The cake's all but a memory, the garter thrown and caught, but the honeymoon isn't over yet for Hercules Tire & Rubber Co. and its mate.
A year after the firm was acquired by Hercules management and New York private investment firm FdG Associates L.L.C., Hercules President and CEO Larry Seawell still finds it hard to contain his enthusiasm for the way things have turned out. ``We're finding them (FdG) very, very supportive,'' he told Tire Business, emphasizing the very in that statement.
``We think we picked the right partner,'' he continued. ``Fortunately, we were in the position where we didn't have to do something, where it made good strategic sense to do something. Being in that position, we were able to pick among blue-ribbon firms. So we picked a company that's very similar in business strategy and thought process to Hercules.''
>From a day-to-day standpoint, not much has changed for the Findlay-based private brand marketer and wholesale distributor, save for a quarterly board meeting with FdG and monthly board calls. ``They allow management to run the business,'' he said, adding, ``but they're a very strong financial partner and are there to support us in anything we want to do that will make the business grow going forward. So we think it's the best of both worlds.''
Firming up the future
Just how has that support from FdG translated to Hercules' endeavors?
``We have tremendous opportunity in the Far East with our supplier base,'' Mr. Seawell explained. ``We asked (FdG) to come with us on a trip to meet our suppliers and talk about the company and give our Far East suppliers a good feeling about the transition'' to new ownership that was consummated May 11, 2005, for an undisclosed amount.
``They hopped on a plane and flew to China with us, going supplier to supplier, talking about the new company, management and where we're going in the future. We left that trip with a very comfortable supplier base. So those kinds of things are very good for the company.''
Hercules has ``been on the ground in China for more than 15 years,'' Mr. Seawell pointed out. ``Our strategy is to try to pick suppliers and put ourselves in where they have real strengths. There's a lot of risk going to China if you don't know what you're doing, but fortunately we've been there a long time.''
The company has an office and warehouse in China and a core group of about seven different manufacturers there ``so we think we have the quality and logistical edge,'' he added.
FdG also has been very supportive with the purse strings, providing capital to allow Hercules to boost its budget for tire molds and other expenditures. ``We introduced four major product lines in the last year or so,'' Mr. Seawell said, ``and have other things on the books to make our private brand program stronger, and they're continuing to support us with the mold budget as well as showing interest in strong inventory balances. (FdG) is just a very supportive group that wants to see the business do well.''
FdG typically keeps an acquisition for five to seven years; as a private equity firm, the legal limit for its ownership is 13 years.
Of course, all that support was mere speculation when Hercules began tendering offers from some 250 possible suitors more than a year ago. While potential partners included some large wholesalers, at the time former Hercules President and COO Craig Anderson told Tire Business that in the end no tire-related firms were in the running when the company settled on its chosen few and, finally, FdG.
Until that transaction, Hercules had been run by a board of 33 shareholder-owners-and often was faced with the differing objectives that emanate from such a divergent group, Mr. Anderson admitted.
Prior to FdG becoming Hercules' majority shareholder, Mr. Seawell had said the deal hinged on instructions from Hercules shareholders that ``they were looking for liquidity and also a strong financial partner who would provide a strong tire program going forward.''
They apparently got that and more.
Hercules was started in 1952 by a group of 21 retreaders ``to provide consistent high quality products to independent dealers and retreaders,'' its Web site states.
Brands handled by the company include its Hercules, Merit and Signet private labels, Kumho Tire Co. Inc.'s associate Marshal brand and nearly 20 major and associate brand tires and tire-related products.
With the acquisition and reorganization, Hercules went from five operating divisions to three, following the sale last year of its manufacturing division-which Mr. Seawell called ``a distraction.'' It now operates a private brand division in the U.S., a warehousing unit called ``Tire Dealers Warehouse,'' and Hercules U.S.A.-the result of combining the firm's Hercules Canada and Hercules International units.
All three units have divisional presidents reporting to Mr. Seawell, who said the new arrangement is ``a very streamlined, single organization.
