Signode Industries

Signode Industries, Inc.

Case Analysis

Ashley Mauras

David Moeller

February 27, 2013

Company Background

Signode Industries Inc. has been in the steel strapping industry since 1914. Signode sells its steel strapping to a variety of different organizations in different industries. Originally, the company bought finished steel strapping from steel mills and then resold it directly under the Signode name. In the 1950s, Signode was able to successfully backward integrate in order to purchase rolled steel and then finish the strapping themselves. Making the strapping, as opposed to buying it pre-made, has saved Signode a significant amount of money. Signode also developed automated strapping tools, which enabled it to reduce operating costs considerably. In its first few decades of operation, Signode was able to double its sales force and became the market leader in the steel strapping industry.

In 1962, Signode began producing plastic strapping in addition to its steel strapping. At the time, the market for plastic strapping was only valued at $10 million, but by last year, the market had grown to a robust $170 million. The plastics market is estimated to be growing at a rate of 4% a year. Signode’s current market share is $90 million, or 53% of the total market.

Signode experienced a considerable market share decline in the 1970s due to some unfavorable distribution decisions combined with the increased role of imported raw materials. In 1982, fearing that the company would be essentially bought out by takeover specialist, Victor Posner, Signode management decided to take the company private through a leveraged buyout. The buyout cost the company about $300 million, which it financed through long-term debt.

Signode produces more than 550 types of steel strapping machines and tools, in addition to custom-made and plastic strapping tools. Yet the custom department accounts for less than 1% of the entire steel strapping systems revenues....