Kevin Lamarr Jones has always believed growth through acquisition was the fastest way to build a successful business. That’s why, in 1995, he quit his day job as a venture capitalist for The Northcoast Fund investment group in Cleveland to solo-scout full time for deals with a promise of quick, aggressive growth. But never in his wildest dreams did Jones foresee fighting such an uphill battle to follow his faith.
When SBN featured Jones in April 1998, he had made his first acquisition seven months earlier. To close the deal, he put his home and life savings on the line to purchase Permold, a 77-year-old foundry in Medina that specializes in aluminum castings for the trucking industry and manufactures parts such as clutches and transmission casings.
At first sight and face value, Permold wasn’t a pretty picture. The business had been languishing in Chapter 11 bankruptcy since 1996. It was furiously fending off impatient creditors. Looming large was $6.59 million in total liabilities.
The company’s lender declined to advance Permold money to continue operations. The plant was days from having its doors shut. The staff had dwindled from 300 to 100.
Despite all that, Jones saw promise in Permold. The company once had a robust reputation in the custom aluminum molding industry. It served myriad industries, boasting $10 million in annual sales. It listed $6.2 million in assets that Jones could take to the bank. And the aluminum industry was predicted to climb from $7.7 billion in 1996 to $10 billion in 2000.
Jones had a mechanical engineering degree, an MBA in finance and solid experience in the banking and venture capital sectors. But more than anything, Jones says his faith in God prompted him to pursue Permold as his first acquisition.
“My wife and I really committed ourselves to faith and prayer, and now I’ve come to believe that this is a ministry in terms of the impact we’ve had on the lives of so many employees, their families and other business associates along the way,” Jones says.
Homestead Capital LLC — the Shaker Heights-based private investment firm Jones formed in 1996 to acquire businesses in manufacturing and distribution industries — served as parent to Permold. Although Homestead (named after a street Jones lived on in his youth) was supported by a team of outside advisers and investors, the firm at that time was essentially a one-man band.
Jones set the bid price, wrote the proposal, met with creditors, organized financing, lined up investors and coordinated legal and accounting details. Since the September ’97 purchase of Permold, Jones, as president and CEO, has been nurturing the foundry past the problems that had plummeted it to bankruptcy. Jones feels as if he’s been climbing a mountain.
“It’s still steep, but not as steep now,” Jones says, adding that he still faces “an incredible number of challenges ahead.” Jones says restructuring Permold’s management was his first order of business, having determined the financial quandary wasn’t due to a deficiency in quality.
Permold’s predicament, he ascertained, was caused by a lack of leadership and strategic direction. He says he wanted to do business with a sense of honor, integrity and commitment to other people. That’s why, in addition to all the other elements that make a business successful, he wanted a united management team that engendered a sincere, caring atmosphere for the workers.
To do that, he had to bring in a completely new management staff. “And then, getting that team to gel, mesh and click — that took time,” Jones says.
For his executive vice president, Jones enlisted the support and sagacity of Richard E. Pelzer, a former president of ECC Financial Group (once a subsidiary of Eaton Corp). He tapped Doug Pohly, former president of Superior Diecasting in Cleveland, for his chief operating officer.
Stephen Olson, formerly with Amcast Automotive (one of the largest aluminum casting companies in the world), headed up day-to-day production for Permold. For quality assurance, Jones persuaded Fred Brady, a former Permold employee, to come back. Jones applauds his entire management staff and Permold’s union work force for their endeavors in seeking to revive Permold. Their goal is to return the once-prosperous foundry to its former position as a Northeast Ohio industrial leader.
The game plan was to go for low-volume production featuring large parts suitable for the heavy truck, HVAC and utilities industries. Even today, Permold continues to resist the temptation to target business from OEM automakers that require large part volumes at low cost prices.
Jones forges other revenue streams, such as machining and finishing, heat treat, casting impregnation, blast cleaning and quenching services. He acknowledges that since previous Permold management had “totally neglected the customers,” customer service has been an equally pressing priority. His team has made enormous investments of time and energy to repair relationships and build new ones.
“Another of our foundational beliefs is that we try to make the lives of our customers easier and better. So, whatever we’ve done has been geared to trying to produce the best part with the highest quality at a reasonable price, and trying to get the part there when they need it,” he says.
Then there’s that all-encompassing QS 9000 thing.
“It’s one of the most important things in the supply chain today, and it totally transforms how you do business from a standpoint of quality, consistency and efficiency. We’re striving to get there and we expect to have our QS 9000 certification by June. That process is making us a better company,” Jones says.
Another challenge is balancing cost structure with revenues.
“Just trying to be good at the basics and go from there, that’s been a day-to-day challenge,” Jones says, revealing that he’s done everything from scrutinizing the cost of paper towels at the office to raiding his kids’ piggy banks. “I did that in the beginning, but I don’t have to do that anymore,” he laughs.
Perhaps that’s because he recently refinanced the original high-interest loan he acquired to purchase Permold. When he rescued the foundry from bankruptcy, he was required to use a higher cost of capital for the loan.
“It was some pretty expensive money,” he says.
Last year, Jones worked with Strongsville-based Bennington Financial Group and Cleveland-based Knisely Consultants to deliver a proposal to The Money Store’s Commercial Lending Division and Business Alliance Capital (both Cleveland companies). The $4 million deal empowered Permold to climb out from under its original high interest loan.
