AirBoss moving forward with purpose on strategic restructure

NEWMARKET, Ontario—AirBoss of America is in the midst of a long-term restructuring of its business that includes taking a close look at everything the Newmarket-based firm does.

It started at the end of 2023 with consolidation of the firm into two reporting segments instead of three, launching a strategic review of the "entire enterprise, (and) yielding a blueprint for a strategic transition related to the future roadmap of AirBoss," according to Chris Bitsakakis, the firm's president and co-CEO.

Along the way, AirBoss brought on board an industry veteran with history on both the custom mixing and non-automotive NVH business parts business, both key areas for AirBoss.

And in early July, AirBoss hired TD Securities Inc. to help it with its strategic transition, which the firm said may include—but is not limited to—acquisitions, divestitures and various structural and financing options, including the potential monetization of the company's real estate assets.

"We now have a strategy that we think takes us into a growth pattern for the next 10 years," Bitsakakis told Rubber News. "And we have advisers that are going to help us make sure that we map that out so we can fund it appropriately and maximize the speed at which we can accomplish our goals."

Effective Dec. 31, 2023, North America's second-largest custom compounder restructured the firm into two reporting segments: AirBoss Rubber Solutions (ARS) and AirBoss Manufactured Products (AMP).

The move, which was reflected in its 2023 financial reporting, eliminated AirBoss Defense Group and AirBoss Engineered Products as standalone business units.

"We ended up combining the AirBoss Defense Group with AirBoss Engineered Products into AirBoss Manufactured Products," Bitsakakis said. "It's really simplified the way that we segment our public information, and we've also been able to take advantage of some synergies behind the scenes on how the two companies are run."

Both of the AMP segments, though, still have distinct leadership teams who are specialists in their areas of expertise, he said, but they're able to work closer together.

For example, the former AirBoss Engineered Products team is making rubber military boots that are then sold by the AirBoss Defense business. There are, in fact, multiple products that are in the defense space that can be managed in this fashion.

"By putting them all together in one team, it's really forced better collaboration and better synergies between them, and some pretty exciting projects for the future that they are already starting to work on together," the AirBoss co-CEO said.

Part of the strategy involves making sure the market is aware of the extent of the AirBoss Rubber Solutions business, which will be the main focus of growth opportunities going forward.

The defense unit has a site in Acton Vale, Quebec, that makes some finished products, and also has a mixing facility there. The compounding unit supplies rubber for the plant there, but also for outside customers.

"It was getting lost in the overall company and the overall strategy of expanding our custom rubber mixing," he said. "So when we re-segregated, we moved that plant back into AirBoss Rubber Solutions, where it had been historically, and so now we can demonstrate to the market the actual breadth of our rubber compounding business."

With mixing locations at four locations in the U.S. and Canada, ARS accounted for about $248.4 million of AirBoss' total corporate sales of just over $426 million in 2023. Its mixing customers are in virtually every major end market, from tires to automotive, along with military, construction, oil and gas, and a host of others.

"As the second-largest custom compounder in North America, we have lots of outside customers that we deal with in different industries. And we have a small portion of in-house expertise in making end use rubber products," Bitsakakis said. "When we can be successful in the market as an end use producer and have the sister company provide the rubber, then it allows us to be able to maximize the value of that supply chain within our expertise.

"... So our rubber solutions business will continue to be the main engine of growth for AirBoss of America, but the manufactured product segment can be very helpful in driving that."

When the new corporate structure was unveiled, AirBoss officials committed to taking a closer look at each product line within AMP to determine how they fit.

That remains a work in progress, Bitsakakis said, noting that the process isn't always cut and dry. There are some products, such as rubber boots and gloves, where it's clear they work nicely into the firm's integration strategy.

In other cases, however, AirBoss has some decisions to make, particularly with unique products that are doing well.

One such line is its Bandolier multi-purpose explosive system, which this spring landed AirBoss a $45 million contract with a NATO nation to supply the product used for breaching. The Canadian firm acquired the technology when it purchased Critical Solutions International Inc.

Besides the aforementioned contract, Bitsakakis said there has been interest from Italy, Germany, the United Kingdom and the U.S. for the technology.

"That is a product line that could really, for lack of a better term, explode in demand," he said. "But it does not necessarily fit within our vertical integration strategy."

