Clarion Technologies Inc. came to life in 1999 with plans to be at the forefront of a consolidation trend in injection molding.
In two years - 1999 and 2000 - the business and its investors bought up four companies and expanded to take in six factories and more than 600 employees. Clarion had an audacious goal, to be a prime second-tier molder with more than $500 million in sales within five years.
But those purchases did not come cheap, and Clarion's bottom line suffered. In 2000, with sales of $107 million, the company posted a loss of $9.5 million. In 2001, the numbers worsened, with sales of $90.5 million and a loss of $35 million.
In 2002, sales were $80.6 million, with a loss of $7.2 million.
``The biggest issue we had was the over leverage for an economy that wasn't heading in the right direction,'' President Bill Beckman said.
By launching its acquisitions in the late 1990s, Clarion was forced to pay higher prices. But, he noted, if it had not done its purchasing at that time, it would not have been in place to chase new business today.
``People were all saying that we were paying too much, and in retrospect, we were paying too much,'' he said. ``But we wouldn't be here today if we hadn't bought anything then. It's a real Catch-22.''
But with a shift in Clarion's in-house offerings, the sale of one plant and solid operational performance numbers that convinced creditors to shift debt to equity, the company has reversed those negative numbers.
Clarion seems to have turned the corner, posting profit for both the first and second quarter of 2003. For the first six months of this year, it posted $47.6 million in sales and profit of $1.3 million. It is on target for sales to top $100 million for the full year, and its first-ever year in the black, with sales to the home appliance, automotive and office furniture industries.
``It's worked out well for us, but the right ingredient was having the right partners,'' Beckman said in a Sept. 2 interview at Clarion's Grand Rapids headquarters. ``They had confidence, but we had to deliver.''
The Clarion that exists today is different than the one that was shaping up in the immediate days after its single-biggest acquisition - that of Drake Products Corp. of Greenville, Mich. - in the spring of 2000.
At that time, the company had in-house toolmaking capabilities, in-house designers and a product development center at its Holland, Mich., headquarters.
But the economy changed drastically, beginning with a slowdown in the auto industry that first hit in October 2000, followed by problems at one of Clarion's customers and an overall slowdown in 2001, capped by the terrorist attack of Sept. 11, which threw most corporations' plans into turmoil.
``It was all a bunch of dominoes at that point,'' Beckman said.
Clarion was integrating the holdings of different companies into one cohesive unit under new Chief Operating Officer Tom Wallace at the start of 2001. The firm saw a drop in scrap rates to 2 percent from 8.2 percent in the previous two years, while on-time delivery rates grew to 99.2 percent from 89 percent.
But the high price of the acquisitions was hitting the bottom line.
To adjust its debt levels, Clarion sold a plant in Montpelier, Ohio, to Cascade Engineering Inc. of Grand Rapids in April 2002. It closed one of its two plants in Greenville.
The company looked everywhere for opportunities to cut costs. Clarion closed its toolmaking operation, deciding that it could get better service from full-time mold makers. It also cut its in-house design team, instead aligning itself with Grand Rapids industrial design group Three60 Productions Inc.
The relationship with Three60 allows Clarion access to full design capabilities without the overhead of a full-time staff, while also allowing designers from Three60 to work in a variety of fields, with an agreement that they do not work for Clarion's competitors.
``It's part of what you have to do to get to the other side,'' Beckman said. ``Your customers don't want to have to pay additional overhead unless they're going to use it.''
And executives cut back as well, closing the headquarters in Holland for a smaller, shared office space in downtown Grand Rapids. At one point, Beckman and Wallace were sharing a work table in the open office setting.
The changes reduced Clarion's overhead costs by 29.1 percent between the first quarter of 2002 and 2003 - nearly 50 percent overall between 2001 and 2003, said Chief Financial Officer Ed Walsh.
Despite the changes in design, the company still could leverage its capabilities by selling a major large-appliance customer on in-mold decorating technology already used in the auto industry for use on refrigerator shelves to spruce up the look, said John Brownlow, vice president of sales.
New contracts allowed Clarion to open its shuttered Greenville plant in February, with new presses and 180 workers.
``You get really focused when you have to turn things around,'' Beckman said. ``You look at what's going to add value and what doesn't, and if it doesn't add value, we don't need it.''
And even while a loss remained on the books through 2002, major creditors were able to track what was happening and see consistent operating income levels. In December, lenders agreed to flip $37 million in debt to more than 37,000 shares of Clarion stock.
``There was a lot of selling and a lot of building confidence in the company that had to occur,'' Beckman said.
He credits a strong relationship with Clarion's investors, backers and banks, who believed in the company and were willing to give it time to make the improvements needed to bring it into the black.
Each company finding itself in need of a turnaround may have ended up in that position for any of a variety of reasons, said Jon Ball, an analyst with Birmingham, Mich.-based turnaround specialists Conway MacKenzie & Dunleavy. They also face a variety of approaches they must take to ensure they have a solid operational base to move forward.
``There aren't any cookie cutter answers out there,'' he said. ``You have to look at the source of the distress and what it's going to take to fix it.''