Anthony & Sylvan Pools Corporation

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Anthony & Sylvan Pools Corporation

6690 Beta Drive, Suite 300
Mayfield Village, Ohio 44143
U.S.A.
Telephone: (440) 720-3301
Toll Free: (877) 307-7946
Fax: (440) 720-3303
Web site: http://www.anthonysylvan.com

Public Company
Incorporated: 1996
Employees: 460
Sales: $158.4 million (2002)
Stock Exchanges: NASDAQ
Ticker Symbol: SWIM
NAIC: 235710 Concrete Contractors

Anthony & Sylvan Pools Corporation is America’s largest, and only, publicly traded installer of in-ground residential concrete swimming pools and spas. The company, based in May field Village, Ohio, serves 22 metropolitan markets in 16 states and operates 40 sales and design centers. In 2002 Anthony & Sylvan installed some 6,000 pools, which come in more than 40 shapes and may be as large as 1,200 square feet. A basic in-ground spa costs around $12,000, while on the upper end a pool with spa, stone deck, and appropriate landscape work can cost in excess of $100,000. In addition to building new pools, the company offers pool maintenance services, refurbishes existing pools, and sells pool-related items such as chemicals, filters, pumps, and heaters, as well as flotation devices and poolside accessories.

Postwar Origins

The two companies that make up the legacy of Anthony & Sylvan, Anthony Pools and Sylvan Pools, were both formed in the years just after the end of World War II and took advantage of the major postwar building boom. Sylvan Pools was launched in 1946 in the Philadelphia, Pennsylvania, area by Herman Silverman, who borrowed $500 to start the business. Not only was he able to successfully grow his pool business, he became wealthy from real estate ventures. (Silverman was also one of novelist James Michener’s closest friends, and he published a book about their relationship following Michener’s death in 1997.) Sylvan Pool became the leading pool installer in the Northeast and branched out to the Southeast as well as Texas and Nevada. In 1969 the Cincinnati-based conglomerate KDI Corporation acquired an 80 percent interest in Sylvan Pools and took over the management of the business.

KDI was an amalgamation of unlikely assets. In addition to swimming pools it was involved in defense-related electronics, plastics technology, and film distribution. Although conglomerates with diverse interests may have been in vogue in the 1950s and 1960s, they were clearly out of style by the 1980s, when they became the object of corporate raiders who recognized the breakup value of such enterprises. During the first half of the 1980s KDI fended off a number of hostile takeovers. Finally in 1986 Ariadne Australia Ltd. succeeded in acquiring a controlling interest and installed former auto executive Eugene A. Cafiero as its chairman, chief executive officer, and president. Two years later, when the Australian parent company began to reconsider its investment, Cafiero led an investor group in a $275 million leveraged buyout. As a result the company, comprised of 18 subsidiaries, was saddled with excessive debt and in 1989 was forced to begin shedding assets. Five electronics companies were sold by the end of the year and the selloff continued in 1990. With a poor economy causing many people to cut back on luxury items, the business of the Sylvan Pools subsidiary was adversely impacted. KDI was forced to restructure, and Cifiero was essentially forced out in the fall of 1993. As part of the divestiture of assets Sylvan Pools was sold to California-based General Aquatics Inc., maker of swimming pool equipment. In 1996 General Aquatics acquired Anthony Pools and merged its operations with Sylvan.

The history of Anthony Pools followed a path similar to Sylvan, becoming part of a conglomerate. Phil Anthony founded the company in southern California in 1947 and, like Silverman on the East Coast, he took advantage of the postwar building boom to establish a thriving enterprise. Bernard Forester took over the company in 1973 and began to diversify beyond the seasonal swimming pool business, acquiring a wide range of businesses that he placed under the corporate shell of Anthony Industries, which he operated out of the Los Angeles, California, suburb City of Commerce. Forester’s approach was to target recreational and sporting goods companies that had some brand-name recognition and were leaders in small niche markets. In 1974 Anthony acquired Hilton Active Wear, a Chicago company that produced bowling shirts, athletic jackets, and other imprintable items. Anthony also bought a mobile home manufacturer, which it later sold. In the 1980s Anthony became heavily involved in skiing, buying the Seattle-based K2 brand of skis and later adding the Olin brand. Further acquisitions included Shakespeare Fishing Tackle and Shakespeare Electronics & Fiberglass. The monofilament produced for fishing lines also found a market outside of sporting goods, used in weed cutters and such industrial applications as laminated paperboard and packaging. In addition to using fiberglass to make fishing poles the subsidiary began to produce fiberglass poles for street lights. It also produced insulating wall sheathing under the Thermo-Ply brand, which became America’s leading brand. Anthony augmented Shakespeare’s offerings by buying Stearns Water Safety Products, makers of life vests. It also moved into another sporting goods niche by acquiring Pro-Flex full suspension bikes. Moreover, Anthony added to its pool business by acquiring Automatic Solar Covers, a San Dimas, California, company that specialized in motorized pool covers. To build on strong pool sales on the West Coast and in the Sunbelt, Anthony Pools opened a Chicago office to serve the Midwest. While conglomerates like KDI Corporation were struggling, Anthony Industries posted a string of strong results in the late 1980s. Sales improved from $231.8 million in 1986 to $382 million in 1989. Net profits during this period grew from $1.9 million in 1986 to $13.4 million in 1989. Anthony’s traditional pool business remained strong, contributing 25 percent of sales.

As the economy sputtered in the early 1990s, however, Anthony began to feel the effects of the slowdown. Revenues fell to $376 million in 1990 and net income to $1.7 million. The company instituted some cost-cutting measures, trimming staff and eliminating underperforming products. It also began to take on the business of rehabilitating older pools, an area that it had previously referred to independent contractors. K2 began to produce snowboards, after years of ignoring the product line, and found ways to distribute outside of its normal sales channels. As a result of such changes, Anthony improved its net earnings to $6.6 million in 1991 despite a further drop in revenues to $370 million. The company returned to its previous growth mode in 1992 when revenues topped $400 million and net profits reached $8.5 million.

