Schad ships out to Essex

The news broke just as the June issue of Cranes Today was at the printer. There was no time to tell you any more than that Ron Schad, general manager and executive vice president of Manitowoc Cranes since 1998, has quit to become president and CEO of Essex Crane Rental, which had been bought from the Morano family by an investment group from Cleveland Ohio called Kirtland Capital Partners. Since then, the reasons behind the move have gone unexplored.

So weren’t they paying you enough, Ron? “There are good benefits and bonus schemes at Manitowoc. The crane group is doing well, so the rewards were good.” You were getting frustrated, right? “Manitowoc is a great company, a great company to work for, a great group of people to work with. Manitowoc has a very good management throughout the corporation and to be part of a management team that is head and shoulders above everyone else in the industry was great.” You will have noticed by now that Ron Schad is not about to reveal any behind-the-scenes bust up. With the rather high turnover of management staff at Manitowoc Cranes in the past year or so, particularly on the international side of the business, there are grounds for suspicion that the company is not a happy ship at the moment, with heavy pressure to meet tough targets to satisfy shareholders. Manitowoc is driven by a financial tool called EVA – economic value added – that measures the return on capital invested. Failure to hit the right numbers during the 1990s has resulted in the closure of all but one of the ‘company stores’ – the directly-owned distribution channels. EVA imposes a degree of financial discipline that, according to several recently departed employees, creates quite a lot of pressure for company executives. “It’s a hectic, pressure cooker kind of a place to work in,” says one.

  Schad’s own view, he says, is that he would sooner work for a public company with all the attendant pressures to satisfy shareholders than for the kind of private company where all his efforts served only to increase the personal fortune of some billionaire owner living in Swiss tax exile.

Ron Schad turned 42 last month. He joined Manitowoc in January 1982, straight from college and – apart from a three year period with an engineering contractor, Reynolds Electrical, between 1986 and 1989 when trying to sell cranes in the USA was not a lot of fun – he has been there since. He insists that he was perfectly happy at Manitowoc.

He is very proud, and rightly so, of having been involved with “reinventing the lattice boom crane when all the other manufacturers had given it up for dead”.

As sales and marketing chief in the early and mid 1990s, he was instrumental in the development of a product that was sufficiently easy to erect and mobilise to compete with mobile cranes.

It would be wrong to say that Ron Schad saved the lattice boom. Too many others played an important part. But he certainly had a central role and there are few that could lay a greater claim to that accolade.

Schad says he derived great satisfaction from “revitalising that business and then watching all the other manufacturers scrabbling to get back into making cranes they’d sort of abandoned.” He adds: “It feels great doing something that consumers want and competitors copy. And the financial success was exciting.” Schad will certainly leave a hole at Manitowoc and there is no obvious successor. Isn’t it one of the fundamental rules of good management, to have a succession plan in place, Ron? “I had a succession plan but it’s a little bit convoluted,” he replies, cryptically.

Whoever comes in has an exciting ride ahead. Schad says that what he will miss most by leaving Manitowoc is the big acquisition that the company has to make if it is to continue satisfying shareholders. Schad made no secret of his ambitions in this direction and among the companies he one day hoped to acquire were Mannesmann Dematic and Potain. As a publicly-owned company, there is a lot of pressure for Manitowoc to maintain growth.

If Manitowoc Cranes fails to make the acquisition that Schad believes it needs (bigger than the USTC or Pioneer deals), shareholders may decide that the group would do better if it concentrated on its food service activities and separated out the crane business somehow. Either way, Schad won’t be there.

When the guys from Kirtland came looking for him to head up their bid for Essex it was a difficult decision to make, Schad says. “But Essex is a great opportunity.” The official statement from Manitowoc spoke of a “transition period” with which Schad would assist. But clearly this is being done at arms’ length. He cleared his desk at Manitowoc and was busy with Essex almost immediately.

Schad has been made a partner in the new company. He doesn’t disclose his shareholding but says: “It’s enough to make me feel like one of the owners.” It would not be surprising if his shareholding were to increase over the years if things work out for him.

The Morano family had built up quite a company at Essex – the world’s biggest fleet of Manitowocs with close to 400 machines and 100 attachments. (Essex owns only Manitowocs.) Based in Hassbrouck Heights, New Jersey it also has depots in Alabama, Colorado, Texas, Florida and California. Vince Morano is something of a legend in the US crane industry, especially in the Manitowoc universe. Larry Weyers, Manitowoc’s sales and marketing vice president, referred to him as ‘The Godfather’ at a dinner the company held at the Ritz Hotel in Paris on the eve of the Intermat show.

But the Morano brothers were getting on and had been looking for a buyer for a while. Marino Crane, based in Connecticut, had been in talks but the two parties couldn’t agree on a price. Some would-be bidders said they were put off by the age of the Essex fleet, but Schad says this is a myth. “We’ve got more 888s than anyone in the world, and more 777s. We’ve got more than 60 Manitowocs built since 1995.” Added to which, Essex has been remanufacturing the older machines, and the market for mechanical cranes remains sound.

What Kirtland paid has not been disclosed. A figure of $265m is only rumour. What is on record, though, is that Heller Financial has supplied a $180m asset-based senior secured credit facility. It is also on the record, from Kirtland managing partner John Nestor, that the deal suffered “several delays”, giving credence to other rumours that Manitowoc had plenty of advance notice of Schad’s intentions, which makes his desk-clearing look not so hasty.

Schad’s plans for Essex remain formative at this stage. The financial backers are assuming 6% growth per year until at least 2006. No doubt Schad will be planning to exceed that.

“We definitely want to look at international growth. In the next couple of years we will look to get into Asia and Europe. Alliances and acquisitions will both be explored,” he says, still hungry for the big deal that eluded him at Manitowoc.

Essex’s business is all bare rental today, but Schad says that erection services and heavylift contracting will be explored, as will other types of cranes.

“There’s a lot of work to be done. The management has been good but not as hands on as I’m going to be.” He plans to put new systems in place and improve communications between the branches. The travelling between branches has already begun, but given their geographic spread he sees no sense in uprooting his young family and will continue to live in Manitowoc Wisconsin for the medium term.

Not only will he remain geographically close to his former company, he also now becomes its single most important customer. In fact, one could say that he will have more control over Manitowoc Cranes than he ever had when he worked there.

“No comment,” he replies.