Thursday, February 12, 2015

The Business Cycle

Growth, creation, decay and change are all part of the business cycle.  Companies that THC thought were indestructible when he was a kid are gone today or radically transformed - AT&T, U.S. Steel, Gulf & Western, Sears among others and new giants appeared like Microsoft, Walmart, Cisco and Apple.  At least THC had the excuse of being a kid when he was thinking that the world would not change unlike Franklin Roosevelt who in 1932 announced that all the basics of industry were in place and thus it was the "day of  enlightened administration" or John Kenneth Galbraith in the 1960s who posited that the large companies of that era would be around forever (for more on their mistaken assumptions see My Senator).
THC was reminded of this in the past few days by the news that WR Grace, the company he worked at for seventeen years, is splitting up into two businesses.  It is particularly apt reminder of the life cycle of companies because the two components, a construction products and sealants business and a silica cracking catalyst businesses were the key building block acquisitions made by Grace in 1953 and 1954 when it decided to enter the specialty chemicals business.  The break up restores the separate businesses from sixty years ago.  You can read more about the split in the Wall Street Journal.

Grace began in 1854 as a family business.  Its first venture was importing guano (bird poop) from islands off the west coast of South America for use as fertilizer in the United States, and WR Grace went on to become a reform mayor of New York City in the late 1800s.
The company operated as a trading house for many years buying and selling businesses (at one point it operated the Grace Lines and partnered with Pan Am to create Panagra which pioneered regularly scheduled air travel between the U.S. and Latin America starting in the 1930s) and by the 1980s was a Fortune 100 Company.  It was a
decentralized conglomerate of the type that was a popular trend in the business world for about a quarter century starting in the 1960s.  The company's jumble of businesses at that time included specialty chemicals, agricultural chemicals, a chocolate company, the largest provider of bull semen in the U.S., book distributors, including the largest distributors of educational textbooks in the country, retail stores like Herman's World of Sporting Goods, around 1,000 restaurants including Houlihan's and three of the four bars at the corners of Boston's Faneuil Hall Marketplace, the leasing of oil drilling rigs and the nation's largest provider of dialysis services.

Starting in 1986 Grace sold off many of these businesses and by the late 1990s was a much smaller specialty chemicals company.  It survived the longest bankruptcy proceeding in American history and has done well in recent years.  But nothing stays the same in business.

THC enjoyed his years with Grace and, in this time of uncertainty, wishes the best for his former colleagues who remain with the company.

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