Chart Industries, Inc.
Chart Industries, Inc.
Sales: $148.4 million (1996)
Stock Exchanges: New York
SICs: 6719 Holding Companies, Not Elsewhere Classified; 3823 Process Control Instruments; 3443 Fabricated Plate Work (Boiler Shops); 3569 General Industrial Machinery & Equipment, Not Elsewhere Classified
Chart Industries, Inc. is a leading designer and manufacturer of cryogenic industrial process equipment, including heat exchangers, vacuum pumps, tanks, and other devices used to process, liquefy, store, and transport gases at temperatures near absolute zero: - 459.7°F. This equipment has a broad array of applications, including petroleum and petrochemical processing, superconductivity and space research, nuclear waste treatment, steel, shipbuilding, and even medicine. Only five of the company’s nearly 1,000 employees work at its suburban Cleveland headquarters; the remainder are scattered throughout the United States at plants in Wisconsin, Massachusetts, Louisiana, New Hampshire, California, Pennsylvania, and Arkansas. In addition, Chart’s five main operating units are managed with a high degree of autonomy; each has its own president.
For the most part, Chart’s relatively short history has been characterized by rapid growth; sales multiplied from $17 million in 1987 to more than $148 million in 1996, driven in part by a series of savvy acquisitions in strategic niches of the industrial process equipment industry. That string of successes came to an abrupt halt soon after Chart went public in 1992. On the heels of a $1.5 million loss in 1994, the company hired a new president and undertook a strategic repositioning to focus on developments with the best potential for return. The modest restructuring appeared to have paid off; in 1996, the company achieved record sales and profits and had its highest-ever backlog of orders.
Growth through Acquisition in the Late 1980s
Chart takes its name from the Holmes brothers, Charles and Arthur, whose combination of technological and financial know-how transformed a scattering of unrelated, largely private firms into a coordinated network of highly specialized companies. Former Long Islanders, they both attended Pennsylvania State University and earned advanced degrees in chemical engineering. Charles went on to become an attorney with a specialization in mergers and acquisitions and Arthur stayed in engineering, specializing in cryogenic equipment.
They reunited in 1986 to purchase ALTEC International from The Trane Company. Founded in 1949, this troubled manufacturer of aluminum heat exchangers was based in La-Crosse, Wisconsin. Characterizing themselves as “deeply committed to the management principles of Dr. W. Edwards Deming” and his Total Quality Management (TQM) system, the Holmes brothers implemented long-term resource planning, analyzed manufacturing processes for hidden efficiencies, and implemented new computer systems. In keeping with their educational backgrounds and experience, Art took an active role in ALTEC’s day-to-day management, while Charlie sought out acquisitions and obtained financing for the revitalized business.
ALTEC became the core of the Holmes brothers’ holdings, a business that Arthur Holmes would later characterize as their “crown jewel.” Under its new management, the company’s line of brazed aluminum heat exchangers (BAHX, first launched in 1949) would become the industry standard. These large-scale devices are used to liquefy and isolate the component parts of atmospheric air—oxygen, nitrogen and argon—by cooling it to temperatures lower than - 259°F. These low temperatures also facilitate safer, more efficient (and thus more cost-effective) transportation of gases, because the liquefied forms take up much less volume than the gaseous forms. Under the guidance of the Holmes brothers, ALTEC’s business would quadruple from 1986 to 1996.
But the brothers would not be satisfied with that expansion alone. From 1986 to 1991, they sought to acquire undervalued companies that would complement ALTEC’s highly specialized product line. In general, the Holmeses targeted businesses that could offer synergies with their previous acquisitions, seeking to expand within the high-margin, highly engineered, specialty niches of the industrial process equipment industry. Most often, they also retained the managers of their new affiliates, allowing them to operate fairly autonomously.
In 1989, they purchased Childers Products Co. in Eastlake, Ohio and made it their management base. The acquisition of New Hampshire-based Process Engineering Inc. (PEI) gave Chart the capability to manufacture storage and transport systems for liquefied gases. Products included temperature-controlled storage tanks, railcars, and truck trailers. The acquisition of Greenville Tube Corporation literally provided the link between ALTEC and PEI. Its line of stock and custom-built products ranged from small-scale tubing to six-foot-diameter pipes, connectors, and accessories specially designed for the transport of liquid gases.
In 1991, the brothers acquired Process Systems International (PSI) from Koch Industries Inc. of Wichita, Kansas. PSI had initially evolved from research into helium liquefaction undertaken at the Massachusetts Institute of Technology. Not coinci-dentally, Arthur Holmes had worked for Koch Industries from 1978 through 1985 as a manager of the division that would become PSI. The new affiliate’s core product line of helium gas liquefiers was used in medical, laboratory, and research facilities, thereby expanding the group’s clientele from its industrial base. PSI also brought the group expertise in the design and construction of entire natural gas processing systems as well as an international roster of customers. Like ALTEC’s heat exchangers, PSI’s equipment employed high-pressure cryogenics to cool and simultaneously purify natural gas, transforming it to the liquid state. To better coordinate the activities of PSI and PEI, the parent company consolidated these two operations’ management teams in 1992.
