Buying an International Coatings Company with No Money Down
The Genesis of IRIS Powder Coatings Inc.For years, IRIS Lack GmbH Baumann in Eitorf, Germany, had looked for a means to enter the U.S. coatings market. In 1996 they identified their opportunity. Rittal, their largest customer in Germany, had recently built a fabrication plant in Springfield, OH. They expressed a strong interest in locally securing a supply of powder coating from a reputable and reliable source. Their confidence in IRIS Lack led to discussions of IRIS establishing a small manufacturing plant and service center nearby Rittal’s U.S. facility. With the assistance of the German American Development Corp., Springfield, OH, IRIS Powder Coatings was incorporated in 1997.
The plan called for establishing a small powder coating production facility capable of providing “just-in-time” specialty colors for Rittal. These would be small orders representing approximately 20% of Rittal’s powder coating consumption. The remaining 80%, consisting of about three high volume colors, was to be manufactured in Eitorf and shipped to Springfield in ocean-going containers.
IRIS Powder Coatings’ Springfield plant was built and commissioned in the fall of 1997. Per the original plan, powder was shipped to Springfield from Eitorf and the small specialty batches were produced at IRIS Powder Coatings Inc.
Supplying Its Lone U.S. CustomerTypical with most finishing lines, Rittal eventually encountered a few technical difficulties. The responsibility for resolution of coating problems rested on Eitorf’s technicians. Trouble arose in translating the local issues in IRIS Lack’s laboratory. Compounding the obvious communication predicament was the lag in response due to the lab being six time zones removed from the customer.
Competitive powder coating manufacturers seized the opportunity to demonstrate quicker response to Rittal’s needs. IRIS Powder Coatings Inc. was ultimately replaced as the primary powder supplier to Rittal USA. The IRIS U.S. managers were unable to garner suitable replacement business to support the continued operation of their fledgling powder manufacturing site.
Resurrecting the BusinessBy the end of 1998 IRIS Powder Coatings Inc. ran out of steam. The options for IRIS Lack appeared to be sell the company or pack up the equipment and ship it to Germany. A number of existing powder coating companies expressed an interest in acquiring the plant; however none of them made a serious offer.
I had met the owner of IRIS Lack in 1997 and had kept in touch with its U.S. personnel since the inception of IRIS Powder Coatings Inc. To seal the deal, I felt it was important for me to negotiate face-to-face with the principals in Germany. So off to Germany I went.
Within a couple of days we had reached an agreement for me to acquire 60 shares of the 100 shares issued. Ten shares were to be made available to smaller investors.
To make this acquisition, I agreed to assume a substantial portion of the outstanding bank debt. The bank was very supportive of the arrangement because it brought a sense of hope in resurrecting the business.
IRIS’ New DirectionI recognized the need to establish cash flow from the first day of business. This was accomplished by making our manufacturing capability available to other powder coating producers. Before completing the transfer of ownership, I had made arrangements with two existing powder makers for IRIS to manufacture some of their smaller batches of powder. This gave us the breathing space necessary to develop a new customer base.
In addition to making batches for other producers, IRIS Powder Coatings provides technical expertise and use of our laboratory equipment to emerging raw material suppliers. We found that a number of raw material companies have excellent technology, but are unable to evaluate their products in powder formulas due to a lack of powder processing equipment.
Our sales focus has been on quick turnaround specialty color matches and novel technologies. We have found that a need exists for a producer that doesn’t only sell off a color card. In fact, some of IRIS’ novel technologies include low temperature cure, luminescent, heat resistant, wrinkle effect, and super durable powder coatings. We are finding that coatings users turn to us when the larger companies can’t respond quickly enough to satisfy their requirements. In some cases, we have matched a customer standard upon receipt and shipped 50 kilograms out the same day.
In Pursuit of ProfitabilityHaving a great product line alone doesn’t ensure financial success. We’ve started this new phase of business with a keen sense of controlling costs. We’ve kept our overhead to a bare minimum, contracting for services when possible. Family members have helped out by donating their expertise where applicable. All of our advertising and promotional brochures have been designed by a relative. Accounting functions are performed by a close friend who expects compensation that will be commensurate with growth of the company. All sales people are employed on a commission-only basis.
In addition, we have promoted the company through press releases and free product showcase articles in various trade journals. In one case, a local industrial magazine featured IRIS Powder Coatings on the front page of their periodical. In another case, one of our products was displayed on the cover of a very prestigious powder coating journal. A local art student had accomplished the photography.
Labor costs have been kept in check by using temporary employment agencies. We contract for labor only when we need it. This also gives both the potential employee and us the opportunity to evaluate the “fit” of the job. If the person has good work habits, we can make a job offer. If attendance or performance are lacking, we can replace the individual — no questions asked.