Mold a Winner

REVIEW SUMMARY
Businesses. Octex Corp., Sarasota
Industry. Manufacturing
Key. Company has a new owner, who plans to expand into new markets and product lines.

Jim Westman set himself up for quite the challenge last year when he decided to forgo his 20-year investment banking career to run a manufacturing business.

The first part of his plan was simple. Westman, a Sarasota native who lived with his family in Atlanta for nearly two decades, was going to return home with his two young children and his wife, also a Sarasota native.

The second part, however, wasn't nearly as simple. Westman set out to find a manufacturing business he could buy. He sought a company with a clean balance sheet, a top-tier management team and an upward growth track.

“I wasn't real interested in a turnaround or a hard luck story,” says Westman. “I was looking for a well-run company.”

The Sarasota-Bradenton region certainly has some manufacturing standouts. Companies such as Venice-based drinkware firm Tervis Tumbler, Sarasota-based valve manufacturer Sun Hydraulics and Pierce Manufacturing in Bradenton, which makes trucks and equipment for firefighters and paramedics, are some of the more prominent ones. Other smaller, successful niche players dot the area.

But the idea of a banker seeking to plow money into a local manufacturing company surprised even Peter Straw, the industry's top local advocate. Straw, the executive director of the Sarasota Area Manufacturers Association, says anti-growth attitudes and archaic tax structures forced on manufacturers over the years have made an already tough existence tougher.

For instance, says Straw, Florida remains one of the only states in the country to impose an intangibles tax on most equipment and machinery purchases. So after the sales tax is calculated manufacturers pay taxes twice on the same purchase.

“In spite of the way we do things, people are still willing to invest in the local manufacturing sector,” says Straw, who didn't speak directly with Westman in his business search. “That is very encouraging.”

Westman spoke with several business brokers during his search for a local manufacturing gem, which began in 2008. Then, in early 2009, Westman stumbled upon Sarasota-based Octex Corp., a custom mold injection firm close to $10 million in annual revenues.

The owner of Octex, Sarasota businessman John Weaver, wanted to sell the company so he could retire. Westman found out about Octex, which was founded in 1989 as Howe Products, from an ad in an industry trade magazine placed by a business broker in Massachusetts.

Westman researched Octex for six months, a process that included everything from a hard look at the layout of the factory floor to an analysis of five years of company financials. He also met multiple times with the company's trio of top executives: plant manager Ben Moody, sales manager Vince Cataldo and chief financial officer Dan Mallon.

“I got a good feeling from all three of them,” says Westman. “I wouldn't have done it if it weren't for them.”

The deal closed in October. Westman declined to say how much he paid for Octex, only that his total exposure on the purchase “represents a significant portion of my net worth.”

Eclectic products
Now that Westman, 45, has his company, he is in line for a new set of tasks and challenges.

First off, the pieces and parts that make Octex go — its injection machines and related accessories are worth more than $4 million — are a top concern. The factory floor, which spans nearly 20,000 square feet, is set up in a specific order of machines based on industry and customer needs. There are 16 front-line injection mold machines, almost all of which are automated.

“It's a capital intensive company,” Mallon says. “We spend a lot of money on machines.”

For example, Westman authorized a purchase of a new racking system for one set of products soon after he took over the business. That cost $400,000.
Moody says the current machine roster is up to date — he buys new ones and sells the older ones just about every three years. “We can't wait until one machine dies before we buy a new one,” says Moody.

The machines combine to produce an eclectic product list. It includes custom-made cups, fuel funnels, floor panels and surgical masks. Octex has about 70 customers, most of which come from the medical supply, home goods and marine industries.

Octex has contracts to do mold injections for several local and nationally known companies. But Westman declined to name specific clients, as most of Octex's work is behind scenes, and the clients normally want to keep it that way.

Another task Westman inherited with Octex was to change the company's marketing and sales culture. In fact, Westman plans to lead an expansion into new markets and product lines — at a time when many clients who normally rely on injection molders seek ways to cut back and spend less.

“The prior owner wasn't too aggressive in marketing the company,” says Mallon, who has been with Octex since the early 1990s.

Indeed, more than 90% of the company's client base is within 100 miles of Sarasota, so Westman sees opportunities in places such as North Florida, Georgia and the Carolinas. He plans to hire either independent sales reps or an outside sales group to lead the effort. He also plans to have company personnel attend more trade shows.

“It's pretty basic sales stuff, but it's something the company hasn't done in four or five years,” Westman says. “I feel like we are a story that hasn't been told outside of Florida.”

Octex is also doing something un-recession like: It plans to hire more people. The company had 44 employees halfway through 2009 and has added nine more people since Westman bought it, mostly in machine operation positions. Westman says the company might hire 10 more people in 2010.

A river hawk
Westman might be new to Octex, but he isn't a rookie when it comes to business knowhow.

His first corporate job after he earned his MBA in finance from Emory University in Atlanta was with accounting firm Arthur Andersen & Co. He later worked for Ernst & Young, in the firm's mergers and acquisitions department.

In the mid 1990s, Westman and a few business partners launched the RiverHawk Group, which focused on mergers and acquisitions for mid-size businesses. RiverHawk was where Westman began to study how small businesses work in a variety of industries.

Actually, Westman liked some of the potential deals he studied with RiverHawk so much that he decided to invest his own money in some of them. He remains a minority partner and board member in a trio of those companies: a circuit board assembly manufacturer in Georgia; a plastic extrusion company in Tennessee; and a forestry equipment distributor with locations throughout the southeast.

Westman says his involvement with those companies is how he learned the operational side of a business. One lesson in particular is a familiar one that still holds true today: Push what the company does best.

For Octex, Westman believes that is when the company combines its manufacturing capabilities with assembly, packaging and other services. That allows clients to focus on other parts of their business, he says, such as new products and marketing.

Says Westman: “I believe that offering [those fulfillment] services will be increasingly attractive to some of our current and future customers.”

Mark Gordon covers the Sarasota-Manatee region. He can be reached at [email protected], or 941-362-4848.