Beyond filament | In a bid for continued growth, Lewiston's Elmet Technologies aims for the high-tech market
As a salesman, Jack Jensen says he could usually tell whether he wanted to do business with a company by the appearance of its lobby. "It's all about image," Jensen says. "It's important when people walk in they get a sense of confidence."
That's why after purchasing Elmet Technologies from his employer, Philips Electronics North America Corp., in 2003, Jensen gave his company a thorough makeover. Under Philips, Elmet manufactured the metal components, such as filaments, for light bulbs. And the lobby, which Jensen says was "old, run-down and tired," reflected the company's old-fashioned industry. So Jensen upgraded its image to one of innovation and technological growth.
Today, the lobby sports sleek, black leather chairs. Black-and-white photographs of industrial machines decorate the walls and a large sheet of a shiny metallic material prominently displays the company's logo. The administrative offices and conference room carry the same modern décor, but the company's makeover isn't limited to appearances. In the last three years, under Jensen's leadership as president and CEO, the 76-year-old company has entered new high-tech markets for components made from tungsten and molybdenum, the heat- and wear-resistant refractory metals the company has traditionally used. Moving far beyond light bulb filaments, the company now manufactures specialized components for the semiconductor and medical industries, among others, which have helped increase the company's revenues 30%, to nearly $60 million a year.
But Jensen realized he could only take the company so far. So, earlier this year, he began searching for a financial partner that would allow the company to continue its growth. In mid-October, Elmet announced that Boston-based Harbor Acquisition Corp. would acquire Elmet in a cash and stock deal potentially worth $150 million if Elmet meets certain financial targets. The management team led by Jensen will stay in place and the company's operations will remain in Lewiston. "I'm looking to build a strong foundation for Elmet and all its employees," Jensen says of the sale.
Harbor was created in June 2005 with the sole purpose of acquiring a mid-sized company in either the industrial or consumer products sector. Robert Hanks, Harbor's CEO, says the company looked long and hard for the right company to acquire, considering well over 100 opportunities before ultimately deciding on Elmet. Harbor's potential acquisition had to meet certain criteria before being considered, however, says Hanks, who previously was a member of Elmet's board of directors. Elmet needed to be capable of becoming a public company, be willing to consider future acquisitions, have above-average growth potential and have unique and different products with high margins, Hanks says. "And Elmet met these criteria," he says. "The company is poised for significant growth in several high-growth markets."
Targeting a growth market
Where Philips Electronics saw only a facility to manufacture simple components for its lighting products, Jensen, a long-time Philips employee, saw the Lewiston facility as capable of much more. While it was clear Philips didn't have plans to expand its refractory metals business, Jensen decided he would pursue purchasing the business on his own.
For six years, while Jensen was senior vice president of sales at Philips' headquarters in Somerset, N.J., he lobbied the president to sell him Elmet. He persevered and ultimately reached a deal with Phillips. So Jensen gathered a group of investors and bought the company in 2003 for an undisclosed amount.
Streamlining the operation was Jensen's first goal. Coming from a big corporation like Philips, he figured a smaller company could find several ways to cut costs from the bottom line. "What's been fun is the speed of the decision making," Jensen says. Under Philips the decision to invest in a new piece of equipment might take three months, he says, but now "we can make it in an hour."
Jensen quickly put his growth plan into action and refocused Elmet's engineering team away from commodity products like light bulbs and onto high-tech applications for tungsten and molybdenum, which Jensen just refers to as "moly." Today, the company manufactures components for products such as flat-panel displays, MP3 players and portable hard drives. (See "Metal market," below). "If you look at some of the applications we're into," says Jensen, "they're things that are becoming second nature to us, but that we didn't have five years ago."
Further growth for molybdenum and tungsten exists as well, says Gary Rozak, an Ohio-based refractory metals engineer. "The newest application for these materials in the last 10 years is liquid crystal flat-panel displays," Rozak says. "[But] there are new applications up and down the road." He cites the potential use of molybdenum and tungsten in solar panels as one possible future application.
Another change Jensen recognized immediately after purchasing Elmet was the need to invest in new equipment, something that Philips rarely did, he says. Jensen says the lack of investment in new equipment was driving away business, as some longtime customers began taking their business elsewhere, convinced the facility wouldn't last with outdated equipment.
