Man of Iron

EOY turnaround award. Profile of a turnaround machinery job shop.

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When Gregg Foster bought Elyria Foundry, in 1983, it was losing $3 million a year on sales of $4 million. Not only is the foundry now profitable -- in a fading industry and during a deep recession -- but in eight years, only three employees have left

"This company was an unmitigated disaster. And the guy saw it had potential and did a fantastic turnaround job."

-- Paula George

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Like many a salaried executive at middle age, Gregg L. Foster decided to quit his number-two-guy position in someone else's business to go for broke in his own. Unlike many, however, the vehicle he staked his fortune on was virtually insolvent, a shriveling arm of a dying industry. The odds of reviving the 85-year-old iron foundry Foster bought were about the same as those of the nearby Indians, Browns, and Cavaliers all winning championships in the same year.

Located in Ohio's Lorain County, a hit-by-hard-times blue-collar region some 30 miles from downtown Cleveland, Elyria Foundry was started as a job shop for the region's heavy-machinery trades. It has continued to cast huge air-conditioner compressor valves for York International, massive engine frames for Ingersoll-Rand, complex pump housings for Cooper Industries, and similar hunks of heavy metal.

In its heyday, around 1980, Elyria Foundry posted sales of almost $17 million and employed nearly 400 office and factory workers. There was such an undersupply in the markets Elyria was serving that customers came to it; the company didn't even have its own sales force. But by the end of 1982, sales had slumped to $7.7 million annually, owing mainly to economic troubles in the Oil Patch. When Foster finally bought Elyria, in August 1983, the foundry was operating at barely 15% capacity, it was losing some $3 million a year on annualized sales of $4 million, and it employed only 107 people.

"Basically, the company was in free-fall. The numbers were bleak, the trends were scary, and I didn't have answers," Foster confesses. But at least the seller, specialty-metal conglomerate Chromalloy American (now part of Sequa Corp.), had some orders on the fence -- jobs that nervous customers were reluctant to finalize. With those for starters, Foster entered a learn-as-you-go proposition. The worst he'd learn was that it couldn't be done.

No doubt Elyria could have been liquidated, instead of sold to Foster -- had liquidating been affordable. But with its pension plan underfunded by some $3 million, plus monthly carrying charges for insurance, heating, maintenance, and security, costs would have been formidable.

Loping into the cheerless picture came tall, angular Foster, guided by a local business broker. With only a mid-six-figure net worth to barter, Foster needed to find an enterprise in disfavor. "I couldn't compete with a strategic, deep-pockets, high-equity buyer for a company sold on the basis of cash flow," he says. "This price was within my means."

For Chromalloy, Foster was the right deal at the right time -- a certified public accountant who, for several summers during his college years, had labored as one of the gang in a Cleveland foundry and later served briefly as its controller. "Real estate in Elyria at the time was worth zero -- it had negative value, in fact. To find some other business that would want those buildings wasn't likely," Foster says, trying to explain the willingness of Chromalloy's management to bargain with so unknown a quantity. "They couldn't cut the losses, and they couldn't find someone they had confidence in to take Elyria over. I was strictly a stop-the-bleeding rescuer as far as Chromalloy was concerned. For me, it was an operation that required soft skills and people handling, and it was right up my alley."

After 18 months of negotiations, during which each side saw the climate get bleaker still, Chromalloy at last sold Foster the works through a deal for assets, financing essentially 100% of the business by advancing working capital. In the summer of 1983 Foster's leveraged net worth paid for 500,000 square feet of medieval-looking foundries, 200,000 square feet of ramshackle storage warehouses, a couple dozen creaky overhead cranes, four two-story electric furnaces, and countless other pieces of aging appurtenances. "Everything I had, plus everything I could borrow, plus everything that came over as collateral, didn't equal the prior 90 days' losses," he realized in horror.

A coalition of adverse forces seemed allied against Foster's determination and high hopes: (1) there was potential for a strike, should Foster balk at union demands; (2) 1983 might have proved not even close to the bottom of the recession for heavy machinery; (3) who knew what EPA standards the former owner had let slide, that the new one might be called on to correct?; (4) critical suppliers might have demanded payment terms as stringent as COD, since Foster was an unknown credit quantity; (5) the pricing structure bred losses and had to be rebuilt; and (6) the payroll was drowned by perks.

Foster had the foresight to canvass suppliers to make sure they'd work with him on credit. Worried that if he had to devote working capital to raw materials and supplies, "there would have been a first-round knockout," Foster told his creditors that a local bank had extended him a line of credit and that the seller was spotting him unencumbered working capital with which to get started. That did much of the trick. "They could see I had reserve borrowing power," Foster notes. "I asked them to give me a shot and told them I'd be able to pay sooner or later."

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