Synergy, southern hospitality drive belting deal

PARAGOULD, Ark.—Call the recent deal between GRT Rubber Technologies L.L.C. and Valley Rubber L.L.C. the result of cultural similarities, complementary product lines—and a bit of southern hospitality.

For GRT Rubber, the Nov. 18 acquisition of Valley Rubber means an expanded international footprint, especially as it relates to mining and aggregate operations in the Americas, and complementary cross-market sales that are direct-to-customer.

"We gain a stronger presence in the mining industry, both in North and South America," David Brown, CEO of GRT Rubber Technologies, told Rubber News. "Also, both companies already have a large presence in the aggregate industry, and we think offering a more diverse, solutions-based product line will be viewed positively as well.

"We also feel that Valley's molding capabilities will allow GRT to expand its offering of load-bearing and vibration damping products."

For Falkville, Ala.-based Valley Rubber, the acquisition means further exposure to the transfer point and dust-suppression markets—which GRT knows well in agriculture—with Valley Rubber's heavy duty industrial rubber chutes, covers and liners.

"We could not ask for a better partner than GRT, and our team is excited about the synergies that will be created by combining complementary products and solutions," said Cronan Connell, CEO of Valley Rubber. "GRT's involvement in markets like agriculture, where transfer points and dust suppression are crucial, will provide new exposure for our company. Together, we will be stronger to the benefit of our employees, customers and business partners."

Terms of the acquisition, which closed Nov. 18, include a $33 million first lien, senior-secured term debt investment through Main Street Capital Corp., a publicly traded company that has provided capital to GRT Rubber since 2014.

Total employees between the two companies grows to about 300 with the acquisition.

"A great part of GRT and Valley coming together are the diversity of the skills on both teams—and the larger crossover opportunities for many team members is exciting," Brown said. "GRT is always on the lookout for companies that serve complementary markets or industries. Valley Rubber is a well-recognized provider of engineered solutions to the aggregates and mining industries, and in many instances, GRT's and Valley's products sit adjacent to each other.

"Also, as we spent more time with the Valley team, we recognized many similarities in company culture and core values, and realized the 'fit' went beyond similar product lines."

While GRT typically sells its custom rubber heavyweight belts, sheet rubber and specialty rubber (using polyester and nylon, along with the elastomers) to distributors and maintains a core focus on the conveyance of sand, gravel, cement and other heavy, abrasive aggregates, Valley Rubber has other strengths. It provides screening and conveyor liners (chute and haul truck) and makes auxiliary products that are sold both to distributors and directly to the aggregate and mining markets, addressing issues of end-user sales for GRT.

Both GRT and Valley have long-standing relationships with distribution partners in North America.

"We use distributors to support the North American aggregates market while primarily selling direct to mining companies in the Americas," Connell said.

Brown added that distributors are "an important and valuable component to our success."

"Outside of North America, both companies have developed a direct-to-the-end-user selling strategy that has also been effective in those regions," he said.

Neither GRT nor Valley Rubber mix their own compounds. Regarding curing processes, GRT tends to focus on flat rubber products while Valley Rubber centers on custom molding and manufacturing discreet products.

GRT manufactures the entirety of its product line at its 142,000-sq.-ft. facility in Paragould, located in northern Arkansas.

But as a custom molder, Valley Rubber does not produce any belting. The company's engineering and design group provides application-specific solutions, leveraging technology, including 3D-flow simulation, to solve problems in conveyor transfer points.

"In many cases, belting issues can be solved by improving transfer points and material flow issues," Brown said. "The combination of GRT and Valley gives us a unique position in our markets."

Beginning with a 3D scan of a customer's existing transfer points and related structures, Valley Rubber designs and presents a solution. In addition to engineering and protective lining systems, Valley Rubber provides steel cutting and fabrication capabilities to produce chutes that are lined and ready to install.

"One reason we were drawn to GRT was because Valley Rubber provides custom-engineered solutions for solving problems such as noise, dust, abrasion, plugged chutes and spillage in conveyor transfer points," Connell said. "Our systems include products that we manufacture and install above and below the conveyor belt, but we don't make the belt.

"Combining our transfer point technology with the high-quality product and superior delivery of GRT will create a turnkey offering like no other in the industry."

In addition, Connell noted that the cultures of the two companies align well, "making the integration and collaboration of team members easier and enjoyable."

