Davis Standard: The Turnaround Story

A recession-proof plan helped save Davis Standard’s business, according to Scott Oakford from private equity firm Hamilton Robinson, who spoke at an ACG Connecticut meeting on Oct. 5.

The deal went through in multiple parts.

The process started in 2003 when Hamilton Robinson bought Fulton, N.Y.-based Black Clawson Converting Machinery, which eventually morphed into Davis Standard LLC, for $13.4 million. Hamilton Robinson wanted to purchase Davis Standard from its parent, Chemtura, in 2005. However, Chemtura wouldn't agree to the deal that easily.

Davis Standard, headquartered in Pawcatuck, Conn., supplies extrusion and converting systems to the flexible-packaging industry.

Instead, the parties agreed to a 60-40 joint venture, with Chemtura keeping 60 percent of Davis Standard.

"We didn’t get exactly what we wanted, but we closed the deal in a format that still made good sense for both parties," Oakford says.

Chemtura, then publicly traded, exited the business and ended up filing for Chapter 11 bankruptcy protection in 2009.

During Hamilton Robinson’s hold time, it created value in the company by changing the culture, implementing a lean strategy and the add-on acquisition, Oakford says.

The lean strategy changed the company culture – it makes companies more competitive by shortening lead times and helping companies win more business, Oakford says.

After the company lost an order with Avery Dennison, which makes labeling and packaging materials, for being too slow and too expensive, Hamilton Robinson needed to take steps to improve the company and embarked on a "lean" progam, Oakford says. They told employee’s they’d “benefit from it,” Oakford says. And they did. Employees even renamed the idea “grow,” which stands for “get rid of waste.”

To really build the company, it was important to come in and be honest with current management. It's important to communicate the firm's goals, Oakland says. The management also invested in the company, Oakford says.

“You don’t want value creation to be a surprise to management, you want it to be an incentive,” Oakford says.

In August 2008, with the help of Harris Williams, the company signed a letter of intent with a buyer. In September 2008, things then "turned into something of a horror show," Oakford says. Davis Standard’s order volume seized up because of the economic recession and the buyer walked away.

Davis Standard hit a low point in 2009 with $140 million in order volume, about half of what it had the year before. In 2010, its earnings hit a low of $14 million.

The company formulated a recession plan, under which it first cut management fees, then executive salaries, then canceled bonuses and eliminated overtime. Floor shop salaries were the last to be cut under the plan, all of which would save the company $19 million.

Despite low earnings and order volume, Davis Standard was able to pay down its nearly $50 million in secured debt with Key Bank to $10 million before it had a covenant default, Oakford says.

"Being in even a technical default on a bank loan in 2010 was miserable," Oakford says. Banks were highly sensitive to loan quality and subject to tight regulatory oversight.

But in the fourth quarter of 2010, things started looking up. The company had $100 million in new orders, driven primarily by international business.

After investing about $44 million in the company, Hamilton Robinson sold to Oncap of Canada for $198 million in 2011 and walked away with $183.6 million in gains - about 4.4 times its investment, Oakford says.

Although Oncap wasn’t the highest bidder, Hamilton Robinson decided to sell to them because it had the largest amount of equity in the offer. “We didn’t have confidence the highest bidder could have closed,” Oakford says.