to-consumer marketing in hopes of boosting its fortunes.

Early Years

Acorn Products traces its roots back to several pre-Revolutionary American enterprises, including lumber mills in Appalachia and steel plants in New York and Ohio. In 1890, George Durell merged these operations together, establishing a headquarters in Columbus, Ohio, and naming the new, unified concern the Union Fork & Hoe Company. Using forged steel and ash wood, Union manufactured and sold a basic set of tools including forks, hoes, rakes, and repair handles for such tools. The company took a significant step forward in 1913 when it partnered with catalogue giant Sears, Roebuck and Co. to manufacture tools under Sears’ Craftsman brand, an alliance that would continue into the twenty-first century. In 1936, Union made another significant move when it introduced its first line of branded tools under the Razor-Back name. The Razor-Back shovel, in particular, proved to be a major seller for the company, and the Razor-Back brand as a whole became well respected in the professional hand tools field.

Prior to World War II, farmers and other agricultural workers were the primary consumers of Union’s products. With the increasing mechanization of farming in the postwar years, however, Union and other hand tools makers began to shift their focus to the nascent home gardening market. This change reflected not so much an alteration in product offerings—Union and its competitors continued to focus on non-power hand tools—but rather was a consequence of the fact that their traditional farming customers were now having to use larger and non-manual equipment to do their jobs.

Vision Hardware Group Assumes Control: 1986–93

Union remained firmly in family control until 1986, when Ed Durell, a descendant of company founder George, sold the company to Vision Hardware Group, Inc. Vision Hardware was a Commerce, California-based holding company founded by Jack Corwin, who had formerly worked in the corporate finance division of Drexel Burnham Lambert. Vision Hardware’s portfolio was comprised of a stable of steady-performing hardware companies, which included VSI Fasteners, Inc., McGuire-Nicholas Co., and Buffalo Tool Co., in addition to Union. To this conglomeration, Union brought its core product line of long-handled tools; McGuire-Nicholas, which was launched in the 1930s to make leather aprons for tradesmen, had evolved into a manufacturer of leather, canvas, and synthetic fabric tool holders and work aprons; Buffalo Tools made implements for the automotive trade; and VSI Fasteners produced and distributed packaged fasteners and chain. This diversification performed well for Vision Hardware. The group’s 1989 sales topped $210 million, with Union Fork & Hoe accounting for $70 million of that total.

But this steady, stable industry was about to experience some significant upheaval. From their early years through much of the 1980s, tool manufacturers had never focused on pitching their products directly to consumers, since it was conventional wisdom across the industry that retail customers did not pay attention to or care about the brand names affixed to the shovels, hoes, rakes, or other hardware equipment they were buying. Rather, they tended to purchase tools according to price or, more importantly, what their local hardware store had available. In this environment, tool manufacturers concentrated simply on selling their goods to retailers and generally left the consumer out of the equation. A new pattern began to emerge in the late 1980s, however. Sales in the manual tools sector began to flatten, forcing tool producers to scramble for new methods of boosting sales. In addition, so-called “do-it-yourselfers” began to account for a greater share of sales in the sector. Middle-class homeowners began to undertake home repair and gardening as a hobby, and their buying patterns were far different from those of the contractors and other professionals who had long formed the core of the industry’s end-users. Finally, independent hardware stores began to be pushed out of business by giant discount retailers, such as Wal-Mart Stores, Inc., and Home Depot, Inc. As these megastores carried a multitude of brands and models all at once—rather than the one or two items that a small store might stock—tool makers could no longer rely on mere shelf presence to move their offerings. It became imperative for tool makers to distinguish their products from their rivals’ on the shelves.

These factors prompted the major players in the industry to revamp their strategies. According to Selected Federal Filings Newswires, Union’s new business plan was designed to take it from being “a manufacturing-oriented industrial company to a marketing-oriented products company.” New President and CEO Gabe Mihaly, who had taken the reigns of the company in 1991, was in charge of overseeing the shift. In keeping with this new philosophy, Mihaly strove to broaden the company’s appeal by changing Union Fork & Hoe’s name to the broader UnionTools in 1992. Mihaly also led the company’s drive to launch new products, enter new segments of the market, and improve the perception of its brand. The company was not alone in these efforts. In the early 1990s, as the Central Pennsylvania Business Journal explained, True Temper, then one of UnionTool’s chief competitors, unveiled new product lines and embarked on a major advertising campaign that touted its tools were “made in America.”

