Management Group Weighs Gradco Systems Buyout

Keith B. Stewart, chairman and founder of Gradco Systems, said Thursday he is leading a management group that is considering purchasing the Irvine-based manufacturer of paper-handling equipment.

In a brief statement released late Thursday, Stewart said he “is actively pursuing a possible management-led leveraged buyout of the company.” The group has not yet made a formal proposal to Gradco’s board of directors, the statement said, and “there can be no assurance any transaction will occur.”

Gradco officials said the company disclosed the possible buyout after heavy trading Thursday in the company’s stock on the over-the-counter market. Gradco’s stock jumped $1.125 per share to $17.50, with more than 630,000 shares trading hands, about five times the company’s normal daily volume.

“We just felt that the activity (in the stock) warranted some sort of news release so we could inform the public at large,” said Newton H. Lee, Gradco’s corporate secretary.

Stewart was unavailable for comment late Thursday. Lee, who is part of the management group, declined to comment on other aspects of the buyout plan.

Gradco, once dubbed by a Wall Street analyst as the “unsung hero of the office automation industry,” is the world’s largest supplier of collating and sorting products for office copiers and printers.

Because of the U.S. and foreign patents it holds on its paper-sorter technology, Gradco has garnered about 70% of the sorter market, and sorters account for about two-thirds of Gradco’s sales.

The company makes sorters for every major domestic and foreign copier manufacturer--names such as International Business Machines, Xerox, Canon and Ricoh. Despite its commanding hold on its market, the Gradco name is not as well known to the public because its products are sold under its customers’ names.

Gradco entered the computer printer market in 1987 by acquiring a New Jersey manufacturer of automatic paper feeders. More recently, Gradco has been developing paper-handling products for the facsimile transmission market.

The company, riding the coattails of dynamic growth in the copier and printer market, has seen its sales double in the past two years, from $55 million in fiscal 1987 to $115 million in 1989.

Gradco had record earnings of $5.6 million for the 1989 fiscal year ended March 31, up 39% from $4.1 million in 1988. Revenue rose 27% to $115.1 million.

However, the firm recently has found the going more difficult. Earnings dipped 18% to $960,000 and revenue declined 6% to $25.1 million for the first quarter ended June 30 compared to the same period in 1988. The company attributed the lower financial results to unfavorable foreign exchange rates and the sale of its contract manufacturing unit earlier this year.

Stewart, a native of Zimbabwe, founded Gradco in 1978. He owns 12% of the company’s common stock, with other Gradco management owning an additional 4%, Gradco’s Lee said. One of Gradco’s biggest Japanese customers, C. Itoh, owns 9% of the stock.

Gradco first sold stock to the public in June, 1983, at $18 per share. Its shares sold for as little as $5 after the October, 1987, stock market crash, but have recovered in the past year.

Gradco has about 300 employees, mostly in Irvine.