Multiple lenders added to the complexity of the deal. The Cleveland District SBA Office provided $1 million; the State of Ohio afforded $750,000; The Money Store fronted $1.5 million; and Business Alliance Capital provided the credit line. Cascade Capital Corporation of Summit County was also a major player in pulling the deal together.
“This deal doesn’t happen without Cascade and Debbie Victory,” Jones says. “Because of her energy and enthusiasm for me and for what we’re doing, that transferred to a lot of the other people that were involved.”
Jones has one regret about the refinancing: “I only wish I’d done it much sooner.”
Why did he wait so long?
“It was challenging to get financing sources around here to back me. I think it was the credit and the perception of the deal. A company in bankruptcy that’s been losing money. A business person coming in who’s not a proven operator. A guy who doesn’t have a lot of his own money to put into the deal. Pick a reason!” he jokes.
Jones says the refinancing will greatly improve cash flow, enable him to upgrade and automate equipment and plan fo
r future growth. The 188,000-square-foot facility houses 85 employees and he expects that, within the next three to five years, he’ll hire 20 to 25 more workers.
One of the biggest mistakes he made in the beginning, Jones admits, was failing to “right-size” immediately after purchasing Permold. He rationalized that if you have a highly skilled work force, you don’t want to lay those people off, because when business bounces back, you may not be able to get them back. He also didn’t want to adversely affect the lives of Permold employees and their families.
“A lot of people who work for us are the sole breadwinner for their family, so a layoff doesn’t just affect the employee. You have to multiply that number by four or five,” he says.
Besides, he’s an optimist. He thought he could turn things around sooner and regain more profitable business faster.
“We didn’t lay anyone off until six months into it. But on further review, we should have had downsizing immediately, to balance the cost structure of the business with the revenues.”
The steps he’s taken are finally leading somewhere.
“We are now approaching an annual run rate of $10 million,” he says. “What I’m focusing on now is growing the company internally and externally. Our plan is to turn it around in three years, reaching $15 million at that point. And our five-year plan is to grow this business to $30 million before we have to do a major plant expansion.”
With nearly two years of accomplishment behind him as Permold’s owner, Jones says his customers, suppliers and employees have had a chance to evaluate his modus operandi. The vote is in, he says, and he believes it’s a unanimous vote of confidence. And while he’s toiling for “metallurgical excellence,” Jones is also seeking capital to fuel growth and browsing for new acquisition opportunities.
His preferred approach is to find capital that buys into his growth strategy and use that money to acquire more companies.
In a corporate divestiture, leveraged buyout this past December, Jones acquired TRW’s high-performance forged piston division in Cleveland. The 160,000-square-foot Clarkwood Plant (TRW’s original headquarters) provides jobs for 55 people and complements Permold because, like other foundries and industrial companies, Permold tended to be one-dimensional.
“Our customers wanted us to be able to do more than just produce a raw casting,” he says. “We must be able to machine the casting, assemble other parts and weld if needed. Clarkwood has a very solid machining arm, so there’s a real fit there.
“And now, as we look at new business opportunities, we’re able to market our machining capabilities at Clarkwood along with our casting abilities at Permold.”
Jones is also buying more metal for both companies, creating economics of sale for raw materials.
“It’s been a great deal so far,” he says.
With annual sales of about $10 million, Clarkwood Industries falls in line with Permold’s rollup strategy of pursuing mid-sized industrial companies to grow and build through acquisitions. Not a bad choice for a second purchase, Jones notes.
In retrospect, he says that had Homestead’s first acquisition been any other company but Permold, his climb wouldn’t have been so steep. But then, the lessons likely wouldn’t have been the same. During the bidding process for Permold, Jones — originally
one of 50 potential owners — was notified of the loss of one of Permold’s major customers — a company that accounted for about 10 percent of the company’s estimated $10 million in annual sales.
It was a setback that left Jones unable to secure the financing for his bid and caused him to miss the Aug. 15, 1997 deadline to acquire Permold for $5.1 million. While he was upset about that at the time, he says everything happened for a reason.
Ironically, his opponent sought to reduce his bid price. Consequently, Akron Judge Marilyn Shea-Stonum reopened negotiations and allowed both parties to return with lower bids, with a stern warning that any new offers must be firm. In true winner-take-all fashion, Jones closed on Permold a month later for $4.5 million and a plan for payments to creditors that would bring the company out of bankruptcy.
In addition to financing from Gordon Bros. Capital of New York, money was raised from friends and business associates.
“That whole process was the catalyst that helped build character in me, in terms of the patience and perseverance, and the things you have to learn when you want something and it doesn’t happen the way you want it to happen,” he says.
While there have been other companies Jones passed up before and since the Permold acquisition, to every season there’s a time and purpose, Jones muses.
“When you’re making deals, timing is everything. When I originally looked at some of those other companies, the timing just wasn’t right. But later this year or a year from now, the timing might be just right,” he says.
Most important, Jones says, “This business has afforded us the opportunity to share some real business principles from a godly perspective. And if not for God, it wouldn’t have come together.”
How to reach: Permold, 820 West Liberty St., Medina, Ohio 44256, (330) 723-3251, or on the Web at www.permold.com.
