Private Equity Group Sees a Big Payoff In Machines for Tough Cleaning Jobs

A group of private equity veterans hopes to clean up by helping industry and government handle some of their messiest jobs. In a deal completed in August, four experienced players teamed up to extract the little-known Surface Preparation Group from a remote corner of Vivendi Universal SA after they sized it up as a classic orphan division with unrealized potential. Despite its low profile, the company, re-dubbed as International Surface Preparation Corp. (ISPC), produces a remarkable array of machines that do industrial-strength cleansing work across the globe. ISPC machines scrape rust from bridges, ships, and railcars and sandblast industrial structures. It manufactures ice-rink resurfacing equipment. It makes “peening” machines that prepare auto and airplane parts for chrome and other coatings. Still other machines scrape concrete surfaces, including roads, and clean aircraft carrier decks. The private equity club that bought ISPC from its immediate parent, Vivendi’s American water treatment sub, U.S. Filter, is led by Bard & Co., based in Evergreen, Colo., and includes GlenRock Group and First Atlantic Partners, both in New York, and Hunt Capital Group, Dallas. They have enjoyed deal relationships in the past. ISPC, with sales of about $350 million a year, had a lot of attractions for the buyers going in, according to Lawrence C. Graev, who heads GlenRock. Its machines are in constant need and it enjoys the No. 1 or No. 2 worldwide position in almost every sector of the surface preparation machinery industry. The buyers also liked the customer base, international operations, and technology leadership. But for Graev and his partners, those attributes are only for starters. As a non-core operation of both Vivendi and U.S. Filter that was marked for disposition five years ago, the surface preparation unit has not fully capitalized on its strengths, he says, creating an enormous opportunity for growth and value creation – just by seizing the “low-hanging fruit.” “This was a division that had been ignored mostly because it was going to be sold,” Graev says. “There are 17 manufacturing facilities in the U.S. and Europe and they bought 30 to 40 companies over just four years. But they did little to integrate them.” The new owners plan to install a national sales organization that can pursue cross-selling opportunities and open new markets. They will look at deeper penetration of emerging markets, such as Eastern Europe, Latin America, and the Far East. And a top priority will be what Graev describes as stepping up “life cycle sales and service,” or generating significant add-on revenue streams from selling components and maintenance to owners of ISPC machines. “There are 23,000 machines out there and the company does not have an organized way of going back to the owners of those machines to sell aftermarket parts and supplies,” he says. “They use abrasives, which wear out. Their parts wear out quickly. The aftermarket business is like razors and razor blades.” On the financial side, the management has reduced “bloated” working capital levels, accelerated receivables collections, and consolidated inventories. Ultimate plans include pruning 60 distribution centers down to 14. While the initial overhaul will be focused internally, Graev says ISPC will consider timely acquisitions in the future to create economies of scale and widen share. The price of the deal was not disclosed. However, U.S. Filter, in reporting the deal agreement in July, said it would get about $130 million from divesting the surface preparation group, including the Walther Trowal unit sold earlier in 2003. Copyright 2003 Thomson Media Inc. All Rights Reserved. http://www.thomsonmedia.com