by Maureen Flanagan
Fulton Bellows & Components, Inc., a newly independent company with bright prospects for future growth, was created from assets divested by the giant British corporation Invensys, PLC. The change of ownership will enable Fulton Bellows to revitalize its manufacturing operations, expand marketing efforts, realize new design and engineering potential and increase its market share.
In a March 14, 2000 buyout, American Capital Strategies, Ltd. (NASDAQ: ACAS) provided acquisition and working capital financing to establish Fulton bellows as a stand-alone company. J. Randal Greaves, the company's new Chairman, initiated and sponsored the transaction. Drawing on a solid reputation and strong management team, the Knoxville, Tenn. company is well positioned to further enhance its leadership role in its precision bellows, automotive, and stamping and machining markets.
"This buyout, financed by American Capital, gives Fulton Bellows a great opportunity to enlarge the applications for the bellows technology pioneered in 1904 by Weston Fulton. The company now has potential to dramatically expand its market with new product designs and engineering processes," said Greaves.
Formerly known as the Robertshaw-Tennessee division of the Robertshaw Controls Company, Fulton Bellows is one of the country's foremost producers of bellows for automotive, medical, aerospace, and general industrial applications. Bellows, which are devices to help measure and control changes in pressure, temperature, motion, vibration and other environmental effects, are a critical component of many everyday products. In automobiles, bellows are used in air conditioning systems and in sensors to regulate tire pressure. Fulton Bellows is the industry leader for precision control bellows in this market, supplying bellows and other products to the "Big Three" automobile manufacturers -- GM, Ford, and DaimlerChysler.
The company also supplies the medical industry with bellows that regulate pressure for oxygen supplies and act as a heat exchanger for warming blood during transfusions and other surgical procedures. Applications in the aerospace industry include the use of bellows for fuel management, the stabilization of aircraft cabin pressure and the control of operations sensitive to heat or pressure changes. Because bellows are mechanical rather than electrical, they are useful for applications under extreme heat and pressure conditions where electronics frequently fail. In the housing industry, the company's bellows are used in appliance controls and power management devices such as heating and air conditioning systems to trigger thermostats to turn on or off.
Fulton Bellows also produces a line of automotive parts that include sophisticated throttle sensors, pressure control valves, and actuators for car manufacturers and for the aftermarket. The company's metal stamping and machining capabilities fabricate component parts which are assembled in-house and sold to automobile manufacturers. These assets, in fact, represent one of the largest machining and stamping operations in the southeastern United States.
The company's origins go back to the very beginnings of bellows technology. Its founder, Weston Fulton, a Knoxville weatherman, developed the first bellows in 1904 to measure atmospheric pressure. His invention was a one-piece metal cylinder with deeply convoluted sidewalls that could convert pressure changes into controlled movement. Fulton sold his company in 1928 to the Reynolds Metals Company which elaborated on Fulton's technology, producing bellows for depth charges as well as the Norden bombsights used by the Armed Forces in the Second World War.
In 1947, Reynolds acquired Robertshaw Controls Company, a leading manufacturer of controls for appliances such as gas water heaters, space heaters and fireplaces. The bellows operations became a division of Robertshaw, which was acquired by a British conglomerate in the mid-1980s. The new owners shifted focus to products that had high-volume production runs produced in a low-cost environment with high margins and rapid inventory turns. Beginning in 1995, management initiated moves to consolidate operations, shift some production to Mexico, lower costs, and eliminate product lines. As part of the restructuring, the management of the British conglomerate (which had merged with British Tire to become Invensys) determined that Robertshaw's high-quality, precision niche products did not match the profile of the company's core businesses. They decided that the bellows operations as well as other Robertshaw divisions were ripe for divestiture.
Knoxville businessman and buyout investor J. Randal Greaves saw an opportunity in the Robertshaw divestiture and focused on acquiring some of its operating divisions and product lines. Looking for a partner to provide buyout financing, he teamed with American Capital. To complete the transaction, American Capital provided a total financing package, which included senior term debt, a revolving line of credit, senior subordinated debt, and the purchase of preferred stock.
