Case Study: Fortis Plastics
Monomoy Builds Profitable Plastics Business from Spare Parts
In 2008, Fortis Plastics was born of two immensely complex transactions: the purchase of Leggett & Platt’s four plastic molding facilities and the acquisition of Atlantis Plastics out of bankruptcy. The Leggett facilities were profitable, Atlantis had some great customers, and Monomoy saw the opportunity to create a strong new business by combining the two assets.
The story of how Monomoy built these neglected assets into a $110 million company is still being written. A few chapters in — just over a year into our ownership — we have reduced annual operating expenses by several million, consolidated IT and purchasing functions, and transformed the business from an order-taker to an aggressive selling organization. Two strategic acquisitions have enabled our expansion into Mexico, and Fortis is now on the short list of critical plastic component suppliers to important customers.
The Fortis story
Fortis Plastics is a $110 million thermoplastic injection and extrusion molder of precision plastic parts for the home appliance, furniture, building products, medical device and power tool industries. Fortis currently operates eight regional facilities in the United States and Mexico and is a leading plastic component supplier to Whirlpool (the largest appliance maker in the world), GE-Mabe (the largest appliance maker in Latin America and the third largest in the world), and Leggett & Platt.
We created Fortis through the acquisition of four orphan businesses in late 2008 and early 2009: the plastic molding division of furniture maker Leggett & Platt, Inc., the molded products division of Atlantis Plastics, Inc., the Mexican operations of Moll Industries, Inc., and Global Thermoplastics, Inc., a Houston-based resin compounder. Over the same period, we created a world-class management team to mold these four assets into a single company in a challenging industry.
The challenge: Building a profitable business from abandoned assets
We initially bought two very different business units to form Fortis. The Leggett plastics division consisted of four separate molding facilities that Leggett had purchased over the years. Most of the facilities were well-run and profitable, but each operated as a high-cost, independent business with substantial duplication of overhead, little coordination and no synergy. Atlantis, on the other hand, had great customers, but weaker assets and management. The Atlantis business fell apart as the housing downturn decimated the building products and appliance industries in 2008 and early 2009.
Both transactions were complex. We purchased the Leggett facilities in September 2008 without a management team and about two months before we closed on the Atlantis transaction. We needed to get comfortable that our investment in the Leggett assets would be worthwhile even if we did not end up buying Atlantis. We bought Atlantis in October 2008 in a contentious bankruptcy proceeding that required us to negotiate new agreements with Atlantis’ largest customers before we closed the deal, to fend off a bank group determined to liquidate the company, and to overcome a competing bidder for the assets.
In February 2009, we bought the Ramos, Mexico, operations of Moll Industries, Inc. to establish a Mexican presence and to grow with our customer Whirlpool into Mexico. In May 2009, we bought Global Thermoplastics from its owner-operator to reduce our raw material costs and expand the Fortis product offering. In 2008 and early 2009, we created a new management team at Fortis — including a new, world-class CEO, a few new managers and a few existing managers.
We created Fortis for the three key reasons:
A business that deserves to exist. Fortis is one of two or three critical suppliers of plastic components to important customers, a proposition that we were able to confirm in our due diligence. This is a company that matters. We created Fortis during a collapse in basic manufacturing that decimated the plastic molding industry, especially the many molders captive to the automotive industry. We believed that a well-capitalized, well-run regional molder could do extremely well in recession by providing important customers with a safe source of supply.
Problems that we can identify and fix. The Fortis assets were essentially undermanaged, undercapitalized and underutilized. We believed that new management and the Monomoy operating team could reduce basic operating costs at Fortis by consolidating 14 facilities into eight, implementing the Monomoy Production System to reduce labor content, rationalizing indirect and overhead costs, consolidating IT, purchasing and sales, managing the supply chain, and leveraging combined purchasing power to reduce material costs. At the same time, we needed to transform the sales side of the business from a group that took orders from existing customers to an aggressive selling organization. These are the problems we live for.
Opportunity to Create Value. Fortis is a deep restructuring for Monomoy. We knew that volumes would fall substantially in 2008 and 2009 as the recession deepened and that it would require every tool in the Monomoy toolbox to make Fortis a success. If we could fix the basic business through relentless cost reduction, however, the crumbling plastics sector would provide Fortis with huge opportunities to acquire failing competitors and high-margin business.
Improving the business: Consolidation and a strategic sales force
Over the first 12 months of Monomoy ownership, Fortis accomplished significant results in the worst manufacturing environment we have ever seen.
We created a full corporate and administrative organization from scratch, completed six complicated facility consolidations on time and under budget, and completed an IT conversion at seven facilities. We consolidated purchasing functions and rebid critical vendors, implemented basic lean manufacturing projects, and closed two add-on acquisitions to expand the business. We also helped management develop a single, focused sales organization that captured substantial new sales and customers in 2009. In all, Fortis reduced operating costs by several million in less than a year and created a consolidated, profitable business from a collection of abandoned assets.
In the first few months of our investment, sales at Fortis fell by over 25% and remained at that level or below throughout 2009. Most middle market businesses could not survive this revenue shock — and many of Fortis’ competitors did not. At Monomoy, however, our job is to create strong companies at every point in the business cycle, even at the bottom of the Great Recession of 2009. And that’s what we did. Our operations group helped Fortis manage through the recession and emerge stronger than ever. Sales remain low, but Fortis now generates the highest EBITDA margins in the history of the business.
Identifying areas for growth: Strategic acquisitions
Once we stabilized the basic business, we expanded Fortis into Mexico by acquiring an orphan molding operation in Ramos, Mexico, from a competitor. Fortis immediately made the facility cash flow positive and EBITDA positive by improving labor efficiency, reducing material costs and rationalizing SG&A costs. Over the past six months, we have transferred Fortis volume to Ramos from underutilized U.S. facilities and captured several million in new business for Ramos, most taken from failing competitors. Ramos will be a terrific business unit in 2010, and we are currently under contract to acquire a second Mexican facility to capture more of the Mexican molding market.
The company’s acquisition of Global Thermoplastics has been equally successful. Global manufactures blends and distributes the engineered resin materials used to manufacture plastic products. The Global acquisition allows Fortis to blend a significant portion of its resin compounds internally, reducing raw material costs and providing customers with higher-quality plastics and a wider range of material choices. The acquisition has reduced Fortis’ resin costs and expanded the company’s sales base to customers that seek a single source for compounding, tool making and molding.
This is a typical life cycle for a Monomoy company. We bought good assets, helped create a strong management team and gave them the resources to get better and better. As we create a cost structure that supports profitability and continuous improvement, we can grow a business like Fortis both organically and through strategic acquisitions. Even without an economic recovery, Fortis should generate cash flow, pay down debt and create real equity value over the next 18 months. And it will do much better if the housing market or the general economy bounces back.
But we have just begun our work at Fortis. In August 2009, Fortis initiated a second phase of cost reduction focused on further rationalization of overhead costs, additional improvements in labor productivity, optimized material usage and a war on scrap throughout the system. And then? We will launch a third series of business improvement initiatives — and probably a fourth and a fifth. At Monomoy, the business of helping companies get better never ends, and we will own a company like Fortis as long as we can add value through continuous improvement and profitable growth.
About Monomoy
Monomoy Capital Partners, L.P., is a leading private investment firm focused on constructive investing in middle market companies facing special situations. We target good businesses with annual sales of between $50 and $300 million, and implement customized business improvement programs that reduce operating expenses, increase profitability and encourage meaningful growth. Monomoy companies generate more than $1.2 billion in combined sales, employ over 5,000 team members and operate over 35 facilities in North America, Europe, India, Brazil and China.
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