When R. Bruce Grover of VPI LLC decided to retire from the company he had built over more than 30 years, he faced one of his biggest challenges: the lack of a good succession plan.
Grover was nearing age 70, and his children declined to take on such a huge responsibility. So he decided to sell his company, division by division, to others who could carry on the company's tradition of growth. VPI, a company dating back to 1946, would lose its identity, but not its plants or workers.
Grover hired Chicago-based investment banker William Blair & Co. LLC and conducted a yearlong search that culminated in two acquisition agreements announced Sept. 1. Sheet-extrusion giant Spartech Corp. of Clayton, Mo., agreed to buy three VPI divisions, representing the lion's share of VPI's operations.
In addition, Lebanon, Tenn.-based injection molder Coeur Inc. agreed to buy a medical-products operation from VPI. That division extrudes tubing that can be used with medical imaging devices, a major product for Coeur at its single plant, in Washington, N.C.
The Coeur deal, for undisclosed terms, is set to close Sept. 15, and the Spartech purchase is scheduled for completion by Oct. 1, said Sam Tinaglia, a principal at William Blair who handled the bidding for both.
``It was a very competitive process,'' he said. ``Spartech won the [three divisions] by being the most aggressive.''
The fifth and last VPI group, the flooring division, is close to being sold, P. Gregory Mickelson, VPI president and chief operating officer, said Sept. 1. That division makes electrostatic-dissipative flooring used with sensitive electronics equipment.
According to Mickelson, several buyers have been negotiating for the unit.
Once that sale is completed, Mickelson's work also will be finished, he said. That will spell the end of a company with 450 employees and expected sales, before the breakup, of about $135 million this year, Mickelson said.
``There was an extreme amount of reluctance to sell,'' said Mickelson, who assumed the presidency in January 2002 when Grover chose to step back from day-to-day operations.
``It was running fine, and it is not a troubled sale. But the family had gotten to the point where the vision that Bruce had established for many years could not come to be any longer.''
Mickelson briefly attempted to lead a management group to buy VPI. But he soon realized that he would not have the cash - and would carry too much debt - to move the company forward, he said. ``A debt-laden company wouldn't do right by our employees,'' Mickelson said.
Spartech officials, who had been looking for another U.S. company to buy, believe they have found a perfect match in Sheboygan, Wis.-based VPI, according to Bradley Buechler, Spartech chairman, president and CEO.
``From a product-quality standpoint, it was very difficult for us to break into VPI's customers. They were a strong competitor,'' Buechler said in a Sept. 2 telephone interview. ``We've gone up against them in the past.''
Spartech, in fact, already had targeted VPI for potential acquisition, even before Grover put the company up for sale, Buechler said.
Spartech's purchases include VPI's:
* Sheet Products Division, consisting of two plants that make custom extruded sheet for graphics arts, medical and retail markets.
* Contract Manufacturing Division, a maker of nonautomotive flooring and sound barriers.
* Salisbury, Md.-based Film and Converting division, specializing in flexible calendered film.
Spartech paid about $83.5 million for the specialty operations, financed from the proceeds of a $150 million private placement of unsecured notes.
All told, those four plants snared by Spartech generate annual sales of about $110 million and have 270 employees, Buechler said. Besides the new capacity, the VPI purchase adds several new but complementary products to Spartech and a wider berth in the upper Midwest. The two sheet-products plants are based in Sheboygan Falls and the contract-manufacturing operation is in Manitowoc, Wis.
``For us, this was an ideal operation to acquire,'' Buechler said. ``We got four facilities that are in three different lines of business that we [compete in]. And they service some of the market segments that we really haven't participated in.''
Each of the operations brings a technology jewel that Spartech can use, Buechler said. The sheet division, to be folded into Spartech's Custom Sheet & Rollstock Group, features lenticular products that use a specialty printer to create the appearance of three dimensions or of motion. The thin-gauge sheet is used for drink cups and many promotional items, Mickelson added.