In 1992, UnionTools received a major boost when O.M. Scott & Sons Co. selected the company to manufacture, market, and distribute a new line of tools bearing the Scotts name. Scotts was one of the most recognizable brands in the lawncare industry, but it had never ventured into tools. UnionTools saw two opportunities in this licensing agreement. Not only would it see an immediate increase in sales, but it could also reap longer-term rewards from its association with the Scotts name. “Union-Tools never has had a national brand name” of its own, a UnionTools marketing director told the Columbus Dispatch for August 15, 1992. “Now we have the strongest name in the lawn and garden field.”

Financial Struggles: 1992–97

The Scotts licensing agreement, however, was not enough to solve Vision Hardware’s problems. As the entire U.S. economy floundered in the early 1990s—and the tool business slumped along with it—Vision Hardware struggled to fund the expansion its new brand-building business plan required. A solution appeared in November of 1993, when Vision Hardware was acquired by an investment fund managed by an affiliate of TCW Group, Inc., an investment management company that oversaw $44 billion of capital for institutional and individual investors. As part of the deal, Vision Hardware received $12.5 million in capital, which would allow it to enhance its product lines and expand into new markets. After Vision Hardware was bought out, the holding company—seeking a more consumer-friendly name—changed its name to Acorn Products, Inc.

The infusion of capital failed to revivify the newly christened Acorn Products. The company—including UnionTools—continued to lose money throughout the mid-1990s, despite the introduction of new product lines, such as the Lady Gardener line of tools designed specifically for women. To compensate, Acorn borrowed heavily from TCW. In a cost-cutting effort, Acorn Products also shed its poorest-performing subsidiary, VSI Fasteners, in December of 1996. This move generated an additional $6.9 million of operating capital for Acorn Products. Encouraged by this boost to its bottom line, Acorn shifted gears and snapped up a new subsidiary barely two months later when it purchased an injection-molding facility from one of its suppliers. The plant would produce plastic handles and parts needed for UnionTools’ products. Acorn Products declared it a sound purchase, since it felt that vertical integration of this sort would help the company achieve operating efficiencies. Nevertheless, in fiscal year 1996, Acorn Products reported a drop in both sales and profits, citing consolidation in the retail industry and unseasonably cold spring weather that stalled sales of its gardening equipment.

Company Perspectives:

Columbus, Ohio-based UnionTools is a leading manufacturer and marketer of non-powered lawn and garden tools in North America. For more than a century, UnionTools has been a leader and innovator in design and manufacturing techniques that improve tool life and performance.

Acorn Products tried to fight its way out of these doldrums in 1997. In an effort to pare down its considerable debt, the company went public in June 1997 with an initial stock offering of 3.25 million shares. (Oaktree Capital Management LLC and Trust Company of the West together became Acorn Products’ majority shareholders.) With the $41 million generated by the stock sale, Acorn Products planned to repay debt and redeem preferred stock held by TCW. A few months later, Acorn Products sold its McGuire-Nicholas subsidiary to Kirkland Messin LLC for $4.7 million. The company touted these divestments as part of a practical strategy that would let Acorn Products focus predominantly on UnionTools’ core product line. An Acorn Products spokesperson told The Daily Reporter that the reason for Acorn’s problems with both McGuire-Nicholas and VMI Fasteners was that the relationship between the parent company and its subsidiaries “did not mesh” and declared that the problem would not be repeated in future acquisitions. Acorn Products reported a net loss of $9.9 million for fiscal year 1997.

