AAF-McQuay Incorporated

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AAF-McQuay Incorporated

111 S. Calvert Street, Suite 2800
Baltimore, Maryland 21202
U.S.A.
(410) 528-2755
Fax: (410) 528-2797
Web site: http://www.mcquay.com

Wholly Owned Subsidiary of Hong Leong Group
Incorporated: 1982 as SnyderGeneral Corp.
Employees: 5,000
Sales: $900 million (1997 est.)
SICs: 3585 Refrigeration & Heating Equipment

A leading manufacturer of air conditioning and air filtration equipment, AAF-McQuay Incorporated comprises two separate operating companies, AAF International and McQuay International. AAF-McQuay operated as SnyderGeneral Corp. until 1994, when the company was acquired by Hong Leong Group Malaysia. SnyderGeneral was subsequently renamed and divided into two companies. AAF International ranked as the world’s largest manufacturer and marketer of air filtration products and systems, with operations in 19 countries. Based in Louisville, Kentucky, AAF International represented the vestige of SnyderGeneral’s 1988 acquisition of American Air Filter. McQuay International, an outgrowth of SnyderGeneral’s 1984 acquisition of McQuay Inc., was based in Minneapolis. The company designed, manufactured, marketed, and serviced heating, ventilating, and air conditioning (HVAC) equipment for commercial, industrial, and institutional installations. Both companies were operated internationally under the auspices of O.Y.L. Industries Berhad, which was part of Hong Leong Group Malaysia. O.Y.L. Industries was a multinational corporation principally involved in the manufacture, sale, and service of residential and light commercial air conditioning units and systems.

Early 1980s Spinoff

The idea that turned Richard W. Snyder into a multimillionaire within a matter of months occurred to him on January 15, 1981. Snyder, a Kansas City native who earned a B.A. from Indiana University and an M.B.A in finance from the University of Detroit, was at home reading an article in a business journal when the inspiration hit him. At the time, he was in his early 40s, earning a six-figure annual salary as president of Singer Co.’s Climate Control division, a heating and air conditioning business. For more than a decade he had dreamed of owning his own manufacturing company in the heating, ventilating, air conditioning, and refrigeration (HVAC/R) business, but after three failed attempts to buy a small company during the 1970s, he had resigned himself to the fact that, in his words, “I was destined to be a big-company guy for the rest of my career.” His career took a decided turn, however, when he read an article about Singer in a business journal. The article speculated that Singer was desirous of exiting the air conditioning business to focus on its aerospace divisions.

At the time Snyder was reading the article, his division was performing poorly. Demand for Climate Control’s products, which was heavily dependent on new construction activity, was down 30 to 40 percent. Interest rates were rising to 21 percent, stifling growth, and Climate Control’s sales growth rate was lagging behind the rate of inflation. Further, the division did not contribute much in the way of profits, generating a modest pretax profit of 2.5 percent. Against this bleak backdrop, Snyder envisioned an entrepreneurial opportunity. “I thought,” he explained to Forbes in July 1986, “why shouldn’t they [Singer] sell it [Climate Control] to me?” Despite the anemic state of the division, Snyder believed there was hope for the future, that if properly managed, an air-conditioning business was bound to recover once interest rates fell and construction activity increased. “I saw the opportunity to take costs out of the business,” he remarked. “Some people thought I was loony.”

Without telling Singer, Snyder began to hatch a strategy to acquire the Climate Control division. He drew up a business plan and spent the next seven months trying to secure the financing to make Singer an offer. He worked tirelessly, conducting secret talks with 94 banks and numerous venture capital companies before he gained the financial backing to approach Singer for the first time. He revealed his plan to his employers with a fair bit of trepidation. “They [Singer executives] were a little bit shocked,” he later explained. “They would have been justified in firing me on the spot.” Climate Control had a book value of $54 million, but during negotiations Snyder persuaded Singer to sell the division to him for $27.5 million. He borrowed $25.5 million from banks, contributed $300,000 of his own money, and raised $1.7 million from venture capital funds. In April 1982 the deal was official, making Snyder the owner of the $120-million-in sales, newly named SnyderGeneral Corp.

