Watchfire Signs acquired by Private Equity Firm

[Bobby H]

This week Watchfire announced the company has been acquired by H.I.G. Capital, a private equity firm based in Miami that has $50 billion worth of other companies in its collection.

Usually when news breaks that a private equity firm has taken over a company my reaction is: "uh oh." This is based on past observation of major companies being wrecked by the meddling of such outside firms. Sears is a good example; 20 years ago it was a retail stalwart, today it's a hollow shell of its former self, thanks in large part to the private equity owners who mismanaged the retailer into the ground. Corel appears to be limping along after 20 years of private equity control. Corel is barely able to maintain its name-sake Draw application (yet the subscription price keeps ticking upward, now $269 per year for 2 applications). Lately version upgrades have been buggy and very under-whelming. I'm worried Draw's days are numbered.

Since the 1990's we've ordered a decent number of variable message displays from Watchfire, even going back to when the company was called Time-O-Matic. We were buying time/temperature displays and variable message displays from Time-O-Matic that had incandescent bulbs. That was before the transition to LED and the company name change.

These days we order most of our variable message displays from Daktronics. But we still order Watchfire units from time to time. They're the next best choice to us because the product is reliable and tends to hold up well for the long term. When you sell a customer a variable message display you also need to be prepared to help them maintain it over at least a 7-10 year period. Daktronics and Watchfire are both American-based and the products are assembled state-side.

I worry an outside private equity firm will go hunting for "efficiencies" -ways how to cheapen the product from Watchfire. We know the drill. Fire as many American employees as possible. Outsource as much manufacturing and assembly as possible. So on and so forth. If what I fear comes to pass the units from Watchfire may end up being no better in quality than the no-name "OEM" garbage coming in from China.

 

[Solventinkjet]

Sears wasn't only mismanaged, it was mismanaged on purpose to tank it's stock so short sellers could cash in. It's the business model of Boston Consulting Group. Tank vulnerable companies, tell your customers to short the stock, profit.

 

[Gino]

You see mismanagement (on purpose or just unknowingly) everywhere in every facet of every industry. This is part of the overall scheme.

 

[Notarealsignguy]

Sears wasn't only mismanaged, it was mismanaged on purpose to tank it's stock so short sellers could cash in. It's the business model of Boston Consulting Group. Tank vulnerable companies, tell your customers to short the stock, profit.

Bury the company with debt paying for the real estate then break it off and keep it for yourself while you continue burying the company in order to get them out of your newly acquired real estate. Shareholders got burned on that one. He did put on a good show so he had some plausible deniability in case the SEC we're to come after him. Everyone knew what he was doing though

 

[BluetailGFX]

Lordy....I have not thought about Time-O-Matic for years. They are the Third best thing to come out of Danville, Illinois after the Van Dyke brothers and Gene Hackman.

 

[Bobby H]

Yeah, I think the "American Made" or American assembled aspect will be one of the first things getting the heave-ho by the private equity bosses. The typical Wall Street inspired bean counter type will immediately target any American-based operation for elimination.

As I said earlier, our company still prefers selling Daktronics VMS products. Lately the supply chain crunches have forced us to look at Watchfire and other alternatives. I'm sure Dak doesn't like the situation any more than us, but delivery times upwards of 20 weeks is just too much. That's a big selling point for not sourcing so many components from China or other locations in the Far East. More of that stuff needs to be made in the United States or at least in the Western Hemisphere.

Certain types of components could at least be made in Mexico. We have vehicles getting made/assembled down there. What's wrong with making other products there? China is pretty much a geopolitical enemy, yet we're largely funding their economy by having so much of our manufacturing based there. If we shifted a good number of those jobs from China to Mexico the situation along our Southern border might improve considerably.

Bury the company with debt paying for the real estate then break it off and keep it for yourself while you continue burying the company in order to get them out of your newly acquired real estate. Shareholders got burned on that one. He did put on a good show so he had some plausible deniability in case the SEC we're to come after him. Everyone knew what he was doing though

The crap Eddie Lampert and his buddies pulled with Sears angers me personally. My mother sold appliances for Sears over 20 years. Our store here in Lawton as well as the location where she worked in Colorado Springs were both still pretty decent in the 1990's. They looked worse than most thrift stores by the time they closed a few years ago.

Sears had lost some of its focus in the 1980's, getting involved in various non-retail entities (and then divesting much of that in the 1990's). In 2005, when Kmart bought Sears, that's when the downhill slide really accelerated. Lampert and other higher ups cut corners on everything, particularly staff and maintenance. Going into the 2010's many vendors started withholding product because they hadn't been paid for previous orders. Broken fixtures, partially bare shelves, old product and a skeleton crew of workers isn't a good way to compete with the likes of Walmart, Target or Amazon.

 

[FireSprint.com]

Very informative and interesting post

 

[Johnny Best]

So you genius businesspersons think that HIG Capital buying Watchfire is a good thing for the company or not.
Maybe they will make it better because it seems like the other company, Dak, gets more business. Or maybe buying Watchfire, that uses chips will get a windfall of government money from the chip bill they are passing in Congress.

 

[spectrum maine]

i rebuilt a watchfire sign a few years ago. all new panels. all new power supplies. every box had chinese writing on them. its a myth about being american made.

 

[Bobby H]

So you genius businesspersons think that HIG Capital buying Watchfire is a good thing for the company or not.

I think it's not a good thing. A few people at Watchfire might benefit very well financially from this transaction. I'm not optimistic it will help Watchfire over the long term.

Private equity firms don't build anything. They don't create and grow companies from scratch. They just buy other companies. Then they go in looking for any ways or gimmicks for how that acquired company can do things cheaper. Never mind the fact private equity firms usually have zero expertise in the market an acquired company serves. Do you think HIG Capital knows anything at all about the sign industry? Do they know anything at all about the very specific market niche Watchfire serves?

Usually in any kind of buy-out lots of people working for the acquired company get fired. Some might be people who spent decades working there. Some of these people being let go might be a critical part of the company's "brain trust," but to some bean counter at an outside firm that worker is a disposable number on a spread sheet. Many intangibles affect the natural growth of a company. These outside firms go in, hacking away at the company's inner workings like a carpenter trying to do neurosurgery. The acquired company may be loaded down with debt as a result of its take-over, if the transaction was a leveraged buy-out. Those can be really destructive. Not only do lots of workers get fired, but if the company had its own in-house pension system that pension fund could be raided by the company buyer. "Green mail" directly into the pocket.

 

[Johnny Best]

Hey Bobby H, I sw Pretty Woman and understand all the bad things with acquisitions. But maybe this thing will help out the company with better management going forward.