When two of the five largest manufacturers in any industry merge it’s big news. There is no question that the biggest news in the commercial design and furnishings industry in my memory is Herman Miller’s acquisition of Knoll. So far, at officeinsight we’ve hewed closely to the party line, as we’ve only published the announcements and press releases of the companies.
Given my years in the industry and my Knoll background, I haven’t been terribly surprised as friends have emailed or called to ask, “So when are we going to read what Bob Beck really thinks about this deal?” So here it is. Not earth-shaking. Not brilliant. Not angry. Not overjoyed. I guess I’m just patient. I’m definitely not convinced it’s a great thing, although there are a lot of things to like on paper and I’m cautiously optimistic; or maybe hopefully optimistic. For sure there is a lot of uncertainty and open questions that only time will resolve.
When I joined Knoll in 1972 our showroom was on Beverly Boulevard just off Robertson. It was one of the last buildings designed by Florence Knoll and the Knoll Planning Unit and the look and feel of the showroom itself was instrumental in my love-at-first-sight attraction to Knoll.
The Herman Miller showroom was on the next block, and while we competed sometimes, there were times when we actually sat in on one another’s presentations on large projects.
We appreciated our shared heritage from the Cranbrook connection and appreciated the design integrity of our product lines. But like species evolved from a common ancestor, we also appreciated our differences. The way we at Knoll characterized the difference was that Herman Miller’s products reflected a more industrial design vibe, our products were more architectural – think Action Office versus the Stephens System.
That said, It was not unusual for a Knoll colleague to have a George Nelson sofa or Eames Lounge Chair as a featured objet d’art in the living room. Conversely, one of my Herman Miller friends had a Saarinen Table and Tulip Chairs in his breakfast dining room.
(Right) Saarinen Dining Table with Saarinen Tulip Arm Chair. These one-legged molded fiberglass chairs and tables have become symbols of mid-century modern design since their introduction in 1957. Courtesy of Knoll, Inc.
Culturally, the two companies were further apart. In those days we focused our selling activities very strongly on the A&D community and felt a bit out of our depth with end users. Herman Miller focused much more on the end user. I remember a specific joint presentation to an end user where I held forth at length on the design of our products, followed by the Herman Miller rep who presented facts and figures on how his products would improve the performance of the company. I had no such facts or figures.
We were known for our great gatherings of the SoCal design community with food and wine flowing freely. Herman Miller had similar gatherings where alcohol was forbidden and the decorum was more serious.
In our manufacturing approach we bore the imprint of Hans Knoll’s free spirit and Shu Knoll’s perfectionism. I knew many employees who had personally experienced her – not unkind, but not so gentle guidance. I can’t personally speak to the influence of the three De Prees, but it was obviously strong and different from that of the Knolls. It’s my understanding that the Herman Miller renown for inclusion and for making the company a perennial “Best Place to Work” derives from the philosophy of Max De Pree.
Not counting the multiple times Knoll has been taken private and public, this is the sixth acquisition of Knoll I’ve lived through. So pardon me if I have a wait-see attitude.
First, sometime after the death of Hans Knoll, Mrs. Knoll sold the company to Art Metal (what ever happened to Art Metal I can’t say, but in those days they were a steel desk competitor to GF and Steelcase). Second, Art Metal sold Knoll to a Chicago bank, whose name eludes me. Third, a law forbidding banks to own manufacturers was passed and the Bank sold Knoll to Stephen Swid and Marshall Cogan (father of Andrew). Fourth, they sold Knoll to Westinghouse. Fifth, Westinghouse sold it to investors led by Andrew Cogan. Sixth, that brings us to Herman Miller’s acquisition.
Obviously, as both Herman Miller and Knoll grew and evolved they became very different companies from those I knew intimately back in the 70’s and 80’s. But the bulk of the revenue growth for both came from their workplace products – Knoll Office and Herman Miller Contract and through expanding outside North America.
But the workplace market has been relatively stagnant for several years – at least as far back as 2007. Given the recognized value of each company’s mid-century modern design heritage and a shift in the broader market to more mainstream interest in “modern design,” both companies have been seriously pursuing the high-end residential market for several years.
Notwithstanding the success and profitability of Knoll Studio, it seems to me that through the acquisition of Design Within Reach, the establishment of both brick and mortar and online retail sales channels in North America and via Hay in Europe, Herman Miller has executed their retail strategy far better than Knoll.
Going forward the big uncertainty, in my mind, centers primarily on two things. The most obvious hurdle is the amount of debt Herman Miller assumed in order to make the deal. Its consolidated long term debt increased from $274.9 Million at the end of May to $1.3 Billion on July 27 at the close of the Knoll acquisition.
In its own words from the most recent 10K filing with the SEC, “We have substantially increased our indebtedness in comparison to that of Herman Miller on a recent historical basis, which could have the effect, among other things, of reducing our flexibility to respond to changing business and economic conditions and increasing our interest expense. We have also incurred various costs and expenses associated with such indebtedness. The amount of cash required to pay interest on our increased indebtedness levels and thus the demands on our cash resources will be greater than the amount of cash flows previously required to service our indebtedness. The increased levels of indebtedness could also reduce funds available for working capital, capital expenditures, acquisitions and other general corporate purposes and may create competitive disadvantages for Herman Miller relative to other companies with lower debt levels. If we do not achieve the expected benefits and cost savings from the acquisition, or if the financial performance of the combined company does not meet current expectations, then our ability to service our indebtedness may be adversely impacted.”
In the history of our economy, that lack of flexibility and available working capital has seen many acquisitions in many industries fail. So my personal hope is that the stagnation we’ve seen in the workplace sector gets a shot in the arm from the need to accommodate post-pandemic changes in offices around the world and that the retail market for better designed and modern furniture continues to expand. Those two possibilities would obviate the negative impact of the increased debt.
The second big thing is just the sheer magnitude and complexity of the reorganization. Too many times I’ve seen instances where Boards of Directors saw 1+1=3 only to find that 1+1 actually amounted to only 1.5.
The integration of two very different cultures – to say nothing of the sheer complexity of simply making both companies forge ahead at full stream – is too daunting for an outside observer to contemplate. On paper, the initial organizational moves look good and Herman Miller has a stellar record of integrating disparate pieces; think Geiger, Colebrook Bosson Saunders, Nemschoff, Maharam, Design Within Reach, Hay, Maars Living Walls and Naughtone. But integrating Knoll presents a level of complexity roughly equivalent to all of those combined.
If MillerKnoll leadership can successfully integrate these two differing but big and strong cultures and mold them into a high functioning new one it will be a behemoth to be reckoned with. Fingers crossed.
Nothing would make me sadder than to see Knoll just disappear and that’s what usually happens when mergers go south—the acquired just fades away into the sunset. So Go, MillerKnoll, Go!