After giving his enterprise a new name, Snyder set to work on less cosmetic changes, searching feverishly to cut costs. “In large corporations like Singer,” he said, “there’s a built-in bureaucracy. I thought that if we operated on a lean and mean basis, we could do very well.” Snyder stripped away several layers of management, streamlined distribution, and cut interest expenses 55 percent by accelerating inventory turnover and removing 20 days from accounts receivable. Perhaps more importantly, Snyder instilled a new managerial spirit within the company, imbuing his staff with the same sense of entrepre-neurism that had driven him to acquire Climate Control. Although this was achieved in part by “cheerleading,” as he called it, Snyder also motivated his management team with more tangible rewards, offering productivity incentives with executive bonuses worth up to 100 percent of annual salary.

The more efficient, more responsive, more motivated SnyderGeneral quickly took on a new luster. Sales climbed energetically, rising at an average of 20 percent during the first several years, and the company was generating ample profits, earning sufficient money to begin reducing its debt. Within nine months the company had paid more than half ($14 million) of its bank debt. By early 1984 Snyder had bought out the venture capitalists who had helped raise the cash to buy the company. Industry observers looked on in amazement, as Snyder resurrected a floundering business. One competitor offered high praise, noting, “Snyder has lured people away from very reputable, well-run firms by appealing to their entrepreneurial spirit. He’s built a solid distribution network, a very energy-efficient product line, and increased his market share.”

1980s Acquisitions

Once Snyder had reduced the company’s debt, he began expanding its operations aggressively. He embarked on the acquisition trail, aiming to broaden the company’s HVAC/R interests to reduce the cyclicality of its business. In 1984 he completed three acquisitions that diversified SnyderGeneral’s business beyond residential heating and air conditioning and into the other two major markets: commercial and refrigeration. The first two acquisitions were Atlantic Richfield’s ARCO Comfort Products Co. and the Halstead & Mitchell division of Halstead Industries. Next, Snyder’s biggest move occurred. He executed a friendly takeover of $230-million-in-sales McQuay Inc., a publicly traded company with a strong presence in commercial air conditioning. McQuay ranked as one of the industry’s giants, with a line of commercial and industrial air conditioners it marketed domestically and overseas. Its inclusion within SnyderGeneral’s operations leapfrogged Snyder’s company to the number three position in the United States, so that it trailed only Trane Co. and Carrier Corp., each owned by massive multinational parent companies. With the addition of the three acquisitions, SnyderGeneral stood positioned in the HVAC/R industry’s three major markets, something Snyder had purposefully pursued. “Each market peaks at a different time,” he explained with satisfaction, “so when one is down, the others are up.”

With everything coming together as designed, SnyderGeneral competed during the mid-1980s as a fast-growing, industry heavyweight. By 1985 annual sales had increased from $120 million four years earlier to $520 million. The company’s average annual sales growth of 20 percent was nearly three times the industry average and far more than the 12 percent growth rate Snyder had projected in his business plan in 1981. Snyder, meanwhile, had amassed a fortune, increasing his original investment a hundredfold in three years. Before he purchased Climate Control, Snyder’s net worth was estimated at $750,000. By 1985 he was worth an estimated $300 million. “I’m loving it,” Snyder gushed. “I still have to pinch myself sometimes when I go out into the plants and realize this is all mine.”

Snyder stayed on the acquisition hunt during the latter half of the 1980s, purchasing a handful of new companies that added depth and breadth to his company. Among the acquisitions completed were two companies in 1986: the Barry Blower division of Marley-Wylain Co. and Wesper Co., a subsidiary of Paris, France-based Acova S.A. The absorption of Wesper, combined with the addition of McQuay two years earlier, gave SnyderGeneral a sizable presence in the European market, where a substantial percentage of the company’s sales would be derived in the years ahead. A presence in Europe also helped Snyder mitigate the company’s exposure to market fluctuations because historically the European construction market ran countercyclically to the U.S. construction market. On the heels of these acquisitions, Snyder set a lofty goal in 1987, announcing SnyderGeneral would be a $1 billion company by 1991.

