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May 15, 2018 02:00 AM

Carolina Color receives patent, plans for growth

Don Detore
Plastics News Correspondent
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    Carolina Color Corp.
    Matt Barr at Carolina Color's anniversary celebration in 2017 before it was acquired by Arsenal.

    Orlando, Fla. — Carolina Color Corp. will celebrate the second half of its initial year as a part of the Arsenal Capital Partners family with some big industry news: The custom color and additive supplier will receive a U.S. patent for its G3 color pellet technology for plastics processors.

    At the same time, the company expects to follow its future will bring it opportunities to invest in acquisitions needed to grow.

    The U.S. Patent and Trademark Office will issue the patent to Salisbury, N.C.-based Carolina Color on May 15, coincidentally the birthday of George Abd, one of the specialty industrials advisers for Arsenal, the private equity firm, and who serves as the chairman of the board that now oversees Carolina Color.

    "Having patented protected technologies in the marketplace is only going to help us grow that much more quickly," Matt Barr, vice chairman of Carolina Color, said while attending NPE2018 in Orlando, May 7-11. "We won't be infringed on, vs. some other products that are not patented and know-how driven and that somehow people can get around."

    "G3 is a great example of Carolina Color's ability to create truly disruptive technologies providing our customers with genuine competitive advantages and the reason we were granted a patent for this technology," said Jeff Smink, chief operating officer of Carolina Color. "We anticipate continued growth of this G3 technology moving forward into 2019."

    The technology, which provides all the benefits of liquid color in a solid pellet concentrate, "brings enormous value to the customer," Abd said. Liquid color, he said, has many benefits as well as a whole series of downsides.

    "You get the cost performance of liquid performance, but you can do it with solid color," he said. "It's a lot easier to handle. You don't need to have worry about adding that additional contaminant into that stream of the product."

    The technology packs more coloring power and strength into each pellet, allowing customers to use the product at a much lower rate than other concentrate products in the industry, including liquid color. It has been quite a hit in the packaging market, according to Barr.

    "The industry has long accepted solid pellet concentrate as the best option, and now we're able to deliver that in a G3 product. The customer is going to get the cost of liquid color with ease of use with a solid pellet alternative," Barr said. "That's why we think it's a home run going forward."

    The G3 technology, which was eight years in the making, expands upon Carolina's G2 technology, which is specifically targeted for durables and products exposed to sunlight. Barr said the G2 technology doubled Carolina Color's growth from 2008, when it received a patent, to 2013. Products that have benefited from the technology is polypropylene siding and roofing.

    "We found a toehold in a handful of markets that required very robust UV and antioxidant package and superior coloring," Barr said.

    It's been that kind of run for Carolina Color, ever since the company was founded more than 50 years ago. After thriving as a family-run business, founded by Barr's father-in-law — "He's a product of the Depression, so we were a cash only business" --- Carolina Color was sold to Arsenal in a deal that closed Oct. 31.

    Arsenal, founded 18 years ago, usually focuses on acquiring successful small businesses in two sectors: Specialty industrials and health care. It has raised institutional equity investment funds of approximately $3 billion and completed more than 100 transactions, including platform portfolio companies and follow-on acquisitions.

    Arsenal complemented its acquisition of Carolina by purchasing Breen Color Concentrates L.L.C., which had acquired Hudson Color Concentrates about 18 months earlier, joining two organizations (Carolina Color, Breen/Hudson) with roughly 115 employees each. Breen handles PVC almost exclusively, while Hudson and Carolina offer complementary products. Combined, the companies have sales of more than $100 million.

    "Bringing these three brands together under one banner made a ton of sense," Barr said.

    One strange fact emerged after the companies had begun to align their businesses: they had just one shared customer.

    "There are literally hundreds of customers that this business supplies," Abd said. "To only have one that is shared customers is not unique to those businesses. When we go out to some of these other acquisitions and other companies, there is very little overlap. It's such a diffused market. This is a great, great opportunity."

    It was just about seven weeks ago when the aligned companies held their first companywide sales meeting. Barr said what was most striking is how the cultures of all three companies mesh so perfectly.

    "That was my concern," he said. "We spent 50 years building a pretty unique culture at Carolina Color, and I couldn't be more pleased with the way the Hudson and Breen cultures mapped with ours. We have an amazing group of people, very talented. They hit it off beautifully."

    "Culture comes from leadership and Matt's leadership drove the culture at Carolina and the leadership [Howard DeMonte] drove the business at Breen," Abd said. "When you have great leaders you partner with, you know they're going to build that culture. Quite frankly, that market is one that rewards that type of culture and punishes it unless you're very very large. … So you see two very successful businesses with great leaders. You couldn't look for more as an investor."

    Barr said one of the benefits of partnering with Arsenal was the experience it brought to the table not only in combining all the companies' assets, but also doing business as they move forward. He and his team worked with Arsenal to align resources, capabilities of sales professionals, technical support and customer care.

    "We are built for the long-term, and I think having that perspective brought to us by Arsenal and their support helped me to approach decisions much differently than I might have done a year ago, when I was a smaller organization and independent," Barr said.

    "One of things Arsenal does well is it build up a pool of resources and human capital assets that have expertise in accounting and finance, expertise sale structure, and IT and sale force planning, and so depending on the organization you want to acquire, you could use none or some of those assets," Abd said. "Matt has been able to utilize some of the assets very successfully.

    "At our last board meeting, Matt presented his new organizational structure, and typically when business are acquired, there is a lot of anxiety in the organization. There's little no anxiety at all --- just an enormous amount of excitement."

    The next logical step is for Arsenal to fortify and strengthen those businesses by acquiring other complementary businesses. That buy-and-build mode has been a hallmark of Arsenal, and Abd expects that formula to be employed with Carolina Color.

    "Arsenal has been incredibly successful doing that way,"Abd said.

    "It depends on market and the company, the technology, but in this case, we believe the market has all of the characteristics for us to do that,' he said. "We've started that with two incredibility strong foundations, with Breen/Hudson and Carolina, both from a technical and people resource standpoint.

    " We think that is the core of a much larger enterprise, and we're very excited to go out and do those types of add-on acquisitions, to get better, to add more human resources, to add talent, to add geography."

    Though the companies have five facilities, they are concentrated in the Eastern U.S. "We have to take that technology that we have to the other facilities, so there's a lot different layers in our ability to grow. So we very excited. Arsenal is very adept as those type of strategies and developing those skills in over its 18 years in existence."

    Arsenal generally holds on to a company for between four and seven years, Abd said, before selling and moving on to another entity. He did say that Arsenal has maintained ownership in one health care-related company for nearly 12 years.

    But he cautioned it likely will take time for Arsenal to build its investment appropriately in this particularly industry.

    "It really depends on the acquisition, the market, how long it takes to develop and implement the strategy," Abd said. "So if you have a buy-and-build strategy, you're going to have to be smart about the acquisition, have willing sellers and bring those businesses into part of the overall enterprise, integrate them and deliver value to your customers.

    "That doesn't happen overnight. It takes a little longer to do a buy-and-build than just buying a very rapidly growing organic business, running it for a few year and selling it."

    Barr knew that Arsenal was a short-term partner when he and the company entered the arrangement. But that did little to sway his decision. The advantages far outweighed any negatives.

    "In any business environment that's a very changing dynamic, change is constant," Barr said. "I know that we're going to be better as an organization having partnered with Arsenal, having worked closely with them and that whether it's 5 to 7 years or we're the 12-year [organization], who's to say.

    "I do know, when ultimately there is a change event, we're going to be placed in the best situation going forward. I don't have any concerns about that at all."

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