By: Bill Bregar
July 2, 2013
BRISTOL, CONN. — Barnes Group Inc. has made a "living" out of precision machining and fabrication of demanding components designed by customers — like parts for jet engines and car transmissions — but Barnes' purchase of hot-runner maker Synventive Molding Solutions Group signaled a change in strategy.
Last year, Barnes spent $335 million to buy Synventive, a global hot-runner maker based in Peabody, Mass., from private equity firm Littlejohn & Co. LLC. The deal marked the largest acquisition in Barnes' history — and Wallace Barnes founded the company in Bristol in 1857.
Synventive helps Barnes control its own destiny by owning a strong base of intellectual property, said Patrick Dempsey, Barnes' president and CEO. And now Barnes plans to use Synventive as a platform for building a plastics-related business through more acquisitions.
"The injection molding industry — the area that Synventive is keenly focused on — that's an area where we'd like to continue to expand," Dempsey said.
Dempsey and Synventive President Robert Davies talked about the plans, including broadening Synventive's market segments, during a May interview at Barnes headquarters in Bristol. Barnes still has some manufacturing in Bristol, at an Associated Spring plant that is one of its legacy businesses. Barnes has been traded on the New York Stock Exchange since 1946. The Barnes family name is well-known around the town, located between Hartford and Waterbury.
Bristol is home to sports network ESPN. But 156 years is a long time, prompting Dempsey to joke: "Usually if anybody asks, 'Do you know where ESPN is?' they say, 'Yes, that's in the same town as Barnes.' "
Humor aside, Barnes figures to get a higher profile in the plastics industry. Synventive had been owned by a series of private equity companies before Barnes became a strategic buyer in August.
Dempsey, a 12-year veteran of Barnes, played a key role in the Synventive deal. He was promoted from chief operating officer to the top spot this year when the former president and CEO, Gregory Milzcik, left the company.
Private equity firms typically look to sell a company after three to five years of ownership, then pay back their investors. Demp¬sey said Barnes is a patient firm, with plans to grow in plastics.
"As we look at the Synventive business, we're looking at how [we can] position the business for the long term. Barnes traditionally will make investments in our businesses that may not truly come to market for four or five years," Dempsey said.
He cited parts Barnes made for an engine for the Boeing 777, where major investments didn't pay off for five years. That's typical for aerospace suppliers, Dempsey said.
"We're prepared to make investments today with that type of time horizon. It's part of our DNA," he said.
Barnes Group generated 2012 sales of $1.23 billion; Synventive contributed to this was based on $160 million of an annualized sales. In a first-quarter conference call with financial analysts April 26, executives said they expect Synventive to generate high-single-digit sales growth in 2013, better than the overall industrial segment sales of mid-single digits.
Synventive employs more than 800, runs factories in Peabody, China and Germany and has 26 sales facilities around the world. Davies said automotive is its largest global market. But Synventive will be expanding into hot runners for premium consumer and electronic products — everything from high-end sunglasses to smartphones, made in molds in the range of one to eight cavities.
"We've always been very strong in automotive. We want to take that knowledge and that application expertise, and apply it to what we consider a subclass of customers called premium consumer electronics," Davies said. "These are parts that have high cosmetic requirements, that use engineered materials, that do color-change, or two-color, with critical dimensions."
Barnes plans to invest in new products at Synventive. And Barnes also can share advanced metalworking technology from its core businesses in industrial and aerospace.
Barnes has a history of making acquisitions, many in the spring industry. Wallace Barnes started the company as a metal parts shop. Early product lines included springs and hoops for the fashion craze of the late 1800s, the hoop skirt. In fact, the company was renamed Associated Spring Corp. in 1923.
In 1976, the company changed its name to Barnes Group.
More acquisitions over the years helped Barnes expand into automotive and aerospace, and distribution. Barnes gained a reputation as a "build-to-print" supplier of highly complex components and subassemblies.
"As an example, we would manufacture from a lot of different types of superalloys," Dempsey said. "If you take the jet engine as an example, even in there, we would focus on the hot section of the engine, because that's where the more exotic materials exist, and the parts which require the most complexity in terms of manufacturing expertise."
That strategy created a stable business in which Barnes has racked up an amazing 79 consecutive years of dividends. But it also made the company vulnerable to economic swings of customers. And 62 percent of total sales comes from the Americas, with Europe and Asia accounting for a smaller portion.
So about four years ago, senior executives began to create a comprehensive strategy for the business over the mid- to long-term. Goals included building up intellectual property owned by Barnes; picking end markets with sustainable, profitable growth; trying to moderate cyclical ups and downs; and becoming more global.
Dempsey called Synventive a "perfect alignment" with the trans- formation to the new growth strategy.
"I have buyer's delight," he said. "We're very excited to have Synventive as part of the Barnes portfolio."
In April, Barnes completed the sale of its North American distribution business. That followed the sale of the European distribution operation in late 2011.
Dempsey said the company used the proceeds from the North American distribution sale to pay down debt from the Synventive deal. Barnes also will buy back stock. The moves position the balance sheet for future acquisitions, he said.
"We saw a clear strategic fit [with Synventive]," Dempsey said. "What we really liked about Synventive as an acquisition was highly engineered components and subsystems, a strong brand name in the marketplace [and] a strong global presence. We clearly placed heavy value on its IP portfolio, which is in the form of patents and process technologies."
Barnes is a newcomer to plastics, but Synventive is just the start of a new business area. "The plastic injection molding market is something that — back to our original strategy — is that we see Synventive as a strategic platform and something that we want to continue to invest in, and grow as a key business within Barnes Group," Dempsey said.