The turnaround EOY for 1994: A close-up look at a one company's struggle to return to former glory.
There have been turnarounds both flashier and faster, bbut few so surprising as this Nebraska farm-equipment manufacturer's 10-year transformation. Tony Raimondo made Behlen profitable again by making it a great place to work
Turnaround Entrepreneur of the Year
An individual whose management skills resurrected a moribund or declining company
Behlen, Columbus, Nebr.
Manufacturer of livestock-handling products
Founded in 1936 (bought out in 1984)
$108 million in 1994 revenues
$5 million in 1994 profits
Cypress Semiconductor, San Jose, Calif.
Manufacturer of semiconductors
Founded in 1982
$305 million in 1994 revenues
$12.6 million in 1994 profits
Columbus Show Case, Columbus, Ohio
Manufacturer of retail display cases
Founded in 1895
$19 million in 1993 revenues
$1.4 million in 1993 profits
The word on Tony Raimondo, as far as anyone at Behlen remembers, was that he was crazy. Crazy to think he could overcome a $7-million loss. Crazy to think any bank would deal with him. And crazy, crazy to get rid of the factory time clock.
"When Tony took out the time clock, I'm thinking, 'Our company's going to go broke -- half the people won't show up to work," recalls Allen Cooke, a Behlen vice-president. "I've never told him this, but I had serious reservations about the ability of Tony's philosophy to lead us to success."
"I didn't trust Tony for shit," says Jake Jakub, once a fervent union member who's now a team leader in Behlen's truck shop. To guys like Jakub, Raimondo's talk of employee participation sounded like so much management hogwash. He says, "I'm from Missouri, the Show-Me State, and I said, 'Show me!"
Jeanne Raimondo, too, was looking for proof that her husband wasn't loony. Who would stake his family's future on a troubled company in Nowhere, Nebraska? "There are 20,000 people here in Columbus," she says. "If you exaggerate." She remembers when, in 1984, her husband announced his plan to save the company. "Honey," he gushed, "we're going to buy Behlen." Jeanne shot back, "Oh, no, we're not!"
There were times when Tony Raimondo wished he'd listened to his wife. More than once, he found himself wondering late at night, "Will it all be worth it?"* * *
The outlook for Behlen, a manufacturer of steel agricultural equipment, was considerably more upbeat in 1982, when Raimondo, then 43, joined the company as general manager. Spanning the length of 17 football fields, the factory is the sort of all-American backdrop favored by politicians. John F. Kennedy stumped there in 1960. A black-and-white photo taken during his visit captures his toothy grin and the dazed bemusement of the Republican Behlen clan.
The Behlen brothers, who were inventors and builders of grain-drying and -storage equipment, sold their small 30-year-old business to Wickes Corp., a California conglomerate, in 1969, at a time when farmers could depend on grain-storage subsidies from Uncle Sam. Behlen had profited handsomely for years. In fact, the company couldn't keep up with orders for its steel silos and prefab buildings.
"When I joined Behlen we had an incredible backlog for grain bins," says Raimondo. Wickes's plan was to pour in capital and to diversify. Raimondo's years at General Motors, Moog, and Sperry Corp. had prepared him for his new job. "I was very enthusiastic about coming in to grow the company." He shook the hands of hundreds of plant workers. He memorized their names. He told everyone to call him Tony.
Raimondo's ambitious plans as general manager included a from-the-top-down reorganization and modernization of the plant, which had become a mess, thanks to a mix of divergent products. He painstakingly deconstructed product costs, arriving at a gross margin for each line -- a first in Behlen's history. He also began buying much-needed equipment.
Behlen closed 1982 with a tidy $3-million profit on $50 million in revenues. Everything seemed to be on track, and workers were talking about decertifying the union. But there was a disturbing development hard on the heels of that encouraging news. In the summer of 1983 the government announced it would no longer subsidize grain storage, replacing those subsidies with a new program that would pay farmers to keep their land idle. Like chaff in the wind, much of the $300-million grain-storage market was gone. By year's end Behlen's revenues were down by 50%. The agricultural world was in an upheaval, some say the worst since the depression.
"I had never seen that kind of trauma," Raimondo says now. "It was terrible," agrees Bob West, CEO of competitor Butler Manufacturing.
