The plastics world changed Monday Feb. 4, when the news came out that Jabil Circuit Inc. will buy Nypro Inc.
Everybody knows Nypro. That fact alone is noteworthy in an industry as fragmented as plastics. And it shows that what Jabil is buying from Nypro's Employee Ownership Stock Plan is more than a collection of skilled plastics people, injection molding machines and factories spread around the world — it's an admired and respected institution.
Nypro is a $1.2 billion custom molder and contract manufacturer. Former Nypro people are sought-after plastics manufacturing experts. Many have started their own companies.
Nypro Chairman Gordon Lankton is a living legend in the plastics industry. A mechanical engineer, he graduated from Cornell University in 1954. In a Plastics News profile when he entered the Plastics Hall of Fame in 2000, Lankton recalled a job interview when he first saw injection molding: "To have something very complex like that, and to see it falling out of a molding machine every 20 or 30 seconds. It was just an amazing new process."
Nylon Products Corp. was founded in 1955 by Nick Stadtherr and Fred Kirk. Lankton bought half of the company in 1962, then bought the rest in 1969. He soon started sharing ownership with key employees through a stock ownership plan and profit sharing.
Lankton combined a restless, adventurous spirit — he took a motorcycle trip from Germany to Japan in 1955 — with a knuckle-down approach to work, spending long hours in the factory and visiting customers around the globe.
Nypro grew by becoming international and teaming with key, large customers. Nypro was a pioneering U.S. custom molder to set up shop in Asia and Europe.
In blue-collar Clinton, Mass., Nypro took a hulking old carpet mill and turned it into a manufacturing showcase. It's one of the most impressive plastics factories in the United States.
In 1998, Lankton's egalitarian streak led him to turn over Nypro to its employees. Jabil will buy Nypro from 1,900 ESOP members and another 200 key international employees who have an ownership stake.
ESOPs have many advantages. Employee owners pull together to make a company successful and profitable. But ESOPs aren't perfect. In the case of a Nypro — needing money to make acquisitions and to invest in high-level equipment for the demanding molding and assembly of medical, packaging and consumer electronics — an ESOP can make it more difficult to obtain major forms of financing. Employees that retire, are laid off and quit get their ownership stake paid out.
"In my mind, ESOPs are great tools when you have a steady-growth company. But when you require money for rapid growth, or if you have to contract and get smaller, ESOPs are not the best structure to have," said Jeff Mengel, partner with Plante & Moran PLLC.
Mengel said the ESOP structure is a major factor driving the sale. The consolidation trend in medical is fairly new, but Mengel said other molders should not read too much into the Nypro-Jabil story.
"There's still an awful lot of niche players. So I don't think it has any impact on the small guys, but this may be a harbinger of consolidation for medium-sized companies."
Terry Minnick, president of Molding Business Systems, who advises smaller plastics companies, agreed. "There is a place in the market for huge molders, and there's a place in the market for medium-sized molders. But there's a lot of small guys out there that make nice living and do a good job for their customers," he said.
Bregar is an Akron, Ohio-based Plastics News senior reporter.