Global Fastener News

Industrial Holdings Counting on Oil Industry Rebound

John Wolz

The early indications are that the oil industry is rebounding. That is good news for Industrial Holdings Inc.
Houston-based IHI bought eight fastener companies during the 1990s, but a weak oil industry cut into sales and profits, and a corresponding low stock price has interrupted the acquisition strategy.\
�1999 was an anomaly,� declared Michael Marsh, who took over as president and CEO in June 2000.
Last year IHI was as high as 10 5/8 on the NASDAQ, but slid down to 2 9/16 by the end of 1999. It was 1.5 on October 30.
Marsh acknowledged that the stock price generally is �an important measure of the health of a business,� but said IHI is poised to roar back.
�It is classed by our bankers as a �turnaround,�� he supported his optimism.
IHI entered the fastener industry by acquiring Landreth Engineering of Houston in 1992. Since then the company has acquired Milford Rivet of Waterbury, CT (now operating as Landreth Engineering of Connecticut); American Rivet, Chicago; LSS-Lone Star Houston Inc.; Walker Bolt, Houston; Orbitform, Jackson, MI; GHX, Houston; Ameritech, Houston; Kirsch Hardware (now operating as Ideal Products), Beacon Falls, CT; and A&B Bolt, Lafayette, LA.
The fastener companies � which include its stud bolt and gasket group, where customers are primarily in the energy industry, and the engineered products group, where customers are primarily in the automotive and home furnishings industry � add up to 51% of the corporation�s $242 million revenue for 1999.
Originally founded in 1989, IHI also acquired valve and repair companies, which now account for 17% of revenues and components, and construction companies, which total 26% of revenue.
Marsh came to IHI with a background in manufacturing specialty products for the automotive and aerospace industries and heavy walled vessels and energy industries.
�Profits are improving, and we have confidence in the fourth quarter,� Marsh told FIN.
Marsh is trying to mold a company that can serve a broad energy industry from upstream (exploration, drilling and production) to downstream (petrochemicals and refining).
Marsh pointed out that offering a wider range �will add substantially to overall earnings.�
Dan Ahuero, interim president of the IHI stud bolt & gasket group, said the strategy is to �take all the products and services and bundle them to serve all of that industry.�
Ahuero was once a branch manager for GHX Inc., a distributor and fabricator of industrial hoses, gaskets and fasteners. He and his father were longtime employees and were given the chance to buy GHX in 1992.
The Ahueros made three acquisitions, but they began to see the industrial consolidation momentum outpacing their ability to grow.
They also saw an opportunity to expand from primarily gaskets into fasteners.
�Customers were bundling fasteners into our product mix,� he recalled.
IHI owned multiple companies in the same market, and the IHI customers were saying the same thing. That made the marriage very feasible.� In 1998 GHX became part of IHI.
�As a person who has been acquired,� Ahuero said, �the entire spirit remains with the company when they come in. We are all still entrepreneurs.�
Most of the former owners remain with IHI, Ahuero noted.
�I don�t know if a lot of holding companies have that same cohesion,� he ventured.
Low Overhead Headquarters
�We believe in centralized information with always decentralized operations,� Marsh said.
There are only 12 people at the corporate office near the Astrodome south of downtown Houston.
�We gather information and provide it to 15 business groups and guidance,� the CEO explained. �It isn�t our job to run those companies.�
In addition to the information available, Marsh touted employee benefits as an advantage of the holding company.
�We are beginning to implement consistency in benefits, including a bonus plan,� Marsh noted. �It is something the economics of scale allow in a $250 million company rather than a dozen $20 million companies.�
Ahuero sees the big advantage of joining IHI as being able to concentrate on what he does best, instead of the drudgery of management.
�What are the most difficult issues for individual entrepreneurs to handle?� Ahuero asked rhetorically. �First, human resources. Second, insurance. Third, banking and, fourth, lawyers.
The acquisition took most of those parts of my business off my back and let me get out there and sell to grow my business.�
