A GROWING CONCERN
Actown-Electrocoil, Inc. Looks for New Opportunities Through Acquisition

September 15, 1998. Growth is a given. We all want our businesses to expand and prosper. But there may come a point in a company’s growth where reaching the next level can only be accomplished by going outside the organization. Dave Weisberg, President of Actown Electrocoil, Inc. of Spring Grove, Illinois, has been addressing this dilemma.

"Ours is a very fragmented industry. There are a large number of small players." Weisberg said. "Everyone seems to settle into a niche and stay there." Weisberg purchased Actown Electrocoil in 1975, when it had four employees and annual sales of $40,000. In 1997, it reached the $30 million mark. Actown produces high-and-low-voltage transformers, neon transformers and molded coils, with a total of 400 employees at three Midwest facilities. Its customer base is drawn from the lighting, industrial controls, medical, computer and cellular communications fields.

Weisberg wants to grow Actown to $100 million in sales over the next five years. "We at Actown want to offer a broader spectrum of custom magnetics products to our blue chip customers. In addition, our customers are demanding top notch technical design assistance, state-of-the-art manufacturing, timely delivery and, of course, competitive prices. They also want to narrow their supplier base." Weisberg feels there is an opportunity to grow through meeting these customer needs.

Since 1996, Weisberg has been looking to broaden Actown’s areas of expertise through acquisition. In 1996, Actown purchased Industrial Coils of Baraboo, Wisconsin. The combination was a good fit, he explained, because each company was able to offer the other something that it lacked. Actown gained access to new markets, (e.g., molded coils, solenoid coils) and significant new customers, and Industrial Coils was provided a greater depth of systems and controls.

At the time of acquisition, Industrial Coils was having difficulties meeting its production obligations. Delivery of numerous part numbers was behind schedule. Customers were transferring new jobs to competitors. Today, no jobs are behind schedule and revenue is on a growth path. Customers are asking the company to bid on new jobs which Industrial Coils is able to service because it has streamlined its operations in Baraboo, Wisconsin.

Bill Kiefer, Vice President of Sales at Industrial Coils and a member of the founding Kiefer family, in talking about the changes states, "It is a pleasure to be able to proactively service our customers and to anticipate their needs as opposed to dreading to hear the telephone ring. The combining of the two companies has been a big win for our company, its customers and our employees."

Weisberg agrees the Industrial Coils acquisition was mutually beneficial: "Acquiring existing expertise instead of going through a learning curve on our own was better for us. You spend a lot of energy and resources developing new products and customers. If you can shortcut that time by getting your hands around an existing business quickly, your curve is much shorter. I have also come to increasingly realize the value that a larger core company can provide."

Streamlined operations are also fundamental to growth, according to Weisberg, because they are an essential contributor to profitability. He has developed the Actown facilities into some of the most advanced in the industry. "We can respond faster to our customers’ requirements by being more machine dependent than people dependent." Weisberg explained. "We run a pretty efficient operation for the business we are in. Efficiency is way up there on the scale of whether you make money or lose money."

To that end, another Actown acquisition was Klaus Manufacturing, a tool maker formerly located in Libertyville, Illinois. The Klaus operation was moved to Actown’s Spring Grove, Illinois, plant. "We invest heavily in our tool room because it’s the tool guys who come up with the ideas to take the labor out," Weisberg pointed out. "The leverage you get from that type of investment has helped us considerably."

The next step in Actown’s expansion will be establishing a manufacturing plant in Juarez, Mexico to better service an existing customer with operations in Juarez. In addition, a Juarez facility will give Actown a further weapon to service its customer base. Weisberg adds, "We do not want to lose customers or product lines to other companies because we cannot offer a full range of manufacturing cost options." The Juarez plant is expected to contribute to Actown’s expansion objectives through its ability to provide reduced costs.

In January 1998, Weisberg also reached outside his organization for a partner to help him with his growth plan. The partner Weisberg selected is North American Business Development Companies, L.L.C., a Chicago-based partnership of institutional investors. Through its North American Fund III, North American acquired a significant interest in Actown in early 1998. The North American Funds specialize in investing in small businesses and helping them to become substantially larger enterprises through providing equity capital and strategic support and assistance. North American has acquired 18 companies in a wide variety of industries since its formation in 1989. North American has grown the companies it has had an investment in for at least three years from $80 million in revenues when purchased to aggregate revenues of over $300 million.

Weisberg stated that the reason he wanted an experienced business development partner was to again take advantage of a reduced learning curve. North American has helped many companies accelerate their growth plans, both internally and through acquisition. Weisberg added, "To our way of thinking, time is very strategic and sensitive. North American will actively help us in implementing our acquisition strategy. With their help, I am confident we can meet our ambitious growth target."