If Behlen was to salvage anything, Raimondo had to act fast, and he'd need everyone's help. The future hinged on the union's decertification. Tensions shot heart-attack high on the day of management's last appeal. Many workers showed up at the meeting displaying union buttons. Raimondo coached his managers to "thank people for wearing their buttons, because that means they want a better company." It was close. "We won by a whisker," he says. "That was just good fortune."
In the gut-wrenching months that followed, Raimondo reflected often upon that election. "It was a tremendous vote of confidence that really inspired me to say, 'We need to find a way to do this.' I'm not sure we would have had the courage or the determination without it."
January, 1984. The Wickes-owned Behlen posted a shocking $7-million loss. The parent company wanted either to sell or to liquidate the once-profitable division.
"Guys got together, saying, 'How can we pool our money?" recalls Bill Kubas, a 42-year veteran in shipping. "I was even counting my pennies to see if I could buy it." So was Raimondo. With his personal savings, he, his lawyer, and two Behlen managers feverishly pursued a leveraged buyout. The company was seeing red ink, but its assets were worth some $32 million. When the group finally located two banks willing to take the risk, Raimondo kept a promise to his wife: he did not pledge their home to the LBO.
Just after midnight on May 5, 1984, Behlen returned to local ownership. Later Raimondo and his partners staged a poignant ceremony. They played "Take This Job and Shove It" as they lowered the Wickes flag, and they served a barbecue lunch for their 500 employees, who sang "Happy Days Are Here Again."
The truth is, things didn't improve for a while. Raimondo's vision of a profit-sharing environment would have to wait. In his first months as chief executive he was forced to let 200 people go. Layoffs were continual. "You saw people coming and going all the time," says Dave Streeter, a welder in those years. "The mood out in the plant was, 'This company ain't gonna make it.' It was very bad. In the pit, the hatred was thick."
Raimondo didn't make too many friends among managers, either. He'd replaced the authoritative structure with participative management, boldly stripping off layers of vice-presidents and reorganizing the company into horizontal business units, each with an eye on its particular market. A few managers couldn't get past their obsession with turf. "We found the trauma of trying to change some people just very hard," Raimondo recalls. "We finally gave up and took those superintendents out and moved them into technical jobs." That's when Raimondo started to search out natural leaders to replace the supervisors.
As the new president he resolved to share all news -- good and bad -- with employees throughout the plant. But sagging gross margins, mounting losses, and a pile of debt forced him to stop. The details were simply too bloody. "I could see the fear in their eyes," he says.
In Raimondo's first year at the helm, Behlen was losing close to $20,000 a day. Everyone in Columbus knew the pillar of the community was in a heap of trouble. "You couldn't go downtown without someone's saying, 'Gee, I hear they're going to close the doors," recalls longtime Behlen employee George Werner. "People were ashamed even to work there." Gayle Gerber, a 25-year veteran, recalls, "Everyone was wondering, 'How can we lose so much money and stay open?" Dale Buell, another worker, agrees: "You could almost feel the bankers' eyes on you."
"You had to put the rumors into perspective, because they were true," says Raimondo. "I didn't think we could fail; I knew we could fail. Every step of the way, we had to overcome that $7-million loss and get some positive cash flow."
Despite pressure from the bank, Raimondo refused to sell plant assets, as was then in vogue. "I said, 'Absolutely not.' With 17 football fields, I wouldn't know how to make it work." His strategy was to make acquisitions that would enhance Behlen's manufacturing strengths and bring the plant back to full capacity. "We were driven. We knew this big elephant would not be profitable until we got more than $50 million in sales."
Raimondo believed the company could successfully switch its focus from regional agricultural sales to the national markets for livestock equipment -- gates, cattle chutes, stock tanks -- and dozens of other steel products. He wanted to keep Behlen headed in the direction he'd set with his initial acquisition, of the Farmaster line, the year before the LBO. With that purchase Behlen had gained not only a name well-known to cattlemen but also a new sales manager, Farmaster's former sales chief Allen Cooke.
There was no time to invest in research and development. Behlen needed new products yesterday. Relying on the financing know-how of his partner Steve McGill, a mergers-and-acquisitions lawyer, Raimondo compiled a shopping list of Behlen's competitors. Although the company already was highly leveraged and cash poor, McGill creatively packaged financing that supported a string of acquisitions. One seller accepted Behlen stock; another became a supplier. In later years Behlen used cash, seller financing, and even a loan from its employee stock ownership plan. "Each deal had a different degree of leverage and innovation," Raimondo says. "It was quite a balancing act." McGill adds, "It was make-your-stomach-hurt difficult."
