Axion International Holdings Inc., a composite railroad tie and buildings product maker, is acquiring the assets of a plastics recycler in a move that will better control raw material quality and add revenue.
Axion, of New Providence, N.J., already had a previous business relationship with Y City Recycling of Zanesville, Ohio, before acquiring that company’s assets.
“We need to control the supply chain of our materials. In this business, it’s a difficult venture when you’ve’ got multiple people in the supply chain, from a costing standpoint and from a quality standpoint. So it makes sense for us to be in the material supply business of the material what we use in our products,” said Steve Silverman, CEO of Axion in a Nov. 22 telephone interview shortly after the deal was announced.
While this vertical integration was one driver to make the deal, the CEO said there also were other considerations.
“The second driving force is it enables us to control quality better. And the third driving force is it adds revenue to the company, it gives us diversification,” he said.
Axion will both internalize volume from the plastics recycling operation and sell to third-party companies.
Y City Recycling had been supplying recycled plastic for the company’s products. The two companies were both in a shared a Waco, Texas, facility that Axion took operational control over earlier this year.
The latest transaction includes assets of both Y City Recycling’s Zanesville plant as well as recycling equipment in Waco, Silverman said.
Paperwork filed with the U.S. Securities and Exchange Commission shows Axion paid The Community Bank of Zanesville $3.56 million for “certain equipment, inventory and supplies related to the operation” of Y City Recycling.
In connection with that transaction, the filing states, the company struck an asset purchase agreement with Y City Recycling sellers Brian Coll and Renee Coll for $2.08 million “which Axion Recycling paid in cash to the Bank to discharge in full certain indebtedness of Y City to the Bank.”
No money additional money was paid to the Colls, Silverman said.
Y City Recycling began operations after buying the assets of another recycling firm, Coll Materials Group LLC, where Brian Coll was CEO. Coll Materials had defaulted on loans from Community Bank, and the bank sold the assets of the company to Y City, Plastics News reported earlier this year.
“Our transaction was with Y City and that’s the assets that we purchased. We felt it was a good business transaction for us. It was assets that were available to get purchased. And we purchased them. And we’re going to start a new revenue toward inside our company and we’re excited about it,” Silverman said.
Axion started a new subsidiary, Axion Recycled Plastics Inc., which hired key employees and managers from Y City Recycling. Both Brian Coll and Renee Coll were in a meeting at the Zanesville facility and not available for immediate comment on Nov. 22.
Three large Axion investors also chipped in $3 million to repay certain liabilities and to fund future equipment needs as well as working capital. Silverman described the liabilities as “day-to-day payables.”
Axion also has a new $2.5 million revolving line of credit in place.
“We’re pumped up. We’re excited,” Silverman said. “We obviously think this is a good business. From a financial transaction standpoint, we had a great opportunity and we took advantage of it. Our investors supported us. We know it helps Axion grow.”
“When you are a start-up company in the public markets, you need to increase your revenues. You do that through vertical integration, you do that through acquisition or you do that organically. And we’re doing all three,” he said.