An (Unusual) Family Matter

An (Unusual) Family Matter

CONSTRUCTION by Mark Gordon | Managing Editor

Going public could prove to be the easiest move Kesselring Holding Corp. ever made. The toughest? Moving on without its founder.

When Paul Kesselring started his own restoration and waterproofing company in 1976, taking the company public was not likely high on his priority list. Neither was trying to build the business into a one-stop construction conglomerate with offices in two states.

But that's exactly where Bradenton-based Kesselring Holding Corp. finds itself today. The company, trading over the counter under the symbol KSSH.OB, went public in a reverse merger with a business consulting firm May 29, the culmination of a two-year mini-buying binge in the construction services industry.

Now, in addition to the original restoration business, Kesselring's holdings include Bradenton-based Kesselring Coastal Construction, a low-rise commercial contractor and luxury waterfront homebuilder Kesselring bought in 2005 when it was TBS Constructors; Bradenton-based Kesselring Aluminum Corp., a business the parent company founded in 2006 to manufacture construction components, such as aluminum handrails and screens; and Yakima, Wash.-based King Brothers Woodworking Inc. and King Door & Hardware Inc., which it bought in July 2006.

Company executives say the acquisition spurt isn't over yet, either. Future targets could include a heating and air conditioning firm, as well as a specialty construction company, such as one focusing on health care buildings.

The additional companies have been a big revenue boost: For the six-month period ending March 31, Kesselring's revenues increased 200%, from $2.2 million to $6.7 million. The King Group purchases represent 78% of that revenue increase.

But the revenue jump, as well as the costs of going public, comes with a downside, too: Debt. Kesselring reported a net loss of almost $420,000 for the 2006 fiscal year as well as another nearly $400,000 loss for the first six months of the 2007 fiscal year. Overall, the company has an accumulated deficit of $986,894 since its inception, according to SEC records.

The company plans on balancing the line between growing through buying other businesses and growing through building up the businesses it already has, says chief executive Doug Badertscher, who was hired Aug. 15. "If you don't have [quality] organic growth," Badertscher says, "then trying to grow through acquisitions is met with roadblocks."

The Kesselring story, though, is not one about the strategy of growing through acquisitions as opposed to organic growth. Nor is it a story about a how an entrepreneur like Paul Kesselring built a company from a one-man, one-truck operation to an almost $8 million business over three decades.

If only it were that simple.

Instead, the relatively unknown and rather complicated Kesselring story revolves around employee loyalty, a small group of people enduring through tragedy and, maybe most importantly, a father's love for his daughter.

A tragic opportunity

Even though Paul Kesselring founded the business, the Kesselring story, circa 2007, stars Cliff Wildes, a Sarasota entrepreneur and investment banker.

Back in 2005, Wildes was pretty content with his business life. His 25-year career was a fast-paced blur of building companies and then selling them or taking other small firms public. Having grown up and lived in Massachusetts and California for most of his life, Wildes had semi-retired to Sarasota in the mid-1990s, consulting occasionally on some projects.

One of those included working with Bradenton-based Morgan Beaumont, a finance company selling prepaid and related pay-and-go cards. Wildes led the company through going public, a name change to nFinanSe, and ultimately into new markets. For a time, Wildes served as CEO and chairman of the company, jobs he gave up earlier this year to focus on Kesselring.

Wildes' career choices, and his successes, weren't completely defined by sheer financials, either. A former professional musician, he followed his passion on one deal, helping build and then take a guitar design outfit public. And in the mid-1980s, while putting together computer memory storage firm Microtech International, he got to know to a couple of computer geeks by the names of Steve Jobs and Steve Wozniak, now better known as the co-founders of Apple Computer. He remains friends with Jobs and Wozniak today.

In 2005 though, as Wildes was living in Sarasota and working for Morgan Beaumont, he realized there was something missing from his career: A legacy to pass on to his stepdaughter, the then 12-year-old Katelyn. The hired gun, build-and-move-on nature of Wildes' career made passing on a concrete, long-lasting business difficult.

Then opportunity, initially spawned through tragedy, literally came begging for Wildes.

Sticky Notes formula

Back to Paul Kesselring, who, it turns out, is Kate Wildes' biological father. Cliff Wildes married Kate's mother, Carole Kesselring, in 2001. Carole and Paul Kesselring divorced when Kate was a young girl; she had a good relationship with Paul Kesselring, and now has a similarly strong bond with Wildes.

