U.S. Elevator’s acquisition last week of a New York-based elevator company that reported $25 million in 1985 revenue moved the San Diego-based subsidiary of Cubic Corp. closer to its goal of doubling its $100 million in revenue recorded during 1985.
By purchasing Central Elevator Co. from New York-based Meyers Parking Lot System, U.S. Elevator gained an immediate presence in New York City, the world’s largest market for elevators. Coupled with the opening last month of a Boston office, U.S. Elevator now has a strong foothold in the Northeast, which accounts for a third of the nation’s $3-billion elevator market.
U.S. Elevator paid more than $10.6 million for Central’s stock and the retirement of some of Central’s outstanding debt, according to Roger Gerber, Central’s general counsel and corporate secretary.
Before opening the Boston office, U.S. Elevator had “drawn a line from Chicago to Washington, D.C., and we hadn’t crossed that line,” said U.S. Elevator President George Tweed. “We built our service base below that line and picked out the big population centers where growth was anticipated.
“Now . . . we’re going across that line.”
“From a business perspective, given the fact that it gives U.S. Elevator a presence in the world’s largest elevator market, it looks like a good decision,” said Peter Aseritis, an industry analyst with E.F. Hutton in New York.
U.S. Elevator, one of the nation’s six largest elevator companies, “is now ahead of its target” of doubling its revenues to $200 million by the end of the decade, said Tweed, who acknowledged that the company “hadn’t expected to make an acquisition this large.”
U.S. Elevator, which “actively sought” the acquisition, will continue to build its revenue base through acquisitions, said Tweed, who suggested that U.S. Elevator will concentrate on building a presence in other Northeastern cities such as Philadelphia.
“An acquisition is the quickest route to revenues, although we started cold in Dallas recently and are now a presence in that market,” Tweed said.
Although U.S. Elevator’s revenue has been tied mainly to new building construction, the acquisition of Central Elevator means that service and maintenance work now account for more than half of the company’s revenue.
U.S. Elevator has been strengthening its maintenance and modernization business because it offers healthier profit margins than the extremely competitive and capital-intense new elevator sales end of the business.
The revenue reshuffling will be welcome because, although Cubic’s elevator division has ranked second behind defense systems in revenue, the division generally has finished last in terms of operating profits.
“This is a big piece of volume that we’ve bitten off because if you’re looking for (elevator modernization projects) this is the town,” Tweed said. “Central Elevator concentrates on service and modernization of existing elevators.”
However, even though U.S. Elevator wants a share of New York’s new elevator market, Central Elevator’s complicated labor agreements probably will prohibit direct access to the market. Because those agreements restrict Central Elevator’s existing union employees to doing repair and remodeling work--and prohibit them from installing new elevators--U.S. Elevator probably will create a Long Island-based subsidiary that would attack the new elevator business, Tweed said.
U.S. Elevator anticipates that the acquisition will boost production at the company’s year-old Mexicali manufacturing plant, which accounts for 25% of the company’s output.
However, the acquisition evidently won’t have an immediate effect on the company’s Spring Valley plant, where U.S. Elevator earlier this month laid off 23 workers and last month laid off about 29. About 250 employees remain.
When it opened the Mexicali plant last year, U.S. Elevator laid off 100 employees and shifted an equal number of jobs across the border.
Although the Spring Valley plant still produces U.S. Elevator’s more sophisticated equipment, the company opened the Mexicali plant to keep pace with “nearly all the (other) elevator companies (that) had already gone offshore” to gain operating cost cuts generated by lower wages. The plant offers lower operating costs because its 90 employees earn about $80 a week--compared to the $360 weekly earned by the average U.S. Elevator worker in this country.
“There’s going to be a shakeout in the industry,” said Tweed, who predicted that U.S. Elevator will survive if it boosts revenue to $200 million by the end of the decade.
“With $200 million in revenues we’ll be a mature, real force in the industry,” said Tweed, who was a U.S. Elevator executive from 1974 to 1979 before leaving to join market-leader Otis Elevator, a United Technologies Corp. subsidiary. He returned to U.S. Elevator in 1984.
“There are six major players in the market,” he said. “Everyone after No. 6 is way down there.”