1. Ben you and I go back quite a while and as far as I know your entire working life has been in the heat treating industry. Could you give us some background about how you got started and what positions you have held over the years?
"Good morning Gord, you’re correct, we have shared drinks globally! I started my career out of college working for Harbor Metal Treating in 1993 as a Lab Technician. My role expanded quickly to Office Manager, Quality Manager and at the age of twenty-five I was named Plant Manager. Following that experience I left thermal processing for approximately six years and worked in the investment casting industry. During that time I worked as Plant Manager for Independent Steel Castings Company (New Buffalo, MI) and National Sales and Marketing Manager for Vermont American (Auburn, AL). In 2002, I returned to thermal processing working for Bodycote-Indianapolis managing the heat treat and NDT operations. Soon I was promoted to Senior General Manager overseeing the Indianapolis and Cincinnati facilities. By the end I was Regional Manager-Midwest managing thirteen facilities. In early 2008, I was recruited and hired as Division President-Midwest by the private equity firm GSO Capital Partners which was acquired by Blackstone. Bluewater had twenty facilities in 2008. By the end of 2009 we closed the plating facility in Chicago and consolidated operations in Canada as well as the Coldwater/Fairfield brazing operations. In 2009, I was named Chief Operating Officer by the board of directors."
2. You mention the two largest commercial heat treaters in North America, Bodycote and Bluewater. Bodycote is of course publicly traded whereas Bluewater is owned by a private equity firm. Does this lead to a different management style in the two companies?
"Having the opportunity to work for both Bluewater and Bodycote has been a tremendous experience that provided me valuable skills, business tools, analytics, training, education and wonderful friendships. Both companies have the drive to consistently improve YoY. This occurs whether you are working in private or public sectors. Whether it is share price or a private investment fund the demand for value creation is real in either company. Return is created by improving shareholder value while having intense focus on safety, continuous improvement activities and the development of customer partnerships. Tremendous attention is given to benchmarking with heightened visibility on key metrics that drive the overall business. The financial metrics maybe slightly different for the given sector but key metric indicators are generally the same."
3. I realize Ben that you are a heat treater not a financial advisor but to what do you attribute the rising share price of Bodycote? It has doubled in the past couple of years and while this has slowed down recently it has reached levels I never expected to see.
"Execution of strategic initiatives to achieve their global plan while improving YoY has led to strong results the past few years. The company is globally diversified by location and end markets that help mitigate risk. Bodycote has continued to make acquisitions that support their strategic plan. They have made investments in coating technologies as well and have developed partnerships with global companies such as General Motors, Rolls Royce and many more. The attraction to investors is that the thermal processing industry has a high variable cost component such as utilities and labor. Most facilities do not produce inventory and the ability to change invoice to cash generation tends to be short compared to traditional manufacturing. Based on interim statements, I gather that the executive team of Bodycote has excelled in utilizing company assets matched with strong cost control delivering overall improved performance thus the continued rise of the share price over the years. This is currently in conjunction with many end markets lagging in sales. Essentially the company has executed, delivered or exceeded investor expectations."
4. Out of all of the captive and commercial heat treaters you have visited over the years which 1 location impressed you the most?
"Out of all the questions this is the most difficult. I’ll answer this by expanding the question a bit. The most advanced and streamlined operation is the Bluewater-Saginaw facility. The material handling and inspection methods are lean and automated. But in traditional methodologies the facility would be considered “captive” rather than “commercial”. As for a “true” commercial operation this will be based on technology, markets and leadership. I have had the opportunity to visit facilities around the world and using the methodology above I think very highly of two facilities. Stack Metallurgical managed by Mr. Nels Plough and Solar Atmospheres managed by Mr. Bob Hill. Both of these facilities have unique capabilities, attractive customer segment and wonderful leadership. Would not want to forget housekeeping practices as well!"
5. What is the biggest challenge you see facing the heat treating industry these days?
"Managing customer expectations of turn time, pricing and service levels in coordination with utilization, utilities and labor is a real challenge when sales volume decline in specific market segments. Working for large or small companies the sensitivity to cost control is very real. The challenge is to flex costs to volume and maintain representative contribution margins. When scheduling assets it becomes difficult when equipment utilization levels are low or sporadic. This is why companies must have engaged local management making real time decisions based on key metrics and information technology. In general, environmental, governmental, safety policies, utilities, industrial gases and labor will continue to remain a challenge for the industry. Today’s customer is educated, equipped with information, and has informative knowledge of our business. Obtaining price increases or energy surcharges are very difficult. Customers expect competitive price structures with future cost downs. It is vital to create program complexity that affords to higher pricing. Further, companies must remain diligent and committed to leaning operations through lean techniques, continuous improvement and steadily managing costs."
6. While earlier I suggested that you were not a financial advisor I do know that you have a very strong grasp of the financial side of the industry. Based upon this do you see margins in the commercial heat treating industry rising, falling or remaining stable?
"Margins are heavily dependent on utilization of key assets, services provided and diligent cost management. Pricing pressures from customers remain and will continue in the competitive environment. Companies must identify ways to lean operations, efficiently improve performance and manage by metrics. Further finance activities in the business are crucial and how cash is managed. Extending supplier payment terms while decreasing day’s sales outstanding (DSO) can help generate cash. Obviously the challenge here is that the two largest cost components of the business are labor and utilities that require immediate payment. In the end, margins can be stable and increase if the team/owner is committed and engaged to improve performance by servicing customer needs, continuously improving operations/finance activities and managing by metrics."
7. Over the years you have looked at a number of potential acquisitions. What formula do you use for figuring out what a commercial heat treat shop is worth?
