By RICK ROMELL
of the Journal Sentinel staff
Last Updated: June 14, 2001
McDermott Cue Manufacturing Inc. is trying for the business equivalent of a bank shot into the corner pocket.
Less than a year ago, the Menomonee Falls firm, one of the country’s largest makers of custom, two-piece pool cues, was behind a financial eight ball. Cheaper foreign imports had eaten into the company’s market. Sales had flattened. Loan payments had been missed.
Now McDermott is resetting the rack. The firm has new financial muscle and new owners who, if they’re not necessarily looking to run the table, definitely hope to put a few more balls in their pockets.
Prospect Partners, a Chicago investment firm, has acquired controlling interest in McDermott and is making it the heart of a new enterprise that aims to hustle up a larger slice of the billiards-products and game-room business through acquisition.
The deal with Prospect brings in cash to retire some $2.5 million in debt and provides new access to capital to pursue growth opportunities, McDermott’s president and chief executive officer, Larry Johns, said.
It also frees Johns, a certified public accountant who bought into McDermott seven years ago, to focus on building the company rather than sustaining it.
“I have spent all my time over the last year cash-managing the business and pursuing an investor,” Johns said.
Johns, who retains a minority stake, had led a debt-fueled buyout of McDermott Cue from founder James D. McDermott and other family members in 1994. James McDermott helped finance the deal.
By the late 1990s, however, Johns and partner Jesse McDermott – James’ son – hit rough water. Sales softened amid increasing competition from firms selling cheaper cues made overseas, principally in China, Johns said.
“The company was taking all its cash flow to retire debt and pay taxes,” he said. There was no money for growth, and the firm started missing some payments due James McDermott, Johns said.
After about two years, he said, James McDermott said something had to be done, and Johns started looking for a buyer, a process that led to Prospect Partners.
Without a sale, McDermott Cue probably would have been liquidated, said James McDermott, now living on a ranch in northeastern Nevada.
Instead, McDermott Cue and the Billiard Brands Inc. firm that has been formed around it are getting aggressive.
Acquisitions considered
Billiard Brands, of which Johns also is CEO, already is seeking to buy another company, a well-known table manufacturer, Johns said.
McDermott Cue, meanwhile, is waving the flag with an advertising effort touting the product’s made-in-America status, and Johns is firing shots at a competitor he alleges has spread false rumors that McDermott cues are made in China.
“We’re basically ready to strap on the gloves and go toe to toe,” Johns said.
He said the rumors are coming from Cue & Case Sales Inc., a Jacksonville, Fla., distributor – the company used to distribute McDermott products – that also sells its own lines of Chinese-made cues.
“Absolutely not true,” owner Jim Lucas said of the alleged rumor-spreading. “And if anybody on my staff ever said anything like that, all Larry would have to do is call me and I would put a stop to it immediately. . . . But we’ve never said anything like that.”
Lucas added that Johns had had cues made in China a few years ago.
Johns said his company imported a line of cues from China “for a couple months” in late 1995 or early 1996 but sold them under the “Sabre” brand, not the McDermott name. Johns said he scrapped the arrangement because of quality problems.
The company will import cues again, he said, but not under the “McDermott” brand.
McDermott also has wrestled with what Johns said was infringement by importers on a patent the company holds on a device for connecting the two pieces of a cue, and on copyrighted “artwork” on cue sticks.
McDermott hasn’t had the money to litigate in the past, but will review that possibility under its new ownership, Johns said.
McDermott was sued for alleged patent infringement in 1998 by Uni-Loc Corp. of America, a Massachusetts firm that owned rights to a quick-coupling device for joining the two pieces of a cue.
The case was settled in 1999 on terms that included McDermott agreeing to buy 1,000 Uni-Loc couplers and to pay the company an additional $15,000, said Susan G.L. Glovsky, the lawyer who represented Uni-Loc. She said McDermott also was ordered not to make couplers that could join a cue within two turns.
Johns said he couldn’t comment on the settlement terms because they were supposed to be confidential. The company settled to avoid costly litigation and not because it believed Uni-Loc had a case, Johns said.
He said the dispute involved a McDermott-designed coupler that a patent attorney had researched and concluded did not infringe on the Uni-Loc patent.
McDermott’s sales last year were just over $5 million, roughly the same as in 1999, Johns said. The firm has 45 employees, down from about 60 two years ago. McDermott reduced employment when it changed manufacturing methods, a move Johns said cut costs and helped position the company for sale.
Johns said McDermott is the leading U.S. maker, in sales terms, of custom two-piece cues and accounts for 12% to 15% of the worldwide market. The company makes cues that retail from $119 to $2,500, with the heart of the line falling in the $200 to $400 range, Johns said.
Prospect Partners manages a $105 million fund it uses to help acquire and build companies, in various industries, that typically have revenue of $10 million to $30 million.