Allen Cooke, now a key sales manager at Behlen, developed national accounts by pushing direct, efficient shipping. BMC Transportation Co., Behlen's trucking company, was a key asset in the sales pitch because it could save money for Behlen's retail customers. "Really, they're warehousing for us," says customer Dan Schoening, a buyer for ConAgra's 107 Country General Stores. "There was always a commitment to customer service. Even at the level of the truck driver, they work with you."* * *
Raimondo's revamping of the factory floor proceeded with dreadful delays. He applied and reapplied for grants. One federal grant for $1 million came with a catch-22 requirement: for every $1 of federal largesse, Behlen was obliged to raise $3. "We got squeezed from both sides: bank covenants and grant restrictions. The grant money was tied to what the bank would give us," Raimondo explains, "and the bank wanted to see performance first."
Over five years he was able to extract about $4 million, which he applied to the purchase of such urgently needed equipment as a Swiss-made steel welder, called the Schlatter. Since its arrival in the factory, a decade ago, the Schlatter has run 24 hours a day, every day.
In spite of the new machinery, the margins in the livestock-equipment business stayed narrow. "How in the hell can anyone make a profit in gates?" Raimondo remembers grousing. "So we kept searching. Every product customers asked for, we said, 'Can we make it? Can we buy it?"But extending the product line was just a part of the solution.
The company worked to whittle down production costs and improve quality. "We were losing substantial money, and people knew we would not be profitable until we reached 15% gross margins. In 1986 we were at less than 8%. That trend in gross margins is what we educated and educated them on." A program the employees named Awareness Is Money solicited savings ideas. "People were reluctant at first. They were so surprised to be given authority out on the floor," says Gayle Gerber, a team leader. In spite of Raimondo's determination to avoid the typical suggestion-box syndrome, workers submitted so many ideas that a backlog developed. "We had to learn how to handle the flood of ideas. It was overwhelming," Sheryl Cattau, a nine-year employee, recalls.
Cynicism was the inevitable response to every Raimondo initiative. Early attempts at profit sharing and an employee stock ownership plan had to be put on hold. And the gain-sharing goal was painfully elusive. But Raimondo's efforts were not in vain. Slowly, people got the message: Raimondo was determined to prevail. He would try anything. He even, for a time, applied Behlen's steel-bending know-how to turning out patio furniture. It was imperative to keep the huge factory active. More than once, when deadlines loomed too close, office workers joined their coworkers on the plant floor. Looking back, Behlen veterans say that when they saw employees pulling together that way, they knew the company was out of danger.
But that's not what the numbers said.* * *
No matter how skillfully a CEO rallies the troops, the success of a turnaround depends on cash flow. Behlen was making its interest payments but was still staring down the wrong end of the profit-and-loss statement. "When you start from $7 million in losses, you're not going to get profitable in a year, but we didn't think it would take five years," Raimondo says. Accounting firm Arthur Andersen didn't wait that long to issue its dour opinion: Behlen was not a "going concern," it said in 1986. Raimondo's eyes turn steely at the memory, and his handball opponents from those days can attest to his mounting frustration. Even though 1987 revenues took a leap up, the "going concern" opinion made the lenders skittish, and Raimondo found himself scurrying for capital.
Before the Behlen LBO, Raimondo had never worked with bankers. His finance education was quick and rude: "If you don't do this, you're in deep shit, and if you don't do that, you're in deep shit. We were always in a demand situation."
The local banks had turned their backs on Behlen. Then, early in 1988, Raimondo called on a financier who had been involved in the original buyout. Now at a different bank -- Washington Square, in Minneapolis -- that banker could easily recognize the improvements in Behlen's gross margins. Raimondo won a financial reprieve.
There was no better evidence of progress than in the gain-sharing plan, which doubled its payout in 1988. Everyone in the plant was learning to understand how gain sharing affected labor and materials costs. "When you make gain sharing work," Raimondo told employees, "gross margins improve." And the variety of new work was making Behlen a fun place to work again.
