New Player in the Brass Section

In a deal that is supposed to close by the end of the third quarter, Watts Water Technologies is selling certain assets related to its brass fittings, brass & tubular and vinyl tubing product lines to Sioux Chief Mfg. Co. (“Sioux Chief”) of Kansas City, Missouri. The selling price approximates to $35.5 million.

My understanding is that Tribal Manufacturing, of Marshall, Michigan, will get the keys to the Chesnee, South Carolina, brass turning plant of Watts Water Technologies. This is a big deal in the screw machine world because the South Carolina plant did most of the turned parts work for Watts. It was a core asset of the $3 billion in sales of Watts’ operation, or at least I thought so. But the management team at the Watts home office in Massachusetts felt the company would be better served by selling the plant to Sioux Chief Mfg. Co., with Watts as the prime customer.

Tribal Manufacturing, of Marshall, Michigan, an affiliate of Sioux Chief Mfg. Co. will get the keys to the Chesnee, South Carolina, brass turning plant of Watts Water Technologies. This is a big deal in the screw machine world because the South Carolina plant did most of the turned parts work for Watts. It was a core asset of the $3 billion in sales of Watts’ operation, or at least I thought so. But the management team at the Watts home office in Massachusetts felt the company would be better served by selling the plant to Sioux Chief Mfg. Co., with Watts as the prime customer.

For Watts, the deal is interesting because they offload a plant full of old Acmes and Davenports that was not a profit center for them. They used the Chesnee plant as a captive supplier of turned parts and put very little fresh money into the plant for years. The goal for Chesnee was to break even and pour out quality brass goods at cheap prices for the various divisions of the water goods giant. It apparently worked quite well, as Watts has prospered and the stock has soared.

Watts has also shut down most of its Chinese manufacturing in recent years and proudly applauds itself for making most of its manufactured goods in America.

I believe they had a profile of the company in mind of whom they wanted to sell the Chesnee plant, an American firm that would keep it going for a significant length of time. Watts got a sharp operator who really knows the brass fittings business in Tribal.

For Tribal, the Watts deal means volume. Chesnee is a well run operation, but a new operator is going to bring in outside people and try to cut the overhead, one way or another. Watts is expecting good parts at fair prices. If they do not get both, volumes figure to drop over time. If Watts is happy long-term, sales from the parent company will go up and Tribal will win big.

My guess is that Watts did not want to sell to a competitor like Moen that has a plant in the Carolinas. Tribal is not a real competitor for Watts. Basically they are a job shop for the brass goods industry and now they are a lot bigger with many more multi-spindles to run.

The brass folks will all be watching closely to see how the chips will fall.

Question: Is it risky to buy a company with only one customer?