A deal forged in steel

by Eric Olson

SBJ Reporter

eolson@sbj.net

A 4-year-old Springfield company has grabbed the attention and cash of a large Ohio steel manufacturer.

L.J. Star Inc. of Twinsburg, Ohio, acquired Tank Components Inc., a local manufacturer of steel components, June 30 for an undisclosed amount. Tank Components became a wholly owned subsidiary of L.J. Star July 1, but a relationship between the two private companies dates back to Tank Components' formation in 2000.

At that time, six Precision Stainless Inc. employees left Precision Stainless before it was acquired by ITT Industries in order to start their own business, said Tank Components partner Dale Sandy, a former Precision Stainless salesman who sold L.J. Star's products. Sandy had worked with L.J. Star's majority shareholder David Star.

"When we went off on our own to start Tank Components, one of the first calls I made was to David (Star) to see if he minded if we distributed his product," Sandy said. "We've been selling his product ever since. Now we're working for him."

Four of the six partners have remained on board through the acquisition, said Sandy, who was named Tank Components president and CEO in the deal. Jason Floyd is vice president of marketing, Mike Clouse is production manager and Randy Mayshark is distributed products manager. There are 10 employees, including the partners.

L.J. Star is expected to give Tank Components a shot in the arm, with capital and equipment expenditures planned in the near future. L.J. Star President and CEO David Star would not disclose the amount the company was immediately investing in Tank Components, but he said the company was seeking a larger location than the 13,000 square feet it leases at 1621 W. College. Sandy anticipates a move within nine months, and new equipment acquisitions in 2005 and 2006.

Star said Tank Components' solid niche market in manufacturing steel components for pharmaceutical, biotech, food and dairy tank vessels, and good growth even during an industry downturn, sparked an interest in the company.

Star also saw great synergies between the companies: common customers and common products. L.J. Star manufactures observation products for pharmaceutical, chemical and biotech processing industries. Both companies sell parts to steel fabricators, such as Paul Mueller Co. in Springfield; Tank Components has 200 clients nationwide and in Canada.

Tank Components posted $3 million in sales last year, up 18 percent from 2002, according to Sandy. The company has recorded between 17 percent and 20 percent growth each year in operation.

"They've grown in a downturn. It's remarkable what they've done," Star said, adding that his own company has not fared as well during that time.

But Tank Components' path for future growth was cloudy, Sandy said, and that's why the partners sold.

"We had taken the company as far as we could," he said. "We didn't have cash to do whatever we wanted with. (Star) is in a little different situation than we are. By him coming, he'll give us more access to money or equipment, whatever we need to grow."

L.J. Star is a privately held company and Star would not disclose employment or revenues. The company has been in business 14 years, and this is its first buyout.

A good move

Tank Components' founding partners two Precision Stainless salesmen, an engineer and three steel fabrication workers knew their February 2000 move was a bit risky. But looking back, it was a good move, Sandy said. Precision Stainless has reduced its workforce in a slowed business environment to half of what it was in 2000, according to Sandy.

"We look like geniuses when it is all said and done. Prior to, everybody looked at us like we were crazy," he said.

But selling Tank Components wasn't a clear-cut decision. Selling out wasn't a direction every partner wanted to go.

With limited business ownership and selling experience, Sandy said he and his partners needed a consultant. They hired Gary Rogers of Kingsley Group, the business consultation and merger and acquisition arm of Business Brokers Unlimited.

"They had been approached by David Star, and they weren't sure, first of all, whether it was a good value for the business, and second, how to go about negotiating the deal," Rogers said.

Based on Tank Components' organizational structure, five out of six partners had to agree to the deal. "This was unique to us," Rogers said of working with six owners. "They all had different perspectives in what was of value to them."

Rogers met with each partner individually and then as a group, showing how Star's offer stacked up against what the business might get on the open market.

"We couldn't have done it without him," Sandy said. "I think that we would have made major mistakes had he not been there to guide us through it."

In the end, two partners Jason Gayer and Jeff Duncan decided to walk away after the sale.