By combining the capabilities of these independently operated businesses, the as-yet-unnamed group generated the critical mass necessary to bid for and win large equipment contracts in the United States and overseas. Sales increased from $17 million in 1987 to $84.8 million by 1991, and net income multiplied from less than $500,000 to $4.6 million.
Initial Public Offering in 1992
Joined by a minority investor, Leonard Conway, the brothers formed Chart Industries Inc. in June 1992 as a holding company for its amalgamation of businesses. The Holmes brothers took their company public that December. The initial public offering (IPO) of a minority stake in Chart at $ 11.50 per share raised $42.2 million, $17.2 million of which went straight to the Holmeses and their partner Conway. The remainder went toward fees and debt reduction. According to a December 1992 article in Grain’s Cleveland Business, the partners’ remaining stakes in Chart were valued at $44 million for Charles Holmes, who served as vice-chairman, $27 million for Chairman and Chief Executive Officer Arthur Holmes, and $8.5 million for Leonard Conway, who did not actively participate in the business.
The stock rose quickly in the early months of 1993, peaking at more than $16.50 in the first quarter. But this buoyant mood did not last long. Citing softening markets and IPO-related distractions, the company revised its earnings forecast down mid-year, and its stock fell with the news. The recently acquired PEI was in the red, and PSI was struggling just to break even. Chart’s sales took a nose dive in 1993, falling by more than 20 percent from the previous year’s $104.8 million to $83.7 million. Net income slid even more precipitously, from $6.8 million to just $800,000. By the end of 1993, the stock was selling for less than $5 per share.
Late in 1993, Chart recruited Jim Sadowski away from Parker Hannifin Corp. and hired him as president and chief operating officer. Sadowski surmised that Chart was having difficulty toeing the fine line between custom-engineered, high-margin projects and less intensive, lower margin products that had a wider market potential. The new president worked to balance Chart’s quest for innovation with its need to create and generate marketable products, telling The Plain Dealer, “We refocused the entire business on the products that we were good at and successful with. We had to abandon or disengage from many of those areas that were peripheral, or nonproductive, and resource-consuming with no returns.” A subsequent restructuring of the PEI subsidiary in 1994 cost Chart $2.5 million in onetime charges, which socked the parent company with a $1.5 million net loss on a slight increase in sales to $84.3 million.
We at Chart Industries are committed to building a dynamic company that will consistently deliver increasing value to its shareholders. To fulfill this mission, we remain focused on producing above-average earnings, above-average return of equity, and consistent, profitable sales growth.
The parent company shored up PSI’s liquid natural gas (LNG) capabilities that same year with the $5.7 million acquisition of CVI Incorporated, a Columbus, Ohio-based manufacturer of cryogenic vacuum pumps. Founded in 1959 to create systems for NASA, CVI gained decades of experience in creating devices that process and store liquid rocket fuel. In the early 1990s, this expertise was applied to terrestrial vehicles, as CVI developed fueling stations and on-board fuel storage for mass transit vehicles run on liquid natural gas. If this technology were eventually adopted by auto manufacturers, the potential for growth at CVI would be phenomenal. As a complement to CVI’s LNG interests, PSI licensed technologies that would help it build devices to process LNG into an alternative vehicle fuel. By combining PEI’s LNG transport systems, PSI’s processing equipment, and CVI’s storage and transfer devices, Chart stood to become an important supplier to the growing alternative fuel industry.
Chart targeted increased international sales as a key strategy for growth in the mid-1990s and beyond. The company perceived particularly good opportunities for growth in emerging markets in South America and Southeast Asia. The addition of the new Chart Coastal Fabrication plant in Louisiana in 1995 quintupled the company’s capacity to produce cryogenic cold boxes and gave it an ideal launch pad for overseas shipments.
That same year, Arthur Holmes told The Plain Dealer’s Thomas W. Gerdel, “We’re actually turning away work,” that a year-long backlog of orders had necessitated an $8 million expansion of the ALTEC factory. Renewed investor confidence had helped push Chart’s stock to nearly $18 by mid-1997. In addition to its internal growth, Chart was expected to continue to seek acquisitions in the latter years of the 1990s. In 1997, Chart made good on these forecasts with the acquisition of Denver-based Cryenco Sciences Inc. for $21 million.
Principal Operating Units
ALTEC International Limited Partnership; Process Systems International, Inc.; Greenville Tube Corporation; Process Engineering Division; CVI Division.
Gerdel, Thomas W., “Equipped for Success: Chart Industries Grew from Dreams of Two Brothers,” The Plain Dealer, May 21, 1997, p. 2S.
——, “Steering a Balanced Course: Chart President Helps Company Sail to Success,” The Plain Dealer, May 21, 1997, p. 17S.
Shingler, Dan, “IPO Raises $42.2 Million for Chart Industries,” Crain’s Cleveland Business, December 7, 1992, pp. 3-4.
—April Dougal Gasbarre