Sweetheart's new suitor AIP brings its back-to-basics approach to deal

June 13, 1993|By Ian Johnson | Ian Johnson,New York Bureau

New York -- With Wall Street's gray towers a fitting backdrop Theodore Rogers offers his anti-1980s business views. Fancy financing is out, he says; productive investments are in. Run-and-gun buyouts are for others; he and his partners prefer buy-and-hold deals.

He's almost apologetic about American Industrial Partners' strategy. "What we're doing is . . . meat and potatoes," said Mr. Rogers, a co-general partner of the firm. "We're so traditional it's embarrassing."

But back-to-basics dealmaking has helped American Industrial quietly assemble an impressive portfolio of manufacturers. The firm, which includes former CEOs of Goodyear Tire and Rubber Co., Mead Corp. and Stanley Works, has spent about half of its $217 million buyout fund to acquire five companies with more than 4,000 employees and $500 million in revenues.

Now, the partnership is poised to more than double its industrial assets by buying Sweetheart Holdings Inc., the corporate descendant of Maryland Cup Corp. Sweetheart, which generates an estimated $900 million in revenues, has 8,000 employees, including 2,500 at a factory in Owings Mills.

If the partnership proves to be as averse to financial fireworks as promised, the deal could help stabilize Sweetheart, which was financially ravaged and left with heavy debts in two previous takeovers. While sidestepping specific questions about Sweetheart until the deal is completed, Mr. Rogers emanates reassurance: "We are not a leveraged buyout firm. I can't say that often enough."

American Industrial, a privately held limited partnership with offices in San Francisco and New York, does not release financial data. But interviews with company officials and industry observers confirm the view of a conservatively run group that seeks to revive companies by cutting debt and improving operations at companies such as Easco Aluminum Corp.

"They . . . seem to be doing quite well. The story on the street is that the management is sound," said Herb Schuler, president of General Extrusion, an Easco competitor.

Ohio-based Easco, which was acquired by American Industrial last year, was a typical deal for the partnership.

Acquisition targets are engaged in repetitive manufacturing processes, hold a high market share in their fields, do not sell retail products and -- as Mr. Rogers says over and over -- add value to products.

"We don't buy real estate," he said. "We don't buy savings and loan associations. We don't buy movie theaters. We don't buy fad or fashion things. We don't buy high-technology companies. We buy basic manufacturing companies."

The aluminum manufacturing business was once part of a Baltimore-based company, before being spun off in the late 1980s. Today, Easco has 3,000 employees and estimated revenues of $250 million. It makes a variety of aluminum products, including window and door frames.

But its business is hurting because of the slowdown in industries such as homebuilding. Other products face competition from plastics.

Easco CEO Mike Hagerty says American Industrial has invested $12.8 million in new equipment while adopting a hands-off management style. Such funding can bring dramatic results. For example, an $8 million investment to upgrade extrusion machines, which turn aluminum ingots into thin frames, has cut waste and should pay for itself in a little over a year, he says.

"The folks at AIP have done what they advertised," he added. "They add breadth and depth without running the day-to-day operations."

That arrangement is typical, too. Although American Industrial's

key partners are former CEOs, they aren't immersed in the daily management of their companies.

Instead, a partner with experience in the field serves as the company's chairman -- at Easco, it's Mr. Rogers, who ran alloy maker NL Industries Inc. and worked for Armco Inc. for 20 years. American Industrial generally retains the company's existing management or hires other industry executives to handle operational chores.

American Industrial also looks for manufacturers that are saddled with debt and just need some capital to get going. Deals #F generally require the former owner to write off some loans. Relieved of some debt and bolstered by American Industrial's capital, the manufacturers can work out a recovery program.

Mr. Rogers says he has little time for the financial wheeling and dealing that characterized the 1980s. Buying a company by analyzing its cash flow and figuring how much debt it can repay is not only simple -- "Anyone can do that," he says -- but also creates no real wealth.

American Industrial, he notes, is not against using debt or even junkbonds to pay for a purchase. Still, he emphasizes, the firm avoids the heavy debt that saddled so many companies following takeovers during the 1980s.

Limited leverage

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