"Over the past few months, the ownership team of Valley Rubber has been meeting with a variety of investors looking for a partner to support our next wave of sales growth and territory expansion as outlined in our strategic plan," Connell said. "After gaining such a high comfort level with GRT, we knew they were the right group and now was the right time."

Both GRT and Valley Rubber bring enviable histories to the new partnership, as GRT began as Boston Woven Hose in 1880 and counts American Biltrite, Dana, Coltec Industries, B.F. Goodrich and EnPro Industries in its heritage.

Valley Rubber traces its history to its founding in 1967.

"Our team is thrilled to be partnering with a fellow Southern rubber manufacturing company," Brown said. "Valley Rubber is respected in the industry, and their well-defined culture and operational excellence aligns with our values. Valley's expertise in the aggregate and mining industries will provide us with more access and material exposure to our current and new markets."

GRT has a significant manufacturing presence in North America, Canada and Mexico, and Valley Rubber will add its "growing presence" in Chile, Mexico and Peru with a focus on the mineral-producing markets.

Valley Rubber also has a facility in Minden, Nev.

The companies use similar elastomers in their products, another synergy that will benefit the combined company moving forward.

"There are many similarities in the materials both companies use, and this will be an area of synergy that both companies will bring to the other," Brown said. "Using the technical resources available to the larger company, we believe we can strengthen our capabilities offered to the markets."

Branding of the conveyance and belting products—always a critical component in a merger or acquisition—has yet to be determined.

"We are currently working through our branding options with our goal being to present a clear and unified company to our customers without losing the recognized branding that both companies currently have," Brown said.

Colton Braud, managing director at Main Street Capital, said GRT has been a "tremendous investment and portfolio company for us over the past seven years."

"Add-on acquisitions rarely occur this far from the initial investment date for private equity-backed companies, but our continued financial support of GRT is a testament to the strength of our partnership," Braud told Rubber News.

Brown said GRT became "less of a strategic fit within the larger vision" with GRT's previous parent company.

"Having a steady and willing provider of capital with a long-term, patient approach to investing like Main Street opened the door to many possibilities for our company, which has allowed us to expand our product offerings and add services that we did not previously have," he said.

The acquisition of Valley Rubber comes at a tenuous time in the belting and rubber product industries, as work force hiring, supply line problems and rampant inflation—from chaotic raw material pricing to freight costs—are becoming perpetual concerns.

But GRT may be an outlier as it relates to hiring and retention, as the company boasts an average employee tenure of more than 10 years.

With so many other businesses experiencing a dearth in work force talent, Brown said GRT has been able to overcome some of these challenges.

"I have mentioned the similarities in the culture and core values of both Valley and GRT, and both GRT and Valley have similar tenures for their teams, and turnover is low for both," Brown said. "During the past 18 months it has been more difficult to find talent, but both GRT and Valley Rubber are considered 'great' places to work in their respective communities and that helps in recruiting and retaining talent."

GRT and Valley have not been as fortunate in bucking difficult supply line and freight transport trends.

"I think we have faced the same issues that seem prevalent in the world today, including lack of availability of raw materials and weakened transportation and logistical services," Brown said. "In response, we have changed the way we order and have become better at planning our business needs due to longer lead times and uncertain freight channels.

"We are also willing to carry larger inventories to continue to keep our lead times shorter and be a predictable supplier to our customers."

Connell said foresight, planning and adaptability remain key in overcoming supply line problems.

"While it has been very challenging, our team has done a fantastic job in keeping production running with their advanced planning and daily management of the situation," Connell said.

While these macro-market hurdles likely will continue into 2022, the massive infrastructure bill recently approved by Congress and signed into law by President Biden bodes well for the belting and aggregate conveyance industry.

"Our products support many of the industries which will provide the material and services that will supply the increased demand needed in the infrastructure bill," Brown said.

These markets include aggregates, cement, asphalt, bridge and road, and rail.

"Increased spending in infrastructure, particularly in transportation, has (had) a positive impact on Valley Rubber's business," Connell said. "In addition to the increased demand for aggregate and cement, we will also experience gains in the bridge, light rail and water industry sectors we serve."

To learn more about GRT and Valley Rubber's products, visit grtrubber.com and valleyrubber.solutions.