IHI also is finding ways to gain synergies at its sibling companies. For example, Walker Bolt had no outside salespeople, GHX had 18. The GHX sales staff calls on many of Walker�s customers and now can represent both.
Many companies proudly announce moves to larger facilities to show growth. In contrast, Ahuero is moving GHX from a 90,000 sq ft facility down to 50,000 sq ft of vacant space within the corporate complex.
�We are doing it by �lean manufacturing,�� Ahuero explained.
Marsh added they are downsizing square footage �without losing production.�
IHI turned to Atlanta-based consultants Lockwood-Green to study the flow of work. With a Lockwood-Green facilitator, employees redesigned how the plant would work.
�Employees solved all of the �what if� scenarios. They did a fantastic job,� Ahuero commended the program.
Last year the Landreth fastener plant in Waterbury, CT, was relocated to Beacon Falls, CT, and new lean manufacturing strategies yielded about 30% efficiency gain in space utilization and flow in the new facility, Marsh pointed out.
Seeking First to Market Advantage
IHI just opened a tech center in Jackson, MI, to serve the automotive industry and plans to open a Houston center within months, followed by a Connecticut tech center in early 2001.
Marsh expects the application labs for engineered products will make IHI the first to the market with new products. He described that position as �a significant advantage.�
The Michigan tech center has been researching such issues as fastener setting equipment for Ford SUV seat assembly. IHI developed automatic equipment to install four fasteners simultaneously.
Looking for the Turnaround
�Brokers and investors consider us to be undervalued,� Marsh said. �We certainly think it is.�
And when the stock price rallies, Marsh anticipates IHI will again be buying fastener companies. �We have not lost our enthusiasm for acquisitions,� Marsh emphasized. �Early in 2001 we will be back on the acquisition trail.�
In two years Marsh hopes to be actively acquiring midsize businesses, and within five years he envisions IHI will be a national fastener corporation extending far beyond its Gulf Coast origins.
Industrial Holdings Inc.
Core Business Segments: Industrial Fasteners, Valve Manufacturing & Repair (Energy Group) and Heavy Fabrication.
The industrial fasteners segment products are: rivets & semi-tubular fasteners; threaded studs & specialty bolting; specialty gaskets & hose; straight pins & related wire products; and orbital rivet setting equipment.
Divisions
Engineered Products Group: American Rivet, Ideal, Landreth, Orbitform.
Metal forming products include cold formed fasteners, threaded fasteners, fastening systems and metal components for the appliance, home furnishings, automotive and lawn & garden markets. Distribution is through a national network of commission-based manufacturer�s sales representatives.
Stud Bolt & Gasket Group: Ameritech, Lonestar Screw, Walker Bolt, GHX
Stud Bolt & Gasket products include specialty fasteners, stud bolts, coating services, gaskets, hoses and related products, electroplating, special machining and traceability services for the petroleum, petrochemical and chemical refineries, power generation plants, offshore oil and gas installations. Distribution is by internal and external sales staff and distributors.
Energy Group: A&B Bolt, Manifold Valve, Moores Pump & Services, Pipeline Valve, Rex Group, United Wellhead.
Heavy fabrication Group: Beaird Industries.
Corporate headquarters: 7135 Ardmore, Houston, TX 77054. Tel: 713 747-1025. Fax 713 749-9642.
Web: www.industrialholdings.com
NASDAQ Symbol: IHII
Key corporate executives: Michael Marsh, CEO; Titus Harris, CFO; Christine Smith, CAO; Stephen Nash, vice president and general counsel; Tom Landreth, CTO for engineered products; Larry Hodges, vice president/administration; Robert Cone, chairman of the board; Mike Shirkey, president of engineered products group; Dan Ahuero, interim president, stud bolt & gasket group; Andrew Cormier, president, energy group; and Debbie Bonefas, investor relations.
Employees: 1,800
1999 Revenue: $242 million
Percentage of revenue from fastener-related products: 51%
Customers include: General Electric, United Technologies, Camcar Textron, Chevron, DuPont, Kirsch, Siemens, Arco, Uni-Fab, Kidde, Cooper Cameron, Falcon Drilling.
No customer accounts for more than 3% of revenues.