by Maureen Flanagan
Under the leadership of President and CEO David Rosenfield, The Inca Group manufactures a wide array of steel products for the construction, distribution and manufacturing industries. This multi-faceted company, the country's seventh largest manufacturer of steel racks and shelves, also provides installation, erection and engineering services that have made Inca a solid, profitable business and the leading competitor in its Texas and Oklahoma markets. Capitalizing on the strong U.S. economy and growing need for versatile, customized racks and shelving, Inca's management had been searching for a financial partner that could help take the company to a higher level. In September 1999, American Capital Strategies, Ltd. (Nasdaq:ACAS) helped Inca fund a recapitalization of the company, investing $15 million in equity and subordinated debt financing.
"American Capital's investment will support Inca's growth strategy in the Central Southwestern states where the company has established a strong presence," said Rosenfield. "We look forward to working with American Capital as we build the foremost company in the industry."
Inca is actually three interrelated companies in one. The largest business is Inca Metal Products Corporation, which designs and manufactures steel storage racks and shelving products for warehouse storage. The key product categories of this business include structural racks, rollform racks, and flow racks. Many of these racks form the building blocks of warehouse storage systems and can be configured to handle products from retail merchandise to palletized items and building materials. Customers include forklift houses, conveyor-type distributors and material handling distributors, as well large supermarket chains.
Inca's second business is Dallas Tube and Rollform, Inc. which manufactures mechanical and structural steel tubes in square and rectangular shapes. Dallas Tube does most of its business for industries in the Dallas/Ft. Worth area, offering the largest size range of any tube manufacturer in the region. It has a competitive advantage in its market place as a result of its wide product offerings and outstanding reputation for excellent service.
The third business, Andes Metal Processors, Inc., offers steel processing, storage and shipping services for large steel mill customers. It has been a stable business over the years, garnering a significant market share in the Dallas/Ft. Worth area..
Established in 1939, Inca had been under the same ownership for fifty years when it was sold to an investment group in 1989. The sale precipitated a lawsuit and in the aftermath led to Rosenfield and Larry Hedrick purchasing the company in 1993. These two entrepreneurs turned Inca around as the result of an objective, systematic review of every facet of the company's operations. Under Rosenfield's leadership, Inca saw increases in the volume of shipments, a growth in business from existing customers and an increase in new customers. While the rack and shelving industry was growing at an annual rate of 8%, Inca grew faster with its product variety and improving quality of service. By 1998, management had made Inca one of the country's top rack producers.
With a solid foundation and burgeoning future prospects, Rosenfield sought a financial partner that could support his growth plans for the strong middle market company he had built. American Capital, with resources exceeding $360 million, was able to sponsor the recapitalization of Inca, providing a flexible financing package that included both equity and subordinated debt. American Capital, a buyout and specialty finance company with seven offices nationwide, provides equity, subordinated debt and senior debt financing to middle market companies to support acquisitions, growth, management buyouts, employee buyouts, liquidity and restructurings. Recent American Capital financings in the third quarter of 1999 included companies as diverse as trucking, intelligent transportation technology, and a retailer of bath and beauty products. American Capital is also in a position to establish long-term partnerships with its portfolio companies, providing financing for their on-going needs.
"We are happy with the flexible capital that American Capital provided and feel they will make good partners as we build a top-notch company in the industry," Rosenfield said. To complete the transaction, Fleet Capital provided senior term loans and a revolving credit facility.
With American Capital financing, the company plans to concentrate on expanding the profitable shelving business and building its position in the racking industry. Management is also planning to hire salespeople for Dallas Tube. This expansion will enable Dallas Tube to extend its sales range from 150 miles to 500 miles around Dallas/Ft. Worth. Further improvements will be realized through productivity enhancements, operational cost savings, and a growing top line generated by the strong demand and robust growth in this market. In addition, Inca offers many value-added services to its products - from installation and erection to engineering services -- which sets it apart from the competition.
Inca's location is also favorable. The population of Texas is increasing and the Dallas/Ft. Worth area continues to be one of the fastest growing metropolitan areas in the state. In 1997, the fabricated metals industry was Texas' seventh largest export industry, accounting for 16 percent of total U.S. fabricated metals exports. The North Central Texas economy experienced consistent growth from 1984 to 1994 (with a dip in the mid-1980s) and the economy is expected to continue to be strong.
"Inca will benefit from the focused, hands-on leadership provided by Rosenfield and his management team," said Gordon O'Brien, American Capital Principal. "Consistent with other investments made by American Capital, Inca's management will have a meaningful ownership stake in the company which will reinforce the entrepreneurial nature of the business. We are very pleased to be working with them as they take the company to the next level in terms of production, service and quality."
All Inca's markets are predicted to be strong. The shelving and rack production market is about $1.4 billion a year and growing 8% a year. The steel pipe and tube industry is also on the rise. Structural steel tubing (used in a variety of applications such as piping, conduits, drains, railings, scaffolding, bleacher frames, furniture parts athletic equipment, and bicycles) grew by 10% in 1998 to a record 1.89 million tons; structural steel pipe consumption exploded by 45% to 322,000 tons. Added to this, the steel processing sector has experienced strong growth, and industry analysts expect further increases.
"Inca now has the resources to begin a new phase of the company's history," said Rosenfield. "This will entail an expansion of sales in the profitable shelving market, capital improvements that will further increase our plants' productivity and profitability, and greater efficiencies and cost savings resulting from integrating the general and administrative functions of the three companies that currently operate as separate entities. We anticipate tremendous opportunities in the future and look forward to a long shelf life for Inca."