Company Perspectives:

McQuay International is a world leader in the manufacture, sales and service of heating, ventilating and air conditioning equipment principally for the commercial, industrial and institutional markets.

Dedicated to providing innovative, quality products and services that make our customers’ lives easier and more comfortable, McQuay has evolved into an international leader in the air conditioning industry with tens of thousands of prestigious installations worldwide.

Recessive 1990s Lead to Ownership Change

Snyder nearly met his sales goal by the appointed year, but as sales approached $1 billion in 1991, economic conditions promised to shackle the company’s leaping financial growth. SnyderGeneral by this point derived nearly one-third of its sales from Europe, where the company employed 2,000 people in a dozen production facilities. Much of the company’s international expansion had come from its 1988 acquisition of American Air Filter (AAF), an air filtration equipment manufacturer with 27 production facilities and sales coming from more than 100 countries. Despite the addition of AAF and Snyder’s efforts to insulate the company from capricious economic cycles, economic conditions during the early 1990s hobbled SnyderGen-eral’s strideful progress. The early years of the decade were pocked by a global economic recession, creating a business environment in which scores of businesses of all types suffered, SnyderGeneral included. For the first time since it was formed in 1984, the company’s commercial products group recorded a decline in sales, a ten percent drop that was mirrored by a 21 percent decline in nonresidential construction. As he had been in the early 1980s, Snyder was optimistic that the economic downturn would lead to a sharp recovery. His optimism was fueled by the fall of communism in the Soviet Union, which opened markets behind the Iron Curtain, and by the formation of a unified European market. Increasingly, it seemed, international markets would serve as SnyderGeneral’s prime area for growth. Indeed, over the course of the next several years, the international flavor of SnyderGeneral’s operations would intensify significantly, ultimately forging an inseparable bond with the country of Malaysia.

A turning point of unprecedented importance in the history of SnyderGeneral occurred in 1994. In a transaction estimated to be between $400 million and $500 million, SnyderGeneral was sold to Hong Leong Group Malaysia, comprising O.Y.L. Industries Berhad, a manufacturer of residential and light commercial HVAC equipment and hundreds of other investors. Concluded in May 1994, the deal ended Snyder’s relationship with SnyderGeneral and precipitated sweeping changes. While Snyder diverted his attention to Energyline Systems, a company he started in 1988, the company he left behind was renamed and split in two. In June 1994 SnyderGeneral was renamed AAF-McQuay Incorporated and divided into two major companies, AAF International and McQuay International. Operated internationally under the stewardship of O.Y.L. Industries, the two companies were each given their own chief executive officer and separate headquarters. Based in Louisville, Kentucky, AAF International ranked as the world’s largest manufacturer and marketer of air filtration products and systems. The company’s products, manufactured in 19 countries, included commercial, industrial, and residential air filters, as well as air pollution control products, machinery filtration, and acoustical systems. To the north, McQuay International designed, manufactured, marketed, and serviced all the HVAC systems and products formerly undertaken by SnyderGeneral. Based in Minneapolis, McQuay International sold its products under various brand names, including Wesper, JennFan, Barry Blower, and AAF (commercial and institutional HVAC equipment).

As affiliates of Hong Leong Malaysia, AAF International and McQuay International were supported by the massive financial might of the Malaysian conglomerate. With interests in banking and financial services, property investment and development, and in a wide assortment of industrial and consumer products, Hong Leong Malaysia enjoyed a diversified presence in hundreds of international markets. The extensive global reach of the conglomerate was expected to aid the development of AAF International and McQuay International in foreign markets. As each company prepared for the late 1990s, the future held the answer to the question of whether the rampant growth of the 1980s could be replicated in the 21st century.