Monmouth Inc

For the exclusive use of C. MATTHEWS

4226

JULY 31, 2010

THOMAS R. PIPER

HEIDE ABELLI

Monmouth, Inc.

Harry Vincent, executive vice president of Monmouth, Inc., was reviewing acquisition candidates

for his company’s diversification program. One of the companies, Robertson Tool Company, had

been approached by Monmouth three years earlier but had rejected all overtures. Now, however,

Robertson was in the middle of a takeover fight that might provide Monmouth with a chance to gain

control.

Monmouth, Inc.

Monmouth was a leading producer of engines and massive compressors used to force natural gas

through pipelines and oil out of wells. Management was concerned, however, over its heavy

dependence on sales to the oil and gas industries and the violent fluctuation of earnings caused by

the cyclical nature of heavy machinery and equipment sales. Although the company’s long-term

sales and earnings growth had been above average, management believed that its cyclical nature had

dampened Wall Street’s interest in the stock substantially.

Initial efforts to lessen the earnings volatility were not entirely successful. Monmouth acquired a

supplier of portable industrial power tools, a manufacturer of small industrial air and process

compressors, a maker of small pumps and compressors, and a producer of tire-changing tools for the

automotive market. The acquisitions broadened Monmouth’s markets but still left it highly sensitive

to general economic conditions.

The continued volatility prompted a full review of the company’s acquisition strategy. After

several months of study, three criteria were established for all acquisitions. First, the industry should

be one in which Monmouth could become a major player. This requirement was in line with

management’s goal of leadership within a few distinct areas of business. Second, the industry should

be fairly stable, with a broad market for the products and a product line of “small ticket” items. This...