Raimondo hadn't hesitated to change the unchangeable. Removing the time clocks, of course, had been a remarkable alteration, and so was the president's new hot line. He invited everyone to call him or walk into his office, and many did. "One time I asked him his salary, and he told me," says engineer Quentin Yada. And Raimondo's bid to replace supervisors with natural team leaders was coming along. "I was reluctant to take a team leader's job at first," says Gayle Gerber, who'd hated answering to the supervisors of yesteryear. "But it's been good. The people keep me in line."
"It took five years to really change the company culture," says Raimondo. And every company Behlen has acquired has scaled the same learning curve. "There was lots of fear in making the adjustment," says Cooke. "It took years for most of us managers to fully understand the benefits of participative management. Now I wonder how I ever functioned as a hard-nosed decision maker."
In 1989 sales growth stalled at $54 million, but profitability was no longer a distant rumor. The next year, when Behlen declared a profit of $194,000, Raimondo activated a profit-sharing program. "I never thought I'd see that," says Quentin Yada. "I thought profit sharing was someone's pipe dream."
Internal growth, combined with another acquisition, boosted 1991 sales to $68 million. The real breakthrough came in 1992. The company had successfully diversified and was able to negotiate better terms with a new lender, Chicago-based Drew Conneen of the National Bank of Canada. "The more difficult the loan, the deeper you have to look at the collateral and the people behind the numbers," Conneen says. "There was a lot of hidden value in the assets, and with the same amount of debt, Behlen had doubled sales."* * *
The national market for livestock equipment is growing, and Behlen has the biggest chunk. In 1993, after having spent several years in hot pursuit, Behlen absorbed another key competitor. The $23-million livestock-equipment division of Universal Cooperatives, based in Goshen, Ind., brought Behlen another trusted brand name, as well as some much-needed engineering prowess. "Behlen was the leader before, but Universal made it even stronger," says ConAgra's Dan Schoening. And livestock equipment, now worth about 60% of the company's revenues, is by no means the only healthy business unit. The building-systems group is thriving, and so are international sales of agricultural products.
Employees like to talk about the rising value of Behlen stock (the ESOP was activated in 1993) as evidence that the company has arrived. For some, the ever-escalating profit-sharing check is the only proof they need. The excitement mounts month by month as team leaders share the latest numbers with employees, and Raimondo publishes a midyear estimate in the company newsletter. Last spring, as people at Behlen were saying that 110 hours of extra pay was a good bet for 1994, Nebraska governor Ben Nelson joined in a companywide celebration of Behlen's $108 million in shipments and its $5-million profit.* * *
The company is carrying $22 million in long-term debt, and "no one thinks it's too large a debt," notes Bill Kathman, an accountant at Coopers & Lybrand, which recently issued Behlen a clean bill of health. In fact, National Bank of Canada's Drew Conneen fought rival banks to retain Behlen's business by setting its interest rate below prime.
There is talk of a possible merger or public offering. But in this open company at which the workers count as much as the numbers, Raimondo doesn't want people to get distracted. "What we can do on our own used to take four supervisors. That's the biggest change," says Dale Buell. "That's Tony's accomplishment. It's OK to take action on your own. Tony has created an atmosphere where employees can succeed."
10 YEARS TO A TURNAROUND
1982 August: Tony Raimondo joins Behlen as general manager.
1983 Behlen acquires Farmaster, an $8-million gate manufacturer. Summer: U.S. government introduces "Payment in Kind" program, which makes 50% of farmland idle and decimates "ag" industry. September: Behlen workers vote to decertify union.
1984 May: Raimondo pulls off LBO. Time clocks get taken out.
1985 Behlen acquires Berico, a $3-million grain-dryer manufacturer.
1986 Arthur Andersen issues "not a going concern" opinion.
1987 Behlen acquires Hutchinson Steel Operations, a $6-million livestock-equipment manufacturer.
1988 April: Behlen gets refinancing through Washington Square.
1989 Behlen acquires Big Valley, a $5-million livestock-equipment manufacturer.
1990 Behlen acquires WSI, a $1-million livestock-equipment manufacturer.
1992 Behlen gets better terms with National Bank of Canada.
1993 Behlen acquires Universal Cooperatives' $23-million livestock division and $3-million Agri-Engineering.
1994 All four business groups are profitable for the first time. Behlen tallies estimated $5 million in AIM (Awareness Is Money) savings.