January 17, 2011
Deal flow is a popular term in the private equity world.
Columbus-based FCX Performance Inc. knows plenty about flow and has become accustomed to deals, as both a buyer and seller. The 27-year-old valve and process flow product distributor’s latest additions are the Solares Controls division of Lakeland, Fla.-based Solares Florida Corp. and Stafford, Texas-based Baro Cos., both acquired for undisclosed sums in deals disclosed this month.
“This is new geographic markets in both cases,” said CFO Charles Hale. “We’ve been looking at the Gulf Coast for eight to 10 years. There are miles and miles of chemical and petroleum plants along the coast and that’s the biggest market for us domestically.”
Chairman Charles Santoro said the deals allow FCX to expand its product portfolio and geographic reach to include the entire U.S. except California.
“If (FCX) is not the largest independent in the industry, it’s one of a very small number,” he said.
FCX sells valves and valve instruments to a broad array of industries, including oil and gas, chemical, pharmaceutical, steel, utilities and food processing.
“It’s not a glamorous business, but it’s an important part of a processing plant,” Hale said.
The company assembles and distributes products at four facilities, the biggest in Columbus, with the others in Charlotte, N.C.; Appleton, Wis.; and Houston as a result of the Baro deal. It also runs 21 sales offices.
The Baro acquisition included the operations of Baro Controls Inc. and Baro Process Products. The Texas company, which specializes in valve automation, pumps and mixers, gives FCX a presence on the coast of the Gulf of Mexico working with the chemical, petrochemical, oil and gas pipeline, refinery and power industries.
Hale said the business in Florida is a growing market and Solares is an established name. The Florida company will see less industrial work and more in the citrus, waste water and fertilizer markets. The names, employment and operations of the companies will not change.
Santoro is co-founder and managing partner of Sterling Investment Partners, a middle-market private equity firm from Westport, Conn., that acquired a majority share of FCX in 2008. FCX, based near Port Columbus International Airport, was founded in 1984 by CEO Charles Simon.
Santoro said Sterling became interested in FCX in summer 2008 and closed the deal a week after Lehman Brothers Holdings Inc. filed for Chapter 11 bankruptcy protection, touching off the financial downturn.
“Even in that macro environment, we never lost sight of the fact that this was a very dynamic distribution platform,” he said. “It’s highly scalable.”
The arrival of Sterling coincided with a drop in the economy. Even in a niche like valves, FCX’s story the past few years is similar to that of many other companies. The vast majority of its products are in use every day, Hale said, but as production slowed for customers, use slowed and sales followed that path.
Sales began softening toward the end of 2008, and the following year brought a 9 percent sales decline. Revenue rebounded in 2010, closing up 10 percent to $139 million. That was without acquisitions.
Hale said the company anticipates that revenue swing will continue into 2011 regardless of acquisitions, with internal sales growth projected at 8 percent to 10 percent. Including revenue from Solares and Baro, FCX projects its 2011 sales at $180 million.
The top line could rise with more deals, something the company is pursuing. FCX has grown through acquisitions, with 10 deals since 2000, including three since its purchase by Sterling in 2008. Hale said FCX targets established businesses with strong management. The goal is to build a portfolio that is diverse in geography and markets to provide some cushion against industry fluctuations, Hale said. In 2009, the chemical and refinery businesses were slow for FCX, but the power and utilities sectors were up. All segments grew last year.
Hale said deals in existing markets will be to add product lines, and the business wants to continue to expand geographically.
“(FCX) navigated the downturn great,” Santoro said. “Now we can play some offense. ... We love the business and look forward to watching it grow.”
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