In that case—and there are other products within AirBoss that fit that criteria—the firm can hold on to it, nurture and build up the line, and then look to see if there are other companies that it fits better with. Bitsakakis said that could lead to a potential divestiture, or another route, such as a partnership of some type.

"We have some unique products that are doing well that we may or may not divest of, so that's the kind of conversations that are going on. We're doing some analytics around that," he said. "We are quite determined to expand and grow AirBoss Rubber Solutions through both organic and inorganic means.

"We are looking at a couple of acquisitions, and we are looking at some expansion of our product lines with a new polymer. And all of those things are going on this year, so I think you'll probably see by late this year or early next year, some of that strategy will be a bit more concrete."

As AirBoss moves forward with its strategic alignment, it has brought in help, both in the form of an individual and a financial services firm.

In February, AirBoss appointed Mikael Fryklund as executive vice president and chief strategy officer. He has experience in two of AirBoss' key markets, having served as an executive with Trelleborg A.B., where he was involved in the firm's noise, vibration and harshness division. He later served as CEO of top custom mixer Hexpol A.B. out of Sweden.

In fact, it was Trelleborg CEO Peter Nilsson who encouraged Fryklund to reach out to AirBoss, and then gave a high recommendation to Bitsakakis.

At Trelleborg, Fryklund helped drive a growth curve in non-automotive applications—a key market going forward for the AMP business—and gained knowledge of rubber compounding during his time at Hexpol.

"And coming in from Europe, he understands the European market really well, which we don't really compete in very much right now," Bitsakakis said. "So if we think of ourselves as driving Rubber Solutions into a global rubber compounding company, having some more in-house knowledge about the markets outside of North America is very helpful."

Thus far, Fryklund, who has relocated to Canada, has been a very good addition, Bitsakakis said.

While the AirBoss restructuring strategy was pretty well formed by the time he joined, Bitsakakis spent time with Fryklund before the hiring. And Fryklund was forthright in his opinion of the plan—and excited about helping the firm execute it.

"He's a really good operator," Bitsakakis said of Fryklund. "He understands operations really well. He's very numbers-oriented and very data-driven. So he's been very helpful in all three of our businesses, particularly on the manufacturing side. He's been very good on working with our team as they develop their strategy about how to grow on the non-automotive anti-vibration side, which is something he has a lot of expertise in."

The hiring of TD Securities to help with the strategic transition is aimed at reviewing the various alternatives to create value for shareholders of the publicly held AirBoss.

"The senior leadership team and I are fully committed to the success of AirBoss," Gren Schoch, chairman and the other co-CEO of AirBoss, said in a statement. "In this regard, we are committed to exploring all options to create value, with a focus on prioritizing key investments within our core competencies and continuing the transformation of AirBoss into a global market leader in the custom rubber compounding market and the other industries which it serves."

One part of the work with TD Securities will involve the financial firm's real estate arm. That part of the AirBoss initiative could involve the sale of its flagship rubber mixing plant in Kitchener, Ontario, and the related construction of a new compounding facility in the region.

He explained that the current mixing unit is near downtown Kitchener, within walking distance from the Google headquarters as well as the main hospital. The factory also represents basically the last large piece of downtown land that has massive development potential.

"There's quite a bit of value to that, a lot more value than what you would expect a rubber mixing plant would need in order to offer it effectively," Bitsakakis said.

The 120-year-old factory has four stories and massive freight elevators that are quite costly to operate. He said the intention is for TD Securities is to find a development partner that can turn the historic structure into residential condominiums, a strategy that was successful for another nearby rubber facility.

AirBoss has worked with the city and received favorable zoning for such a project, and the community leaders also want the company to remain in Kitchener.

"We are also interested in staying there because our employees are extremely important to us and it's not that easy to just go somewhere else and build up your flagship plant," Bitsakakis said.

If all goes well, AirBoss will sell the historic building. Bitsakakis said it should take three years to build and equip a new mixing facility.

"Our intention would be to build the most advanced, state-of-the-art rubber compounding facility in the world," he said. "And our intention would be to build it inside the Kitchener area so that we could retain all of our very talented employees and put something together there that makes us even more competitive for the future."

TD Securities also will advise AirBoss on potential acquisitions and divestitures as the Canadian-based firm looks to execute its strategic plan going forward.

"We just kicked that off now," Bitsakakis said, "so there's going to be a period of time where they study with us everything we know, and then come back to us with potential solutions, partners and ideas. We have some big growth plans."