J & S Industrial Scale Co

Acquisition Date:

Divestiture Date:

Held in Portfolio:

Purchase Price:

Sales Price:

% Gain:

Annualized R.O.R.:

Industry:

S.I.C. Codes:

February 1, 1986

March 7, 1987

13 months

140,000 shares

N/A

Repair Shops & Related Services

7699

Portfolio Analysis & Discussion

Not By Choice

J & S Industrial Scale was not chosen as a portfolio company. Instead, it was already a subsidiary when we acquired its parent company, Allied Scale Corp., to be the InAmerica vehicle. As such, we didn’t feel the opportunity was worthy of the effort necessary to build the business. As it stood, however, it was a liability.

The decision was made to attempt a build up of revenues with some profitability and then sell it off. One of the products built and operated by the scale unit was a truck scale, typically installed at a major truck stop. With an eye toward a quick sale, InAmerica negotiated an investment package with a trucking-related group. The terms of the deal would include the construction and operation of 10 large automated truck scales to be leased for a 10 year period.

The transaction was agreed upon and the specifics were placed in the order book of the scale unit. This early success had the immediate effect of dramatically increasing revenues with margins suggesting an increase in annual profit.

An obscure covenant in the original acquisition of J&S went unnoticed or ignored by the former management of the parent company. Once the 10-truck scale package was on the books, the President of the scale unit (the original owner of J&S), saw the deal as an opportunity to take back his company and reap the rewards inherent in the new deal.

The president ignored his responsibility and refused to make payroll, as well as remain absent from work for a week. With no other alternative and his adversarial posture, InAmerica was forced to terminate him as president of the unit. As soon as he was informed of his termination, he hand delivered a recision of the acquisition of J&S, relinquishing his InAmerica shares in favor of 100% of J&S shares.

Fearing detriment to the investment group that based their agreement on InAmerica’s management, they were informed of the action and immediately canceled the contract with InAmerica, eliminating the revenue stream to J&S. The problem resolved itself.

InAmerica did not endure without some pain, however. Two executives that were hired by the scale president, were fired within weeks of their engagement. The executives sued InAmerica to honor their contract, which was impossible in light of the fact that their expertise was limited to the scale business. The suits were eventually settled out of court.

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