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Unformatted text preview: Hammond Cards, Inc: The Creative Acquisition INTRODUCTION Gregory Hammond founded Hammond Cards, Inc. 1951. The company, located in a suburb of Chicago, IL grew to become a major provider of greeting cards sold through traditional channels – card store chains, bookstores, pharmacy chains and supermarkets. By industry standards, Hammond was small, with annual revenues less than 1% of industry leader Hallmark. The company produced all of its cards in a single manufacturing plant that was located adjacent to the company headquarters. Over the years, Hammond sales grew to roughly 10 million cards per year but growth had slowed in recent years. In an effort to stimulate growth, Hammond management was exploring potential acquisitions of other card companies. Wendy Hammond, President of Hammond Cards, had entered into discussions with Creative Designs’ owners to discuss an acquisition of the company. The owners were amenable to the sale and had provided Hammond with significant amounts of data about their business and operations during the early part of the “due diligence” process. Creative Designs was a privately-held greeting card company with a complementary set of offerings but a focus on different markets. Founded in New Jersey in 1986, Creative Designs was a smaller, niche player in the high-end card market. The company headquarters and manufacturing operations were located in a single facility just outside of Newark, NJ. Wendy Hammond believed that the proposed acquisition of Creative Designs would provide numerous opportunities for her company. There were, of course, some simple scale economies that could be extracted from the combination of the two businesses. The combined operations would allow production to be routed to the most cost effective facility. The consolidation would also open new markets by allowing cross-selling of the two distinct lines of greeting cards to the combined set of existing customers and new customers who might be brought into the mix by the wider variety of products. Before Wendy went any further with the acquisition talks, she felt that she needed to have better insights into the opportunities offered by the combined organization other than simple scale economies in sales and administration. She had asked Bob Martin, Vice-President of Operations at Hammond Cards, to review both operations to see if the proposed acquisition of Creative Designs could provide additional production capacity and flexibility that would allow them to leverage the combined capabilities to better address Hammond’s operations and profitability challenges. IMA EDUCATIONAL CASE JOURNAL VOLUME 1 (1), ART. 1, MARCH 2008 1 Paul Mulligan Fidelity Faculty Term Chair, Assoc. Professor Technology & Operations Management Babson College Shahid Ansari Zwerling Term Chair Professor Behavioral and Managerial Accounting Babson College Alfred J. Nanni, Jr....
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