"I’ll provide a high-level overview as there is a bit of complexity for business valuation. How the acquisition is classified: strategic, core, technology or a multiple buy? The overall evaluation generally includes company performance (LTM/forecast), appearance, management team (succession planning), work force (age/union), geography, equipment condition, processing procedures, approvals/registrations, capability, liabilities (environmental/warranty/labor) and end markets served or diversification. During diligence the business is evaluated for organic growth, transfer of technology, shared services reduction, general cost elimination, future opportunities and capital investment. The preferred is organic growth while reducing cost. Based on this the multiple for automotive companies tend to range between four to five (and lower). This is based on the volatility and forecasting ability within the marketplace. Aerospace is stronger at a five multiple or greater based on the stability of the market and the ability to forecast a bit more accurately. Most acquisitions traditionally lie between a four to five multiple. If you’re a company and you want to create additional value during the sell process, areas of focus could be strategic alliance, end market diversification, unique capability or awarded “contracts” within the marketplace. Or...simply improve bottom line performance. When a private equity or public company extends an LOI “typically” the multiple will not be more than the exit multiple/trade value at the transaction event. Simply meaning a public company “typically” will not buy a company for more than what it is trading at nor would a private equity purchase for more than their purchase multiple and “perceived” exit multiple at time of sale. Obviously there are acceptations to the above mentioned."
8. If you were to start a heat treat shop from scratch tomorrow what would you be looking for? For example would you concentrate on a particular industry such as automotive? Would you lean towards vacuum over atmosphere? Or possibly nitriding?
"My preference for equipment are batch IQ, vacuum and nitriding technologies. Batch furnaces allow for process diversification. Vacuum and nitriding furnaces allow for quick process changeover and are not continuously consuming energy when not operating. The intent would be a diversified end market company or the ability to do so. Consideration would be to streamline a facility to a few processes that they do well and efficiently improve everyday"
9. You have worked with quite a number of different people over the years. Looking back on all the people you have worked with over the years in the industry which ones do you have the highest opinion of? Of course I would like to ask you whom you have the lowest opinion of but perhaps we shouldn’t go there.
"Throughout my career I have had the opportunity to be mentored by many great families and people. Starting off early in my career was the Fortuna family. I have a great amount of admiration for Tony and Frances Fortuna and their children. They inspired me and gave me the passion for thermal processing. Jeff Pyne brought me to Bodycote and was extremely supportive and a true friend in early 2003. In reflecting on the past six years with Bluewater I was able to attract approximately twenty-five individuals that I hold in high regard. As they say to be a good leader you simply need to surround yourself with great people and that’s exactly what I did. As for respect, friendship and brotherhood there is only one person for me personally that holds this regard and that is Jeff Hemmer. I admire Jim Hedman, as he is a great friend and is very distinguished in his career and the most knowledgeable engineer that I have worked with. Many of the names below maybe new for some but they are seasoned professionals from the industry. Included are Craig Zimmerman, Nick Bugliarello, Shawn Scott and Tim Chaplin (Contour Hardening). I appreciated all the support provided. Rising stars in the industry are Eric Mannix, Richard Domzalski, Stacy McKee and Carolyn Bassetti. Gracious hosts Mr. Michel Korwin and Dave Ederer are true gentlemen and first class businessman. As a Trustee on the MTI Board I have met many dynamic people passionate for this industry including Rich Penrose, Pat McKenna, Harry Hall, Tim Levy, Craig Hoensheid, Earl Peck, Bob Hill, Roger Jones, Doug and Jackie Peters, Buster Crossley and Judy Rudy. Mr. Tom Morrison and Mr. Jim Roberts thank you for your leadership! On the OEM equipment side I’ve enjoyed Geoff Somary, Bill Bernard, Bill Gasbarre, Jim Oakes, Steve Thompson, Brian Russell and yes even Bill Disler! Finally, I would like to thank Mr. John Hubbard. I remember a cold January night in 2008 when my phone rang. It’s John. “Ben, you gave notice today! What’s going on?” John was and always has been supportive of my transition from Bodycote to Bluewater. I always appreciated that. Gord, I always appreciated the conversation and trust in working together over the years."
10. There are quite a number of different heat treating technologies out there, from relatively new to old and tried. Of all these different technologies is there any areas where vast improvements can be made? As an example do you think gas nitriding or batch carburizing technologies could afford to see some new, fresh ideas?
"Let me change the question around a bit. When a process cycle is established by PPAP, First Article or fixed process the inputs should not change. Two areas that need continued updating are process controls and material handling. How the data is inputted, stored, gathered and maintained is crucial. It is important for the data to be reviewed and benchmarked to quote assumptions, process parameters and overall improvement strategy (centralized process oversight). Next, the thermal processing industry is a collection of part handling and configuration, making material handling a crucial aspect to the business. Material handling is critical to improving work environment, safety and operational performance."
"On the equipment side there needs to be an economical solution to part cleaning rather than conventional dunk and spray. Part cleanliness is crucial to meeting customer expectations and eliminates cost from secondary services such as blasting, washing or vibratory cleaning. As for batch equipment significant improvement was made in the 80’s and nitriding has taken leaps the past five years. I would like the OEM’s to get more involved in material handling strategies. Integrate fixtures and handling with the equipment. The company that can create market disruptors such as the Ipsen Titan furnace in a specific market space can enjoy success."
11. Recently you parted ways with Bluewater Thermal; a parting which I understand was quite amicable. What does the future hold for Ben Crawford?
"Thanks for asking Gord. At the moment no decision has been made. I continue to remain a free agent. I have been contacted by industry leaders inquiring about my next opportunity. I have had numerous discussions and meetings. I have also been asked to consider consulting to assist both captive and commercial companies assessing their overall business. Should anyone want to contact me I can be contacted at 317.430.3814. Many thanks for the opportunity to share my thoughts." firstname.lastname@example.org