Meanwhile, Kesselring showed up for work on April 18, 2002 and, per his daily routine, he wrote a note regarding some tasks for his secretary on a legal pad.

Kesselring, then 46 years old, put down the pad, turned down a hallway and suffered a massive heart attack. He was dead two hours later.

Two longtime Kesselring employees immediately attempted to run the company in the founder's absence as there was no formal succession plan. One employee, Allie Hueter, took over inside work, such as billing and accounting. A second employee, Bill Wheelock - who had been with the company almost from the beginning - took over supervising all the jobs.

The first problem was figuring out Paul Kesselring's system of running the company. It essentially amounted to billing formulas by Sticky Notes, Hueter and Wheelock learned. It was as if Hueter, Wheelock and Kesselring had three distinct roles in the company, but the one person who could do them all was no longer there.

"Paul was the only one who knew all of the jobs," says Wheelock, who at 68 years old still works full-time for the company. "But lots of times it was in his head and nothing was on paper."

Hueter and Wheelock soldiered on though. And for the first year, even the first 18 months, the company survived. "There we days we didn't know we could do it," says Wheelock, "but we kept it together."

But over time, jobs and customers began going elsewhere, despite the then-Gulf Coast housing boom. And Hueter realized that despite her best efforts, she and Wheelock couldn't keep things together much longer. "I tried real hard to be Paul," Hueter says, "but I couldn't do it."

Up until Christmas 2004, Wildes had little to do with the struggling company. He was aware of what happened through his family's connection to the founder, but he had no formal role in the business. He served basically as an occasional sounding board to others connected to the company, such as Paul Kesselring's adult son. "I looked after Kate's interest," Wildes says, "but I wanted to stay out of it."

But right before Christmas, Hueter called Wildes. Hueter barley knew Wildes, going mainly off his reputation in the business community and family connection to the company. Hueter said the company was sinking fast. She told Wildes her only options were to sell it, break it up and sell it or flat out dissolve it.

Unless, that is, Wildes would consider getting involved in Kesselring, both intellectually and financially.

Wildes said yes. And by January 2005, he had formed West Coast Construction LLC, which bought Paul Kesselring's business, then called Kesselring Restoration Construction. The company was able to keep its remaining clients, as well as all of its 18 employees.

"I wanted to be able to keep going what [Kate's] father had started," Wildes says. "The only reason I'm doing this is for my daughter."

Growth potential

With the saga of saving the company now behind it, the focus now turned to actually growing the business. The strategy for that, executives say, is two-pronged: Being public will initially put the company in a better financial position to buy other businesses. Then it will need to support those new companies in the efforts to acquire new customers.

Wildes says a good model for Kesselring to strive for, and ultimately best, would be Home Solutions of America, traded on the Nasdaq under the symbol HSOA. The Dallas-based company operates in eight states, including Florida, focusing mostly on restoring homes and business recovering from natural disasters.

Even though the company's shares are currently hovering just above the 52-week low mark of $2.85, it has been trading two times its revenues, a number Wildes says is a reasonable short-term goal for Kesselring.

One of Home Solutions' subsidiaries is Tampa-based Fireline Restoration Inc., which has generated its own press the past few months: On May 31 Fireline officials announced it had won a $100 million contract to build a mix-use project in Hillsborough County. On Aug. 23, Fireline executives released more information on the project, saying in a company statement that the project will take as long as four years to complete and revenue will begin coming in by the end of the 2007 third quarter. The project is in Apollo Beach, on U.S. 41, across from the Mirabay Village subdivision.

Kesselring has the potential, its executives say, to go much further than the Home Solutions model when it comes to growing through acquisitions. For instance, as a holding company, Kesselring isn't limited to only buying new construction companies, says Badertscher, the new CEO. "We have a little bit of latitude," he says. "We have not nailed ourselves into just doing construction."

And the company's current entities continue to grow, too. The restoration unit, for example, picked up a $900,000 contract last month to update the glass and windows at Metro Medical Plaza in Fort Myers. Crews will be improving the building's hurricane protection. The company is also moving its corporate headquarters from an industrial park in Bradenton near U.S. 301 to Lakewood Ranch, where it is leasing 5,000 square feet in the John Cannon Homes building.

Being a public company also comes with headaches, Wildes admits. First there's thousands of dollars in fees, both to become public and then to stay that way, with Sarbanes-Oxley accounting laws taking up most of the latter.

Wildes, who's done this about a half-a-dozen times, says the learning curve is big for first-timers, which fits many Kesselring employees. "It doesn't matter how good you think you are when you are a private company," says Wildes. "Going public is a whole different matter."