``We're now in a position where, if we have good ideas and want to move forward, instead of a co-op owning the company and a board made up of co-op members, we now have a supportive business partner so management can take those ideas forward.''
Since the buyout, Hercules has seen growth in every division. In 2004 the company had revenue of $340 million through just its tire business sales, excluding manufacturing. That number grew to $382 million last year in the midst of the sale of its manufacturing unit and acquisition by FdG. This year, revenue is up 15 percent, he said; cash flow also is expanding.
And he considers that ``quality growth,'' with the top and bottom lines growing. ``Maybe that's why we have such a supportive partner,'' he said, chuckling.
That growth pattern extends to Hercules' warehouses. This year its Belleville, Ontario, distribution center expanded, the company added a new facility in Moncton, New Brunswick, moved to new corporate offices in Findlay and set up shop in a new, larger warehouse complex in San Antonio. Last year it grew its Union City, Tenn., and Houston facilities and opened a warehouse in Chicago.
``We have a great management team,'' Mr. Seawell noted. ``I don't do it. It's a team.''
Asked to outline some drawbacks to the company's acquisition, he's hard-pressed to answer. ``I can't give a negative. I really can't. It's the whole attitude, the whole feeling of Hercules is very, very upbeat and positive. This is a company where, whether you're an employee, customer or a supplier, we have a lot of momentum, a lot of aggressive people. And I think the people here are having fun-it's a real enjoyable place to work today.''
The company's old headquarters in Findlay ``had a lot of carbon black'' in its veins and was long overdue for relocation. Mr. Seawell said the new headquarters is ``close to our warehouse now. It's easy to bring customers into Findlay, meet the corporate staff. Then you go a mile and a half down the road to the 400,000-sq.-ft. warehouse and look at product. It's a great environment to bring customers into.''
As welcome as the influx of initial capitalization from FdG was, it didn't overleverage Hercules, he said, ``so it gives us plenty of room on our operating line to support our growth without additional capital being required at this time because our cash flow is so strong. We're funding our growth through our cash flow.
``If we were to do an acquisition or a substantial initiative that took us way up in sales, (FdG) indicated their support would be available.''
Just last month Hercules acquired Florida-based tire wholesaler Tire Distributor Inc. in order to stretch its range in the U.S. Southeast and more heavily into Latin America.
Since FdG stepped into the picture, Mr. Seawell said the reaction from Hercules' dealer-customers has ``really been positive. One of the things we talked about before the deal was whether the previous owners/dealer group would support the `new' company. They have.
``Our business in the private brands area is growing, our warehousing and export businesses, too. We have growth across all business segments. I think our previous owners-we call them dealers-find we're still investing in new products, in our brands. (They realize) we're still a strong company in logistics and supply, the basics a customer needs. We're trying to be a better supplier every day.''
Meanwhile, on the acquisition front, Hercules continues to ``look at everything in the marketplace that's available.'' Mr. Seawell said he uses three criteria when considering a purchase:
* Look at every opportunity; but
* ``Maintain our strategic focus''; and
* Maintain a very disciplined pricing model.
Acquisitions are a lot less predictable than greenfield operations, but Mr. Seawell expects ``we'll see both in our future.''
The company's strength-and core strategy-is tire wholesaling. He said Hercules will continue to invest in its brands, expand its supply platform and ``continue growing sales in a quality way. What I mean is, we're going to grow our cash flow along with our sales growth.
``It's a tremendous opportunity being part of the Hercules family today, both on the supplier and customer sides.''
Mr. Seawell has been with Hercules almost a dozen years. Though he began on the financial side as CFO, he acknowledged he's ``very much enjoying my role now as CEO.''
Except for the retirements last year of Mr. Anderson and Steve Buck, longtime tire division vice president and general manager, pretty much the entire core management team at Hercules has remained intact after FdG's buyout.
And the atmosphere around the office is ``very positive,'' Mr. Seawell said. ``It's like a breath of fresh air here. Momentum and excitement are good. You have to give people room to grow, and we've got employees on fire and all pulling in the same direction.''