Jay Sachetti joined Jeff O’Brien, partner at Husch Blackwell and Dyanne Ross-Hanson, president of Exit Planning Strategies talked about the market for mergers and acquisitions, exit planning opportunities for companies that don’t end up for sale and how companies can maximize their eventual sale price during an early October panel at the first Upsize on Tap event at Summit Brewing Co. in St. Paul.
When the state Legislature passed a law requiring employers to provide paid leave and safe time for employees, Justin Bieganek started hearing differing details from friends, colleagues and peers.
Hose-maker considers product mix, employee loyalty before buying
by Andrew Tellijohn When Will Stewart graduated from college he became a real estate broker, selling commercial properties and making a decent living. He left that business nearly two decades ago to sell hoses and work with his father.
While it might not have the appeal of real estate, he has grown through the ranks, working nearly every job the company offers. President since 2002, he bought St. Paul-based MFC Innovative Solutions from his Dad in 2004 and is now stepping up the growth rate.
The once struggling hose manufacturer is expanding, both organically and now, for the first time, through acquisition.
MFC in December closed on the acquisition of Galesburg, Illinois-based Midwest Hydraline, a hydraulic hose manufacturer with about 15 employees. The deal added about $3 million in sales, and the opportunity to expand outside the five-state area.
Wheeling and dealing
The acquisition came together quickly. During some planning meetings, MFC company officials agreed that it was time to start looking at potential acquisitions. So in mid-2005, Stewart quietly let vendors and select customers know he was looking.
By June, a vendor that had worked with both companies told Stewart of an Illinois firm that was small but solid and owned by two founders who were seeking an exit strategy.
Stewart called David Uhlmann, one of Midwest Hydraline’s founders, then in July got in his car and drove to Galesburg so they could meet in person.
He met with the founders over lunch and, under the guise of being a potential customer, received a tour of the facility. “I didn’t want anybody alarmed,” Stewart says. “That was important.”
The visit was positive. Stewart got along well with Uhlmann and co-founder David Palmer. And he knew it was time to get more people involved.
“After that first meeting I was sure I was going to take the next step,” Stewart says. “The company was in good shape, the company was profitable.”
So he assembled his legal team and they drafted a letter of intent. In September, Stewart went back to Galesburg, this time with Terry Kelly, vice president of operations, and Andy Larsen along. When the trio returned to St. Paul, they discussed how the business would fit what MFC already does. They talked about the employees in Galesburg, and how they all seemed engaged in the business.
Kelly, who describes himself as more analytical and less impulsive than his boss, recalled that in the late 1990s MFC had acquired a Denver company that turned out to be a bad fit geographically and in how the partners’ product lines fit together. In that case, the acquisition was reversed about a year later.
The situation with Midwest Hydraline seemed like a much better fit.
It looked like “a chance for us to get some incremental growth without a lot of pain,” Kelly says. “We’d seen the facility, saw that they were controlling the inventory. They had good control of what they had and why they had it there.”
Shortly after the second visit, they decided to draft a purchase agreement.
Integration challenge
After making the offer, Stewart traveled back to Illinois again to introduce himself to employees and assure them their jobs were secure.
“I just wanted everybody to know we bought this company for the people,” Stewart says. “I think that was a big relief … We didn’t buy that place for the four walls and the property, we bought it for the people.”
In December, MFC closed on its acquisition of the Midwest Hydraline business. The two companies are still negotiating a deal for MFC to purchase the real estate.
Midwest Hydraline’s Uhlmann and Palmer were especially excited about the prospects. They founded the company in 1980 and built a solid business, focusing specifically on hydraulic hoses. The company grew to four stores, though they sold two in 2000.
In 2005, when Palmer turned 65 and Uhlmann hit 59, the duo began looking for exit strategies. After learning a little about MFC and confirming that the resulting company planned to keep the existing employees in place, Uhlmann also thought the deal made sense. During the meeting with Stewart, Kelly and Larsen, Uhlmann was immediately impressed with the trio’s businesslike approach.
“The marriage between the two was a natural thing,” he says. “We’re going to help establish a market down here for what he does.”