The Kesselring Team

Over his 25-year career of running and growing private and public companies, Cliff Wildes has taken hold of the senior executive motto of hiring people smarter than yourself. That theory has only been magnified with Bradenton-based restoration and construction services firm Kesselring Holding Corp., as Wildes says he knew next to nothing about the actual construction business when he invested in the company in 2005.

As such, one of Wildes' ongoing priorities has been to hire and maintain a top-notch executive team with a variety of experiences. "I put a lot of stock into people actually doing it," says Wildes. "I don't care what their formal education is."

The executive team at Kesselring includes:

• Doug Badertscher, chief executive officer: Badertscher has been either CEO or chief operating officer for several health care and financial service companies, both in Florida and New York. In those roles, Badertscher worked on several building and construction related projects;

• Laura Camisa, chief financial officer: Camisa has worked in executive financial positions for several firms over the past 20 years, including Hovnanian Enterprises and the March & McLennan Cos. She spent five years in investment banking and high yield debt financing and has also worked for three top Wall Street firms: Bear Stearns, Goldman Sachs and Smith Barney;

• Ted Sparling, president: Sparling has been in the construction industry for 25 years, working his way up from filed jobs to supervisor to forming his own construction firm, TBS Constructors, in 1992. Sparling sold TBS to Kesselring in 2006 and was later named president of the holding company;

• Bob Swails, vice president of operations: Swails has worked in the construction industry for 30-plus years. His past executive positions include serving as vice president of construction for Bonita Springs-based WCI Communities, Inc.

AT A GLANCE

Kesselring Holding Corp.

Headquarters: Bradenton

CEO: Doug Badertscher

Employees: 150, including subcontractors

Revenues: $6.7 million (through the six month period ending 3/31/07)

Stock symbol: KSSH.OB

Recent stock price: $0.45 (52-week high is $4.25)

Market capitalization: $15.09 million

Sources: Kesselring, Yahoo Finance

BY THE NUMBERS

Kesselring Holding Corp.

Consolidated balance sheets

Assets Sept. 30, 2006 June 30, 2007

Cash and cash equivalents $550, 482 1,026,996

Accounts receivable, net of allowance for doubtful accts. 1,763,501 1,424,453

Inventories 479,560 462,501

Costs/earnings in excess of billings on non-complete accts. 129,465 336,200

Other current assets 93,619 249,212

Total current assets 3,016,627 3,499,362

Property and equipment, net 2,167,851 2,224,618

Intangible assets, net 81,780 27,998

Other long-term assets - 56,558

Total assets 5,266,258 5,808,536

Liabilities and Stockholders' Equity Sept. 30, 2006 June 30, 2007

Current liabilities

Accounts payable and accrued expenses 1,189,650 1,124,515

Billings in excess of costs/est. earnings on incomplete accts 319,384 322,228

Notes payable and current maturities of long-term debt 199,511 113,416

Notes payable – related parties 929,524 -

Deferred income taxes 254,829 -

Total current liabilities 2,892,898 1,560,159

Long-term debt, less current maturities 20,859 1,248,967

Total liabilities 2,913,757 2,809,126

Stockholders equity

Accumulated deficit 587,537 1,749,605

Total stockholders' equity 2,352,501 2,999,410

Total liabilities and stockholders' equity 5,266,258 5,808,536

Consolidated Statement of Operations Nine months ended 6/30/06 NME 6/30/07

Revenue

Contract Services 4,388,647 4,280,038

Product sales - 5,134,080

Cost and expenses

Contract services 3,343,456 3,133,751

Product sales - 4,337,395

Operating expenses

Salaries and benefits 409,105 1,189,555

Consulting, related parties 388,557 312,538

Professional fees 18,386 978,418

Bad debt expense - 155,363

Other operating expenses 116,951 653,339

Income from operations 112,192 -1,346,232

Other income (expense)

Interest income - 5,470

Interest expense -6,258 -74,231

Other income (expense) net 8,435 -1,904

Total other income (expense) net 2,177 -70,665

Income (loss) before income taxes 114,369 -1,416,897

Income tax benefit - 254,829

Net income 114,369 -1,162,068

(Operations statements are unaudtied)

Source: SEC, Yahoo Finance, Kesselring Holding Corp

REVIEW SUMMARY

Industry. Construction

Business. Kesselring Holding Corp., Bradenton

Key. A company that once focused on building restoration is reinventing itself as a construction conglomerate and went public.