Turbulent Times and Growing Pains: 1997 and Beyond

The year 1998 saw Acorn Products expanding into new areas and bolstering its presence in the manual tools business. After going public, Acorn Products worked to improve its relationship with key retailers such as Sears and Home Depot. Recognizing that its best bet for profitability was to become a dependable supplier to these major chains, Acorn Products revamped its manufacturing processes and inventory controls to serve the volume and delivery needs of these retail titans. Acorn Products also continued to build its brand through marketing and product development. As the company’s director of investor relation told the Daily Reporter, “A shovel is a shovel is a shovel. If we can show [consumers] why it’s better to buy the more expensive brand of shovel, if that fits their needs, we’ve succeeded.” He added, “We’ve worked very hard to consumerize the product.”

Alongside this effort to promote its core product lines more strenuously, Acorn Products moved into new areas of operations as well. Most significantly, the company decided to become a player in the watering products industry. In February 1998, Acorn Products purchased the Minnesota-based H.B. Sherman Manufacturing Company for $3.1 million. Sherman, which manufactured and marketed hose attachments and related products such as spray nozzles, sprinklers, and couplings, had earned $4.1 million the previous year. A few months later, Acorn Products bought Thompson Manufacturing Company for $6.65 million. Like Sherman, Thompson was a consumer-oriented hose attachment products company. “We are excited by the prospect of combining the product lines of Thompson and Sherman into a watering products subsidiary and building these businesses with the sales and marketing skills and extensive distribution network of UnionTools,” Acorn Products president Mihaly announced in a press release. Reflecting this importance of these new acquisitions, the company established a separate division to oversee their management.

A turning point came in 1998 for Mihaly as well. He had gone out on a limb when he declared that 1998 would be a “key year” for Acorn. After going public, divesting unprofitable subsidiaries, and entering new segments of the market, the company had to return to profitability. Unfortunately, it did not. In fact, 1998 sales fell again. In response, Acorn Products announced that it was closing its Columbus manufacturing facility and consolidating production at UnionTools’ factory in Frankfort, New York. It also restructured its entire cast of senior management. By September 1999, Mihaly had been replaced as president and CEO by Cory Meyer, who announced yet another shift in strategy. Pledging that it would rededicate itself to its core products (specifically long-handled tools), Acorn Products sold its fledgling watering division to L.R. Nelson Corporation. “Our customers have come to expect industry leadership from us, and we will continue to provide this leadership by focusing on long-handled tools, wheelbarrows, pruning, and striking tools,” Meyer said by way of an explanation in a press release. Nevertheless, the company still foundered. Sales for fiscal year 2000 fell 1.5 percent to $116.6 million, and another net loss—this one of $14 million—was reported. The year 2001 was even more disappointing, as the company lost $15.7 million on sales of $93.5 million.

Although Acorn Product’s reputation as a manufacturer of top-flight tools remained undiminished, the company’s bottom-line prospects were uncertain. In April 2002, Acorn defaulted on its loans from previous lenders but was able to work out a financial restructuring the preserved the company. President Meyer remained optimistic about the company’s future. In July 2002, he announced that Acorn Products had completed its financial restructuring. As part of this plan, the firm would close its Columbus, Ohio, distribution center in favor of a facility in Louisville, Kentucky, where the municipal government had offered an attractive set of tax incentives. “We feel we have rewarded the trust put in us by customers, vendors, and associates,” he told the Columbus Dispatch for July 3, 2002. It remained to be seen whether the shareholders would be similarly rewarded.

Principal Subsidiaries

UnionTools, Inc.

Principal Competitors

Ames Tools; True Temper Hardware Co.; The Black & Decker Corporation.

Key Dates:

1890:: George Durell founds Union Fork & Hoe Company.
1913:: Union Fork & Hoe begins making the Craftsman line of tools for Sears, Roebuck and Co.
1936:: Union Fork & Hoe introduces its Razor-Back line of tools.
1986:: Vision Hardware Group acquires Union Fork & Hoe.
1993:: Vision Hardware merges with an affiliate of TCW Group, Inc. and changes its name to Acorn Products, Inc.; Union Fork & Hoe changes its name to UnionTools, Inc.
1997:: Acorn lists itself on the NASDAQ exchange with an initial public offering.
2000:: Acorn closes UnionTools’ Columbus manufacturing plant and moves those operations to Kentucky.