First M&a

Personal History

• Complementary skills

First M&A

• Closed: 1984, Jan 31

• 18-month search

• Texas Catalyst

• 50M catalyst handing market in the US

• 1.3M revenue, 300,000 pre-tax

• 1.4M LBO

• paying 200,000 too much for the deal

• no sales

The industry

• highly fragmented – many small operators

o require energy and hands-on management

o customer-relations: service supplier decision is made at the local plant level

o outsource nonunion laborers

o relatively low capital barriers

o financing available from the equipment manufacturers

• low price

• 70% for refining and petro chemical industries

• chemical companies: workmanship, profit center, requires quality service

• oil refineries: low price, cost center

EnClean’s early years

• true partnership – Tim: higher salary in the early stage, rational; Malcolm: highly equity, emotional

• 1st year: consolidate catalyst market by maintain high service level and expanding geographically, broadening capacities

o fast response time

o expansion to other locations – Huston, Beaumont/Port Arthur area

o expansion of product line to larger catalyst handling projects and to residential fuel units

o 2nd service line: industrial vacuuming segment – dry vacuuming business

The Parkem acquisition

• strategy: providing services to multiple industries

• Parkem: 10.4M revenue, 15% profit pre-tax, 8 locations

• Bought for 8.1M

• Changed its name to Parkem, consolidate locations, employees acquisition

o Cross-selling services for a one-stop shop for industrial services: both high quality and low price

o Large capital investments – capital intensive

o Large debt and tight cash flows – negative cash flows

The EnClean Board

• John Matson – operation issues

Tom Delimtros – entrepreneurs, VC

John Jaggers – tech VC, public market finance

The Maintech acquisition

• By 1987, positive cash flows and paying down debt

• Saturated the market

• Expansion: by service line/geographically

o Maintech International: industrial services and specialty chemical distribution operation

o Was losing money

o Bought in liquid vacuuming (3rd service line)

• LBO

• Expand to 13 locations

• Connect-the-dots: having service locations within a day’s drive of each other to better utilize people and equipment

• 1987, POI consideration but stock market crashed

Strategic Planning Process

• 1988, 16 locations

• misinformation and miscommunication

• division managers chase business opportunities that were too far afield

• strategy

o shifted