"Fulton Bellows was an ideal investment for American Capital. The transaction draws upon American Capital's expertise in buyout structuring and financing," said American Capital Principal John Freal. " A unique depth and breadth of experience enables American Capital to step into a manufacturing environment like Fulton Bellows, quickly master its very complex mix of businesses and basically create a new company from scratch."
American Capital has structured and financed buyouts in a wide range of industries, including manufacturing, transportation and trucking, construction, information technology, wholesale retail, media, healthcare, and telecommunications and services. In 1999 American Capital executed a record number of buyouts for the company, investing $176 million in 24 transactions.
"Working in the underserved middle segment of the economy, American Capital looks for strong entrepreneurial individuals and teams with the right blend of management skills and industry background," Freal added. "This is exactly what we found at Fulton Bellows and we look forward to a long-term partnership with Randy Greaves and the company's exceptionally strong management," he said.
As an independent company, Fulton Bellows is positioned for growth. Current research programs include new bellows designs and processes that will cut costs on existing production processes and give the company a competitive edge to penetrate new markets. The programs also include a new design to provide clean and sterile bellows for surgical applications in addition to developing a new bellows material with heat-resistant properties. The company will also increase its marketing staff to capitalize on the growing number of new applications for precision bellows. (Its bellows will be marketed under the well-known "Robertshaw" brand for several years before transitioning to the Fulton name.)
Another big potential lies in contract assembly work -- assembling and testing devices with a bellows component for the company's customers. This is seen as a natural adjunct to the company's value-added services, which entail assembling and testing devices whose key component is the bellows, such as a temperature control for hot tubs.
Added to this, recent engineering changes by automobile manufacturers have expanded the market for the company's automotive products. For example, manufacturers are standardizing engine exhaust pressures controlled by the air check valve. This change led to the company's complementary redesign of the valve, allowing it to be used on many more automotive platforms than was previously possible.
Another area targeted for expansion is the company's machining and stamping capabilities. The company has the capability to develop a complete machine and stamping facility that includes precision and high-volume production with annealing, plating and part cleaning capabilities, all in-house. Very few competitors have the completeness of Fulton Bellows' operations with a multi-skilled work force to design, set up and handle production needs. The company has also made a substantial investment in a sophisticated parts cleaning process which is not offered by any other stamping house or machining operation. (Competitors' parts are often dripping with oil upon completion, and must be sent to a third party for cleaning.)
In addition, the company's plant operations are all benchmarked to the highest manufacturing quality rankings possible. The company is also a certified supplier to select parts manufacturers for General Motors automobiles and for aerospace companies.
The industries Fulton Bellows serves are strong and growing. The "Big Three" automobile manufacturers increased market share in the last months of 1999. In addition, total passenger car sales, both domestic and import, increased since last year. With sales in Europe and in Asia up more than 30% and 20% respectively over the previous year, opportunities are particularly strong in the foreign car market.
In the medical arena, the United States is the recognized leader in the production of the $124 billion market for medical equipment and supplies. An aging population and the increasing need for medical and laboratory supplies are anticipated to continue to fuel this market. Bellows are just beginning to make an impact on this rapidly growing industry where applications include heat exchangers and vacuum devices. Quest Medical, for example, uses the company's bellows for a device to control the temperature of blood.
The aerospace and housing industries are also expected to offer continuing opportunities for bellows applications. The consolidation of airframe parts suppliers has led to more outsourcing and joint venture projects by manufacturers to reduce costs and improve their balance sheets. Even though aircraft are becoming more computerized, the durability of the bellows will force manufacturers to use bellows in all aircraft, even if just as a safety backup. A strong housing market will also drive a need for bellows for appliance controls and power management devices.
Since its beginnings in 1904, the company has cultivated a solid reputation, a leading position in the bellows market and many satisfied customers. Customers, in fact, praise the quality and reliability of the company's products and service, and many consider Fulton Bellows products the highest quality in its category.
"We are confident that Fulton Bellows will flourish as we move forward into the 21st century," Greaves said. "New product applications for bellows, added to a significant capital investment to move into several non-bellows product lines, puts Fulton Bellows in a strong position for future growth," he said.
