HRCP Investment:
Black Clawson Converting Machinery, Inc.
     
  Business

Black Clawson Converting Machinery, Inc. (BC or the "Company") of Fulton, NY was an industry leader in the design and production of extrusion and converting equipment and systems utilized in the processing of polymer products.  BC built systems for leading international companies selling plastic films into the flexible packaging and barrier film industries.  BC maintained one of the longest reference lists of installed equipment in the industry and had a long history of innovation in converting equipment.

Sourcing, Transaction and Opportunity

Initial contact with BC was made directly with the CEO through an HRCP marketing program at the same time that the family owner was forced to begin considering a sale.  HRCP was able to first convince management that it was the best possible partner, and second, convince the owner that his multiple objectives could be met.

Despite its market-leading position, BC was over-levered, undercapitalized, in default of bank loans, unable to meet pension obligations, suffering from low morale, and losing business due to an inability to meet customer commitments.  A customer law suit threatened the business with insolvency.  HRCP provided comprehensive solutions to each of these obstacles before closing on the investment, even negotiating a settlement with the PBGC on large pension obligations stemming from legacy businesses.   

While neglected by a second-generation, absentee family owner, the business still possessed a strong brand name and a long history of innovation within the converting systems industry. Management was eager to break free from a poor ownership situation that put the business at a competitive disadvantage and HRCP recognized a clear opportunity.

Value Creation:

Culture Change.  HRCP promoted a total overhaul of corporate culture at the time of acquisition.  Planning and clear communication were refreshing changes and a new incentive structure combined with management commitments and accountability made for an entirely new attitude at the company.  Customers took note and market share began to shift back to BC.  Measurement and reporting of key performance metrics began having desired effects on job-level and corporate profitability, on-time delivery and customer satisfaction.

Lean OperationsHRCP sponsored a Lean initiative focused on process flow to reduce cycle times and gain market share.  The board set up a Lean Committee led by Charlie Buckley, an HRCP Executive Affiliate with deep industry experience.  Consultants were interviewed and hired and HRCP took management on visits to other Lean transformation companies.  Company performance and customer satisfaction improved dramatically.  Shop-floor workers embraced the program and were rewarded with greater job security and new incentive programs that put all employees on incentive pay tied to EBITDA goal achievement.

Add-on AcquisitionHRCP merged BC with a large competitor, Davis-Standard, itself a business unit of Chemtura Corporation (NYSE: CHMT).  The combination vastly increased the scope of operations and market standing of BC.

HRCP Contribution

Overhauled corporate culture and communication; broad equity participation
Created skilled board of directors to guide and support management
Implemented new incentive compensation plan and factory level profit sharing
Introduced Lean concepts through HRCP resources
Initiated China sourcing to lower component costs
Initiated 24/7 parts service and dedicated aftermarket manager position
Overhauled financial reporting and installed new CRM system
Initiated business combination with largest, but troubled, competitor
Hired new CEO (HRCP Executive Affiliate), new CFO, and many others
Initiated comprehensive customer surveys

Investment Results

Post-merger with Davis-Standard, HRCP owned only 20% of the equity but still controlled the board and was able to promote culture change and implement a Lean program at the combined business.  In light of the rapid increase in profitability following the merger, Chemtura decided to monetize this non-core asset.  Given the continued growth prospects for the business, HRCP elected to lead a recapitalization, along with all other shareholders and many Fund II limited partners participating.

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