BRUNSWICK, Ohio—Jim Vaughn took over as CEO of Brunswick-based Philpott Solutions Group on June 25.
Now he's working to take over its destiny, largely with big plans for its plant in Aurora, Ohio, that makes heavy-duty molded plastic and rubber industrial parts for a variety of end markets.
Vaughn is working aggressively to bring Philpott's plastic injection and rubber molding work in house, taking it back from China so that he has more control over quality and can react quicker to customers, he said.
He's also moving its West Virginia chemical operations to Aurora, where the company invested $5 million in a 43,000-sq.-ft. plant in 2016. He's expanding Philpott's staff and says the company soon will add a second shift and begin to make acquisitions, too.
"We're hiring, and we're going to be hiring. We're expanding and we have plans to hopefully have some (merger and acquisition) activity by the end of the year, too," said Vaughn, who joined Philpott as chief operating officer about six months ago before taking over as CEO of the employee-owned company.
At the moment, though, Vaughn and other Philpott employees are busy, and many of them are busy moving to Aurora.
The transfer of 11 employees from Philpott's facility in West Union, W.Va., is going on now and should be complete by the end of summer, Vaughn said. That part of the company's business, Philpott Energy & Transportation Co., involves formulating and mixing chemicals used by shale drillers to complete their wells. It's green technology and not hazardous, Vaughn said, so it's popular with drillers and safe to manufacture.
But it requires that Philpott send its employees to drillers' well sites, where they operate hydration and mixing equipment. It's become tougher to do that from central West Virginia, Vaughn said.
"That business is starting to pick up, but where is it picking up? It's picking up in Ohio and Pennsylvania. They still frack in West Virginia, but the growth is in Ohio and Pennsylvania," Vaughn said.
It will be faster for Philpott trucks to get to the active drilling areas from Aurora. He's currently looking to hire at least two new workers to service drillers, but warned it's not a job for homebodies.
"That's why all our guys are in the field … it takes two guys at each well site. They're on the road for weeks at a time. It's like the Navy," Vaughn said.
As for the China operations, that will take longer to make the move. Philpott hopes to cut ties with its contract manufacturers there and move its operations near Shanghai to Aurora during the next 12 months. The work in China is all contract labor, so there are no direct employees moving to the U.S. from China. But eliminating its contract production in China will require the second shift in Aurora, Vaughn said.
The company has become disillusioned with doing business in China, according to Vaughn.
"We decided we really weren't in control of our destiny and the quality was not what our customers needed," he said.
He also said that once all of the costs are considered, China just wasn't as good of a deal for the company as many might think, despite its lower wages.
"There were all these ancillary costs people weren't taking into account," Vaughn said, noting those costs include travel and legal services, and potentially lost business because of slower reactions or lower quality.
"The cost of quality, fulfillment, shipping, taxes and duties—all those added up to more than it cost to manufacture in the U.S.," Vaughn said.
And while Vaughn didn't mention the threat or installation of tariffs under President Trump, moving production from China might also mean that Philpott's products aren't subject to increased costs if tariffs are placed on all goods made in China.
Philpott is benefiting from at least one aspect of the current tariffs on steel and aluminum, however. The company makes molded urethane "saddles" used to hold large coils of rolled steel in place—picture a trough that cradles a coil and acts like a chock to block it from rolling in either direction. Tariffs have made them hot items.
"What we're finding is that the steel tariffs that Trump is putting in, that's causing our business to really pick up on steel storage. A lot of people are storing steel. They can't get steel or they're afraid they won't be able to get steel from overseas. So we're seeing our business pick up, which is a great thing for us," Vaughn said.
To further capitalize on that trend, Philpott also has introduced a rack system, which enables customers to stack the steel coils three high and thus store more steel in the same amount of floor space.
Philpott does not disclose its specific sales or income figures, but Vaughn said business is good. The company is turning a nice profit on sales of between $20 million and $40 million, he said.
The company is busy enough that it will add about four new people, along with 11 coming from West Virginia, to expand its chemical business. About eight more workers will be added with a second shift in the fall, Vaughn said. The site currently employs about 16.
Beyond that, the company plans to grow further via acquisitions. Vaughn said Philpott is looking to acquire other companies in similar businesses, such as other plastic molders, including some that might help Philpott expand in some markets.
"We're not going to be a pharmaceutical company. But we sell some things into the automotive market, so maybe it makes sense to expand our capabilities into that area," Vaughn said.
Philpott has a strong cash position, access to the credit it needs and hopes to have a deal as soon as later this year.
It will need to be cautious and disciplined though, said Bill Ridenour, head of Polymer Transactions and a North Carolina investment banker who has long worked with companies in Northeast Ohio.
"Generally speaking, it is more of a seller's market now since there has been so much M&A activity since 2010 when we came out of the recession," Ridenour said.
"Also, it is an ideal time to sell because a buyer will be acquiring more after-tax income from a seller due to the lowering of corporate taxes due to the Tax Reform Act," he added, noting that this also drives up prices.
That, and the fact there is currently a lot of cash in the market, means it can be easy for an optimistic buyer to chase higher prices for acquisitions, Ridenour said.
Vaughn, however, said he's aware of the discipline required, in part from his former life as an executive at Fairlawn-based Omnova Solutions, where he worked on acquisitions.
He said Philpott needs to grow purposefully and strategically—but it must grow.
"You can constrict the hell out of it and fail, and you can expand to the broadest horizon you want and fail. We're going to be somewhere in between. I'm looking at adjacent markets that leverage our core competency," he said.