Case Studies | HydroChem
HydroChem Industrial Services
Deer Park, Texas
Leading U.S. provider of industrial cleaning services.
| Investment date: | May 2003 |
| Transaction value: | $150 million |
| Sterling team: | Kevin Garland, Gary Rosenthal, Frank Hevrdejs |
Background
HydroChem had developed into one of the largest industrial cleaning
companies in the industry, but like many of the companies Sterling
acquires, HydroChem was underperforming its financial potential and in
need of operational improvements. Revenue and profitability had both
declined meaningfully over the three years prior to Sterling's purchase.
Sterling Impact
HydroChem's new management, with the support of Sterling, developed strategic and
operational initiatives designed to improve the short-term profitability
and long-term strength of the company. As is always the case in
Sterling-owned companies, this began with the clear alignment of
interests between management and shareholders. Management and directors
received 14% of the stock in HydroChem through direct purchase and
receipt of options. Plus, the bonus program was redesigned to link
annual compensation to bottom-line performance.
Management's "playbook" of initiatives had a threefold emphasis:
- Cost Reduction - Many elements of the company's cost structure were addressed through a number of initiatives.
- Revenue Growth - In order to be successful over time, a company must grow. Therefore, while reducing the overall cost structure, the company was investing in its sales and marketing staff and systems.
- Acquisitions - There exists a meaningful opportunity to consolidate the industry through acquisition. Sterling and management identified and pursued numerous strategic acquisition candidates.
Outcome
HydroChem demonstrated significant financial improvement and a stronger
market position. Gross margin and EBITDA improved, the revenue base was
increased, and acquisition opportunities were created. HydroChem was sold
to Oaktree Capital Management in 2004.
| Pro forma revenue growth | $30 million |
| Gross margin improvement | 2% |
| SG&A reduction | 25% |
| EBITDA improvement | 80% |
| Acquisition candidates identified | 10+ |
| Sterling return on investment | 7x |