Nash Engineering (A) & (B) - The Dilemma of Serving the Business and the Family

A family-run company for over a century, vacuum technology specialists Nash Engineering were becoming increasingly concerned with bad returns in the late 90s. The Berghmans Lhoist Chaired Professor in Entrepreneurial Leadership Randel Carlock and INSEAD Research Project Manager Elizabeth Florent-Treacy examine a theme common to family-run enterprises hoping to cope with global competition in a mature market. Family members - still the firm's largest shareholders - had great pride in Nash's heritage. But next-generation shareholders were a lot less sentimental, looking for ways to boost their dwindling returns on equity.

by Randel Carlock, Elizabeth Florent-Treacy
Last Updated: 23 Jul 2013

A family-run company for over a century, Nash Engineering was seeing its sales start to slump in the late 90s. The maker of vacuum technologies for the chemicals, drugs and power generating industries was threatened by an ongoing global fall in demand, and was being forced to consider a merger, an acquisition or selling itself off if it hoped to thrive - or even survive.

The Berghmans Lhoist Chaired Professor in Entrepreneurial Leadership Randel Carlock and INSEAD Research Project Manager Elizabeth Florent-Treacy examine a theme common to family-run enterprises hoping to cope with global competition in a mature market. With the exception of a few cousins and of Mark Nordenson, former CEO and great-grandson of the founder, the family had had almost no direct involvement in management for some time.

But family members - still the firm's largest shareholders - had great pride in Nash's heritage. It remained among the market's leaders, with several facilities in Asia and South America, and could surely survive the slump by making sensible, well-timed strategic moves. Asian markets had already helped it recover quite soundly from the worst of an early-90s industry-wide downturn. But this was short-lived, due to the severe Asian economic crisis of 1997-8.

German-based elmo Vacuum Technologies was an appealing acquisition option for Nordeson and new CEO, Dick Clarke. The firm had recently been spun off by German engineering giant Siemens, and was a direct competitor and of similar size to Nash.

Moreover, a niche product line was generating good profits. The Nash family, increasingly concerned over the halt in dividend payments and other pressing problems, turned to Nordenson to seek out sound financial advice on behalf of themselves and other shareholders, with whom they generally enjoyed thorough access, both formally and otherwise.

The case details the options available to Nordenson and Clarke in their difficult position of representing both the family, and the best long-term interests of Nash Engineering. Their task was hardly made easier by the unorthodox ownership transfer structure, which meant the fourth generation of Nashes to be involved with the firm had only recently learned they were going to inherit shareholder responsibility. As the financial advisors they hired were quick to point out, next-generation shareholders are quite often more inclined to evaluate a company a lot less sentimentally, and look more strongly to clear-cut returns on equity.

In his dual roles as senior executive and chief family representative, Nordenson presented his case to the advisor, who appreciated the differences in sentiment and priorities between family and non-family shareholders and board members. While a merger with elmo was still very much a possibility, Nordenson had his doubts. No least of these involved exactly how Nash could gather enough capital to buy out elmo, considering it was already heavily leveraged.

Nordenson's dilemma, as he himself put it, was that "in family businesses, you can't simply make [business] school types of decisions based on rational economic data. You can't simply say, 'let's just maximize shareholder wealth and everyone will be happy.'"

Ultimately, the advisor presented Nordenson with four scenarios that he and the Nash board would have to consider:

· Could Nash hope to survive as a stand-alone company?

· What were the advantages and disadvantages of selling off the entire company?

· What were the advantages and disadvantages of acquiring elmo, or a similar company?

· What type of financial and ownership structure would best support any acquisition, as well as shareholders' long-term goals?

The (B) case illustrates the eventual decision made by Nash's board - one that all concerned hoped would meet the often very conflicting family objectives of diversification; continued family ownership; value generation for shareholders, and strengthening of the firms competitive position. It also includes a description of the vital role played by an investment bank in facilitating the company's new status.

INSEAD 2004

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