A.Y. McDonald Mfg. Co. will celebrate its 160th birthday this year. Its eponymous founder came to the United States from Scotland in 1854, starting a plumbing shop in Dubuque, Iowa, two years later. For five generations, the business has been 100% family owned.
Current CFO John Schmidt, by contrast, has been with the company for less than three years. At another closely held business, it might be difficult for an outsider to impact business strategy. A.Y. McDonald deeply values its traditions and history, and the “family is very intent on maintaining its legacy into the future,” says John. But it’s not resting on its laurels.
The company is proactively looking for growth opportunities. It has diversified its product offerings over the year, expanding from an initial focus pumps to brass waterworks, valves, and plumbing supplies.
A.Y. McDonald brought on John, who spent three decades as CFO of bank holding company Heartland Financial USA Incorporated, in part to help pursue an aggressive acquisition strategy. Several years before John joined, the company made two acquisitions — Canada-based Cambridge Brass and Wisconsin-based SK Plastic Molding. Cambridge Brass helped the company expand into brass valves, while SK Plastic Molding gave them a foothold into injection molding, an area they’re looking to expand further. Both acquisitions were financed 100% internally — “we, like a lot of companies, have worked diligently on our balance sheet,” says John.
The company has ambitious growth goals, and aims to roughly quadruple sales over the next 10 years. “At least half of that would need to come from acquisition,” says John. Being a family owned business, “we wouldn’t at this point look for outside capital. We aren’t going to bet the farm on anything… That doesn’t mean we aren’t going to take risks, but they’ll all be well thought-out and fairly conservative.”
John says one of the most important things for would-be acquirers is “to understand your core competency. What are my capabilities, strengths, weaknesses? What do I need to shore up? Have I optimized what I have in place currently?” If companies haven’t optimized their current offerings, “you’re going to run into a wall you haven’t anticipated… Look internally first.”
From there, John focuses on building a team of both internal and external resources focused on valuation, due diligence, and integration. The next step is “getting the word out,” he says. “Like any sales process, you need a full funnel” to have better chances of success. More deal flow means more options — and less chance you’ll settle for a mediocre deal because it’s the only one in your pipeline.
Growth is crucial for A.Y. McDonald to endure to the next generation. But at its core, the company’s philosophy is the same one its founder espoused sixty years ago: “We will make good products and sell them honestly.”