The Contract Manufacturing Division moves Spartech deeper into another area of its automotive business, Buechler said. And VPI's film group prints designs and wood-grain finishes directly onto material, an area Spartech currently is not in, he added.
Both of those VPI divisions will be shifted into Spartech's large Color & Specialty Compounds segment.
Spartech outbid several other financial and strategic bidders, Tinaglia said. Among those interested were some European companies that were considering a piece of VPI, he said.
The purchase - one of Spartech's largest in the past few years - could continue to catapult the company into niche areas that could add more growth, said Michael Sison, an equity analyst with Cleveland-based Keybanc Capital Markets.
``Spartech has done a nice job at figuring out what niches make sense for them to be in,'' Sison said. ``They know what's required to integrate and run a business. They're already rolling up good profits on their custom-sheet business, and they can use this to further leverage material buys.''
Spartech, a publicly held company, recorded sales of $628.6 million last year. The company is in the midst of expansion. It recently added a sheet extrusion line in Portage, Wis., and will install another line at its Cape Girardeau, Mo., plant early next year, Buechler said.
The firm also opened a plastic-wheels molding operation in Reynosa, Mexico, this year and expanded a plant in Donchery, France, by quadrupling space to 120,000 square feet and putting in new sheet extrusion equipment. Visteon Corp. uses the plant's sheet to thermoform fuel tanks for the Volkswagen Passat, Buechler said.
Spartech also plans to launch a plant in China by the end of 2005, Buechler added. That facility could offer sheet extrusion, compounding and profiles.
The company is leaning toward opening a facility near Shanghai, he said. A final decision is expected this fall.
Coeur, the buyer of VPI's Medical Products Division in Sheboygan, is much smaller and newer, but also plans further expansion, said President Jay Cude. In addition to tubing for disposable imaging devices, the VPI division assembles coils that fit with the precision tubing, used for heart catheters and other diagnostic products.
The sale includes a partnership with an assembler near Monterrey, Mexico, named Specialty Packaging Products de Mexico, which is operated by Toledo, Ohio-based Owens-Illinois Inc., Cude said. Some of the low-volume handwork will be sent to that operation.
The VPI sale almost doubles the size of Coeur and will lead to consolidated sales of $25 million next year, Cude said. Coeur executives, working with New York equity firm Hammond, Kennedy, Whitney & Co. Inc., launched the business in 1998. The Coeur product line, purchased from a Raleigh, N.C., company, includes syringes.
Coeur has offered five VPI managers an ownership stake in Coeur, Cude said.
``It's very positive,'' he said. ``Everyone keeps jobs, the plant will be kept open, and we export products - not jobs - overseas.''
VPI, formerly known as Vinyl Plastics Inc., started 58 years ago as a maker of vinyl floor tile. Grover and several partners accumulated stock in the company between 1970 and 1975.
Grover was named Wisconsin Small Business Man of the Year in 1991. One year later, he purchased controlling interest in the company.
In 1997, he made his biggest acquisition, that of American Mirrex Corp., which included two film plants.
The company started to break up in early 2003, when KlÃ¶ckner Pentaplast of America Inc. bought a VPI calendered PVC film plant, a former Mirrex operation in Delaware City, Del., that KlÃ¶ckner subsequently closed.
Soon after that sale, Grover decided to sell the entire business, according to Mickelson.
``Our family has been evaluating its personal and financial objectives and decided that, under the right circumstances, we would prefer to sell the company,'' Grover said in a news release.
While Grover has other children, only daughter Deborah Wente is with VPI. She currently serves as a vice president and general manager of the Sheet Products Division. She will become a consultant for Spartech, Buechler said. Wente opted to stay home with her family instead of taking sole responsibility for VPI, Mickelson said.
An important criterion of the sale was to preserve the company's workers, finding the best possible deal for their future, Mickelson said.
``As we were going through that sale, we decided that we should keep this in the hands of owners who could nurture it and grow toward the future,'' said Mickelson, who has not determined his own plans after the sales are completed.
``[Selling the company] was a difficult decision. But it's turned out a lot more sweet than bitter.''