So far so good, officials from both companies say. While no acquisition goes off completely hitch-free, this one has been about as smooth as it gets. Midwest Hydraline just finished upgrading to MFC’s computer system, which has been a learning experience. There are still several daily phone calls to discuss transactional issues and accounting details, Kelly says. But that much was to be expected.
Additionally, Hydraline sales people seem excited to be able to take MFC’s expanded product line to existing and new clients throughout the Midwest.
“That should inspire them to get out there,” Kelly says.
Uhlmann has had no second thoughts either. He hopes to stay in his new position as divisional manager for another three years or so. In the months since the merger, he’s been impressed with the time and oversight of day-to-day operations MFC has put in Galesburg. He also appreciates their willingness to listen to his ideas.
“I don’t think we could have sold to anyone that’s any better at what they do,” Uhlmann says. “It’s going to take Midwest Hydraline to the next level. Their talents in this business are probably second to none.”
The acquisition is already helping MFC expand into Illinois, southeast Iowa, Chicago and possibly Indianapolis. The combined company should do between $16 million and $17 million in sales this year with more ambitious projections down the line.
Company officials agree that this deal likely was just the start. Stewart is already kicking the tires informally on additional acquisitions, though he doesn’t plan to pull the trigger on anything before late this year at the earliest.
“We are looking at things,” he says. “Are we looking at them seriously? It would have to be a really good opportunity. We have to get our ducks in a row with Hydraline.”
‘Feet to the fire’
Kelly says Stewart is aggressive and likes to get things done now.
“He generally keeps everybody’s feet to the fire, but in a very positive way,” Kelly says.
The top trio work together well because of Stewart’s aggressive vision, Kelly’s analytical bent and Larsen’s patience and interpersonal skills.
“We have been able to maintain our people, keep them around,” Kelly says. “We generally don’t have issues with them understanding the job when they get it.”
Customers of many shapes and sizes have found MFC willing to work with them to solve their problems, especially in recent years since Stewart took the helm.
Graco Inc. of Minneapolis has worked with MFC for years to obtain hose systems used in its industrial and consumer products.
“They have worked with us on large projects and new designs,” says Lisa Haines, a senior buyer, in a statement. “Their customer service and production is high quality.”
Tom Reilly, president of Eagan-based Mulcahy Co., says Stewart’s enthusiasm is infectious and his willingness to dig in and solve problems is admirable.
Mulcahy, as a manufacturer’s representative in the HVAC industry (heating, ventilation and air conditioning), is in a market MFC is trying to penetrate further.
“We work with several Fortune 500 companies, and it’s just refreshing to work with a smaller organization that might be independently owned that doesn’t necessarily have to report to shareholders,” Reilly says.
“They’re in business to help the customer as compared to somebody who primarily is looking at the bottom line. He’s looking at long-term growth. That just seems to go an awfully long way.”
[contact] Terry Kelly, MFC Innovative Solutions: 651.645.7522; tk****@****ex.com; www.minnesotaflexible.com. Tom Reilly, Mulcahy Co.: 651.686.8580; in**@*******co.com; www.mulcahyco.com. Will Stewart, MFC Innovative Solutions: 651.645.7522; ws******@***************le.com; www.minnesotaflexible.com. David Uhlmann, Midwest Hydraline: 309.342.6171; du******@***********er.net; www.midwesthydraline.com
As the name suggests, Owatonna-based Kamp Automation looks for customers with a process they’d like to automate. It could be a small, inconvenient, tiny part that people can’t assemble. It could be a high-volume product so needed that the customer can’t find enough labor to produce it in the necessary quantities. “We’ll work anywhere from medical device companies to the seed industry for corn and soybeans,” says Kent Patterson, co-founder, president and CEO. “We just jump all over wherever there is custom automation.” The company started in his garage. Patterson and his partners built a machine. The company started to grow to the point where now it has 48 employees — and had a bunch of people and stuff in different locations. “We went from a garage to a shop to a shop and just kept moving to new places and signing leases,” he says. “We got to a point where it’s like, OK, this is getting big enough and sustainable — we felt that we wanted to look for our own space.’”