Soon after the deal with Philips was closed, Jensen met with Elmet's employees and told them the first measure of success would be when they saw a new machine on the manufacturing floor. It didn't take long: Before the end of its first year as a standalone company, there were six new vertical milling centers, which cost about $156,000 a piece, on the manufacturing floor. And Jensen says many of those concerned customers came back, once they saw Elmet was willing to invest in its operations.
To facilitate the company's growth, Jensen estimates well over $3 million has been invested in the facility and in new equipment over the last couple years. Nearly $1 million of that was in the creation of a "clean room," which the company will use to penetrate deeper into the medical industry.
Elmet already produces molybdenum-and-tungsten foil for use in CAT scan machines, but is working with a medical industry customer to begin manufacturing molybdenum precision parts for the machines. The products, which are measured in the microns and can be thrown off spec just from the heat of human touch, are currently in the prototype and predevelopment stage, but Jensen hopes to be in full production by the fourth quarter of 2007. "We have a saying here," Jensen says. "If it's a difficult product to make, that's the one we want."
The company still manufactures wires and filaments for light bulbs, but even there, Jensen hopes to find more high-tech applications. The company currently is developing a super-tungsten filament that will give more luminescence with less energy.
Thanks to those moves, Elmet has already posted impressive numbers in the past three years. Since Jensen took over as CEO, Elmet's revenues have grown from $45.8 million in 2003 to $59.9 million in 2005. That's a 30% increase, but during the same period the company's operating income more than doubled from $7.2 million to $16 million.
As he walks into the brightly lit, sterile clean room, Jensen says it feels like walking into a whole new building. The transition from the dark, industrial feel of the manufacturing floor is analogous to the shift he would like his company to make: from a manufacturer of simple components for commodity products to one of complex applications in high-tech, growth markets.
Elmet faces competition from other companies working with the same metals in high-tech applications, but Jensen says there aren't many. And he says Elmet has a competitive advantage because the company is able to do everything under one roof: They receive the raw material in the form of an oxide, reduce it to a refined metal and create the finished product.
Rozak says those integrated operations could be seen as a competitive advantage, but that the real advantage is that the company invested in the equipment to process the metals many years ago. That's because making such improvements these days is very capital intensive. "It's a huge investment, so therefore they're not as many companies around the world that get into it," Rozak says. "But if you made the investment 20 years ago, that's what makes you competitive."
Expansion plans
With its acquisition by Harbor Technologies, Jensen says his company will now have the capital necessary to continue to grow. To help create demand, the company recently hired a new vice president of sales and marketing to go after new markets and find new applications for its products.
While the company has historically worked with only tungsten and molybdenum, Jensen also says the company is open to using other materials. For example, a customer recently asked the company if it could manufacture a certain product in chromium. It's not a material Elmet has traditionally worked with, but it has the capabilities to so do. So, Elmet produced a prototype and is still in discussion with the customer, Jensen says. "We're open to go into other metals," he says. "But we want to do it in a controlled way" and with the customers driving the demand.
Elmet has the room to grow within its current 160,000-square-foot facility. An area that was used for storage when Philips owned the facility has been turned into manufacturing space, and the company is reconfiguring another area to make room for a new molybdenum plate in the development phase that Jensen says will be used in the production of flat-screen TVs. "I'm a believer of using every bit of manufacturing space to create products," Jensen says.
Part of the deal with Harbor was that the company would look at possible future acquisitions. Jensen says an acquisition plan is in place, ready to go when capital becomes available, that calls for pursuing companies with similar capabilities as well as what he calls "cousins" — companies that would augment Elmet's operations.
Another of Harbor's criteria was Elmet be willing and capable to go public. In the current post-Enron, Sarbanes-Oxley environment, Hanks, Harbor's CEO, says companies need much more rigorous financial reporting, as well as a management team capable of standing up to public scrutiny. Hanks says Elmet meets those benchmarks. "They have a very good management team," Hanks says. "[And] when making an investment in a company you're primarily investing in the management team."
Jensen admits his employees were nervous when he first purchased Elmet three years ago, because the company was headed down an untested road. But the employees also were nervous while working for a large corporate parent like Philips, because they never knew when the facility might be shut down. With the recent acquisition by Harbor a testament to the success of the path Jensen chose for the company, the employees are more optimistic. "Now," Jensen says, "they know if we do a good job together the future is bright."
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