Small-Market Deal of the Year: Ceram Insulators by The Riverside Company –

During The Riverside Company’s two-year quest to buy the 10 companies that now make up Ceram Insulators, a part of the Porcelain Products Co. platform, the deal seemed on the verge of dying several times – too many for Partner Andrew Strauss to remember. The deal even completely died once and was revived through compromises. In fact, neither Strauss nor Managing General Partner Stewart Kohl can recall a blissful moment in the process, which culminated in the September 2001 closing.

“This was the kind of project that if you knew what was going to be involved, you might not ever start it,” says Strauss, who at times doubted the deal would ever be consummated.

The transaction began shortly after Riverside acquired Carey, Ohio-based Porcelain Products Co. in late 1998. A year later, the platform saw a facilities add-on that positioned PPC as the second largest U.S. manufacturer of electrical porcelain insulators, with a focus on small porcelain. These insulators are essential to the generation, transmission and distribution of electricity.

Looking to expand through other acquisitions, Riverside and PPC combed the U.S. for targets, but found none as compelling as Vienna, Austria-based Ceram Insulators. Because the companies’ expertise in ceramic technology was unsurpassed, reaching across the Atlantic seemed like a small price to pay for such a complementary business to PPC.

At the first meeting between Riverside/PPC and Ceram’s management in Cleveland, it seemed clear that the two companies were a natural fit. Ceram recognized the opportunity for product expansion into the U.S., especially since European electric companies had privatized, and Europe was going through a lean time. Piggy-backing onto PPC seemed to make a lot of sense.

The two groups had their work cut out for them, however, because 15 companies spread out across five countries comprised Ceram, which was also publicly owned.

Strauss likened the deal-making process for Ceram to the story of the frog in a pot: if you put it in cold water and slowly turn up the heat, the frog keeps adjusting to the heat and won’t jump out.

“But if you throw the frog into the hot water, he’d jump right out,” Strauss says. “That’s what this deal was like. We had to get used to the heat day after day. It got a little tougher and a little tougher, and we just had to keep adapting to the difficulties.”

Talks began to flounder after that first seemingly positive meeting between Riverside/PPC and Ceram. Recognizing potential and working out details are two completely separate things. After a second meeting between Strauss, PPC executive Woody Bowers and the former Ceram director, which took place in Europe, negotiations appeared to be going well. Bowers and Strauss left the meeting high-fiving each other for exploring different ways the deal could be done and ending up with what they wanted – a plan for PPC to acquire Ceram. But after six weeks of more detailed talks, disagreement over valuation, namely the worth of the honeycomb insulator business, killed the deal. But there was also something else bothering Riverside/PPC. The 15 companies of Ceram seemed to be running as autonomous entities, competing against each other in some cases. That situation did not appeal to a potential buyer.

A year went by, and it was Bowers who went back to Europe to try and resuscitate the deal. Bowers was the management behind the management buyout in which Riverside had acquired PPC, so his ability to focus on the benefits of combining the companies from a business perspective, not just an investment perspective, proved invaluable to the transaction. On this trip, Bowers met with the newly installed management of Ceram, led by Vic Maundrell, and talks resumed.

“Woody pushed hard to get the deal going again in summer 2000,” says Strauss. He had our support, but we didn’t believe it would happen. Agreeing on terms seemed unlikely.”

Maundrell had been focusing on pulling the companies together, adopting the motto “one company keeping its promise.” From that perspective, things were falling into place and eventually the two sides agreed on a valuation. In a very European type of situation, the seller kept the honeycomb business, but PPC purchased a business located in its same facility, making supply agreements part of the acquisition process. The parties signed a deal in November 2000.

Thirty overseas trips later, Riverside/PPC acquired 10 companies of Ceram across France, Germany, Slovakia, Sweden and Austria. The firm declined to provide a transaction price, but called it squarely in Riverside’s target range of $10 million to $100 million.

The seller, Frauenthal Keramik, introduced Riverside to local lender Raiffeisen Zentralbank Osterreich AG, making the debt financing, which also included National City Bank, painless.

The deal created the world’s largest insulator manufacturer outside of Asia.

“We’re pleased with the way things are happening,” Maundrell says. “The synergies are happening, falling into place. We now have a common objective.”

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