In the early 1990s Anthony Industries began to pursue an aggressive strategy that would make it one of the top multi-line sporting goods companies. Again it looked to make niche acquisitions as well as to use current subsidiaries to branch into new product lines. The company established a presence in the camping and outdoor market with the 1995 purchase of Wilderness Experience, makers of backpacks and outdoor apparel. Anthony added to its outdoor brands later in the year when it acquired innovative backpack manufacturer Dana Design. K2, during the mid-1990s, relied on product extension for growth, creating an entire line of snowboards and bindings and also eight models of upscale in-line skates. Anthony Industries’ most recognizable brand was no longer Anthony Pools but K2, and the pool business was becoming less connected to the conglomerate’s future plans in the sporting goods and recreation equipment area. In 1995 the subsidiary contributed just 12 percent of the parent’s total revenues of $544 million. Early in 1996 Anthony Pools was sold to General Aquatics, and Anthony Industries subsequently changed its name to K2.

1990s Merger

General Aquatics combined its swimming pools assets to create Anthony & Sylvan Pools Corporation, which instantly became America’s largest installer, with annual sales in the range of $150 million. The company, which established its headquarters in Doylestown, Pennsylvania, changed corporate parents a year later when in May 1997 Ohio-based Essef Corporation acquired General Aquatics and in the process inherited Anthony & Sylvan. Essef was formed in 1954 and produced plastics, fiberglass, and other materials used to make swimming pool filters as well as pressurized containers at water treatment plants. It was the swimming pool industry that contributed most of the company’s sales, although in the 1980s it appeared that the computer industry’s demand for plastic housings for personal computers would overshadow Essef’s traditional source of sales. Optimism over the company’s move into computers, however, was short-lived as its heavy reliance on a single customer, IBM, proved to be an ill-considered strategy.

When Essef acquired General Aquatics, experts believed that Essef was primarily interested in the swimming pool accessories and equipment operations. A manufacturing company, Essef appeared poorly suited to operate a swimming pool business, which was more of a sales and marketing operation.

Essef’s management indicated from the outset that it planned to spin off Anthony & Sylvan but it soon opted to bide its time instead as it realized that the subsidiary, the only swimming pool installer with any kind of national presence, was in an excellent position to roll up smaller companies and gain an even greater market share and wider reach. Essef hired an investment banking firm to study the market and suggest a strategy on how to proceed with the swimming pool business, ultimately deciding to spin off the subsidiary and hold an initial public offering (IPO). Not only was this plan expected to help Anthony & Sylvan in its consolidation efforts, it eliminated business conflicts for Essef, which sold swimming pool products such as heaters, pumps, and filters to local swimming pool construction companies that were in competition with Anthony & Sylvan.

Company Perspectives:

“Where America Swims” is more than a slogan. It represents our base of more than 350,000 pools installed over the past 50 years and a reputation synonymous with quality and integrity.

In the meantime, Anthony & Sylvan already began to bring smaller pool installers into the fold. Early in 1998 it acquired Tango Pools, a major Las Vegas pool maker. In September 1998 it acquired Pools by Andrew, a well-established Florida company that gave Anthony & Sylvan a foothold in the Florida market. In that same month, the company filed for a public sale of $22.5 million of common shares with the Securities and Exchange Commission, but with a cold market for IPOs the offering was postponed until August 1999, when it was finally completed in conjunction with the sale of Essef to Minnesota-based Pentair, Inc., manufacturer of pumps and electrical equipment. As part of the deal, Anthony & Sylvan assumed $17 million of Essef’s debt.

Now an independent company, which began trading on the NASDAQ SmallCap Market, Anthony & Sylvan moved its corporate headquarters to Mayfield Village, Ohio and subsequently opened a sales, design, and installation office there to serve the northeast Ohio region. The company’s chairman and chief executive officer, Stuart Neidus, announced a strategy of gaining greater market share by opening even more sales offices and to leverage their size and reach to establish relationships with national home builders, to become the pool developer for their projects. In 2000 the company opened new sales offices in the existing markets of Ft. Myers and Naples, Florida; Houston; and Las Vegas, and also looked to such new markets as Pittsburgh, Reno, Nevada, Phoenix, and Tucson. Because the company relied on local subcontractors to do construction, opening these offices was relatively inexpensive. Anthony & Sylvan achieved some external growth in 2000 by acquiring Cardinal Pools of Austin, Inc., a move that strengthened the company’s presence in Texas (it already had operations in Dallas and Houston). In 2001 the company added to its Florida market share by opening a retail outlet in the Tampa area.

Despite a softening economy in 2001 that threatened to result in a slowdown in the pool industry, Anthony & Sylvan was able to continue its expansion efforts, due in large measure to its geographic diversification, which provided some shelter from underperforming markets. Net sales in 2000 totaled $175.7 million but fell to $167.7 million in 2001. As the economy worsened in 2002 Anthony & Sylvan was forced to take some steps to adjust to difficult conditions. It closed underperforming divisions in Orlando and southeastern Florida. Nevertheless, net sales in 2002 dropped to $158.4 million, the result of a 10.8 percent decrease in new pool construction, and the company posted a net loss of $2.2 million. The situation was mitigated somewhat by a 2.5 percent increase in the average selling price for new pools. In spite of these disappointing results and the continuation of poor economic conditions, Anthony & Sylvan still retained high hopes for the future, as it continued to pursue plans to expand within existing markets and enter new ones, achieved either through start-ups or by acquisition.