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Tooling Ripe for Aquisitions

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NEW CNC workholder offers Speed and Flexibility

Tooling Ripe for Acquisitions

HUBER HEIGHTS, OHIO -- River Associates LLC shook up some small-town sensibilities when it set about buying four tooling-related companies.

The Chattanooga, Tenn.-based private equity investment company sat down with the owners and explained its vision: consolidating the mold-making industry and creating a global player with resources superior to its smaller cousins.

"If it was a mom and pop shop, the real point was telling management that we wanted to continue helping them grow," said Larry Beres, executive vice president of Huber Heights-based Tooling Tech Group, the mold-making arm of River Associates. "We would give them capital and give them some depth. We'd let them be part owners.

"And, in many cases, they said 'let's talk.' "

River Associates also owns companies in other industries, including adhesives and furniture. Yet tooling -- an industry known for small companies doing regional work -- suddenly has become a hotter ticket for consolidation. At least four other U.S.-based firms have bought majority stakes in groupings of toolmakers.

"Customers take you a lot more seriously when you have size," Beres said. "It gives us more staying power with customers."

With customers expecting mold builders to conduct more engineering, move globally and get product out faster, the meshing of several companies works well, said Mark Teague, executive vice president of Midwest Tooling Group, a Chagrin Falls, Ohio-based company that also owns four tooling-based shops.

"Smaller mold shops face the greatest risk," Teague said. "It's more and more difficult to belly up to the capital requirements. I'd say our ideal candidate for purchase has sales of $5 million to $15 million annually."

River Associates also has scooped up companies in that range. The first, in 1997, was Tooling Technology LLC, a custom thermoform mold builder located north of Dayton in Fort Loramie, Ohio. In 1998, the holding company bought Dayton-based prototyper Air City Models and Tools Inc.

Then in early 1999, the company purchased two well-known toolbuilders: injection mold maker Alpha Mold, LLC of Huber Heights in January, and Edward D. Segen & Co., LLC, a maker of molds and equipment for packaging-related thermoforms, a month later.

Now, the equity firm is completing a deal to buy a fifth tooling company in the Cincinnati area, said River Associates partner Mike Brookshire.

Each deal was conducted quietly, with the company only now revealing details. In many cases, former owners or managers bought ownership shares in their shop. That ensured a seamless transition, Brookshire said.

River Associates owns the other 70 percent of its tool shops, which together have annual sales of about $27 million.

"If we make a lot of money investing in various industries, our management teams also made a lot of money," Brookshire said. "And with our ownership, the money is reinvested in the business."

That idea is taking shape now at each company. Edward D. Segen moved in July to a new, 27,000-square-foot leased facility, close to doubling space and increasing capacity to make thermoforming presses, Beres said. Its new Shelton, Conn., plant is six miles from its former facility.

Tooling Technology, originally a cast tooling foundry, has made two steps forward. In June, the company opened a second Fort Loramie facility to thrust it into computer numerically controlled milling for finishing work.

The company added more than 15 workers at the 25,000-square-foot facility, investing about $225,000 in the building and several million to buy five CNC milling machines, Beres said.

The company in June also bought Canal Pattern Co. of Sidney, Ohio, a six-person maker of prototypes and models. Now, Tooling Technology has the means to make CNC-milled molds, patterns and dies under one corporate banner, Beres said.

"We're after tooling as one-stop shopping," said Beres, former minority owner of now-defunct PET preform mold producer Electra Form Inc. of Vandalia, Ohio.

Alpha Mold, the largest of the acquisitions with more than $10 million in annual sales, has moved into Thixomolding. The relatively new technology makes magnesium and zinc parts using the injection molding process.

The firm is developing specialized molds for the process, hoping to become one of the few toolmakers in that area, said Alpha Mold General Manager Randy Korn.

"It's a challenging market with new opportunities," Korn said. "We can use our expertise in toolmaking to be on the cutting edge of what's happening there."

The company has partnership agreements with both Husky Injection Molding Systems Ltd. and licensor Thixomat Inc. to help develop the process. Alpha is creating both special tools and plates to fit on standard molding machines, Korn said.

Tooling Tech Group, the mold operating subsidiary of River Associates, would like to keep its momentum. The company -- with more than 150 people at its mold shops -- is targeting annual sales of $75 million to $100 million.

That would require a possible doubling of the number of operating companies, Brookshire said. The holding company is considering buying a manufacturer of blow molds, he said. "What we're trying to do is have a presence in each part of the market," Brookshire said.

Within five to seven years, the company could either sell the tooling business or take it public, Beres added.

That exit strategy differs from Midwest Tooling Group. The owners of that holding company eventually want to pass it to their children, Teague said.

Yet, the attractiveness of investing in tooling is the same for both companies, he added. Many tool shops will be passed from family members to larger consolidators, he said.

"I think five or six consolidators will emerge in the industry, each with slightly different strategies." Teague said. "Staying in business is increasingly financially challenging to a sole proprietor, who has to put his net worth on the line."

But others said the consolidation of similar mold makers might not be a long-term trend. Instead, the approach works best when disparate companies are cobbled together, said Greg Foster, president of Foster Group and owner of three tooling-related companies in the Rochester, N.Y., area.

"We put together a value proposition, offering customers everything from high-volume production tooling to low-volume prototyping," Foster said. "We can cross-fertilize and offer all services under one roof."

Foster Group companies include toolmaker Asmat Precision Mold Builders Inc. and engineering firm Papago Plastics Inc. Together, they have annual sales of about $15 million. Foster, like the others, said he is not ruling out future acquisitions.

"There's so much competition, especially offshore," Foster said. "You can't compete if you only offer one part of the value chain. We turn over every stone to find the right situation to add to our capabilities."

Displayed with permission of Plastic News, Copyright Crain Communications Inc. Originally Published in Plastic News August 28, 2000

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Segen Announces NEW Quick-Change Pallet Chuck:
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