THE PAYOFF
State of the Unions
Infiltrator systems racked up sales of about $50 million in 1996, and Nichols predicts $70 million for 1997. But even the embrace of so many relationships can't shield Infiltrator Systems from rough spots. The price of plastic resin increased last year, taking a painful bite out of profits. And for the first time, Infiltrator Systems had difficulty keeping up with demand; deliveries were late. Then there are the shareholders, some of whom are pressing for a return on their 10-year investment. But because Nichols and Haines have cultivated such solid relationships, the bumps are easier for everyone to take. Banker Dean Ryan, for instance, understood the effect resin prices could have on the company long before he saw it reflected in the numbers. Customer Kathy Herbert admits that deliveries have been "nip and tuck sometimes," but she knows that "all companies go through production problems, and we have never had Infiltrator not take care of us."
And the shareholders? Nichols admits he must pacify them. To finance Infiltrator Systems' growth, he's raising about $13.5 million through mezzanine financing obtained from new investors, and he'll earmark about $3.4 million to buy back some shares. "No one is going to sell out entirely," says Nichols, who estimates that each initial $50,000 investment is now worth $1.4 million. "And a couple of people aren't selling anything." They're waiting for the ultimate payoff--the initial public offering that Nichols is planning anywhere from two to five years out.
To do that, he knows the kind of investor he needs. He's after "someone who understands our story and has bought into what we're doing, who has knowledge of the IPO market, who has business acumen, and who can make a contribution to the board." Neil Powell, chairman of SPP Hambro & Co., the New York Citybased investment-banking firm that's handling Infiltrator Systems' search for mezzanine money, clearly understands Nichols's mind-set. "He's looking for a relationship with someone who's willing to help the company not just at this stage but well into the future," he says.
Nichols has also made contact with a major investment-banking firm. He's been talking to people there for more than a year, sharing information about Infiltrator Systems, learning about the IPO market, building a--well, you know. "Most companies wouldn't bother to spend the time educating someone about their business this far from an offering," says a managing director who declined to be identified. "But this way we have a chance to see what they can do over a period of years, and they get to know us and look at us as a source of advice."
Having proved himself a reliable source of advice, that managing director will have a competitive advantage when it comes time for Infiltrator to choose an underwriter; meanwhile, Nichols gets an education. Probably, each walks away thinking he's getting the better end of the deal. It's a common scenario for Nichols--a strategy characterized by a long-term investment of time and energy, applied with equal intensity to ditch diggers and investment bankers, with the expectation of mutual reward. And like all good missionary work, it's perpetuated by the converted. "This could be a wonderful public company," says the investment banker, who rattles off some facts about proprietary technology and market share. He's excited. About septic systems. Jim Nichols doesn't ask for more--not yet, anyway. The relationship, he knows, is just beginning.
The Partnership Track
When Jim Nichols talks about "relationships," he's not just stamping a new-age word on the fine old art of schmoozing. Nichols applies some very exacting standards to his partnerships. Such as--
Stand by your partner. In Infiltrator Systems' early days, plastic resin (the main component of the company's product) was tough to come by, so suppliers put their existing customers on allotment and rarely took on new ones. Undeterred, Nichols went to Union Carbide with his business plan and, in exchange for an allotment, pledged his loyalty to the company when the market loosened up. It worked.
Look beyond titles and status. When Nichols and George Haines were interviewing public accounting firms two years ago, they were particularly impressed with one member of Peat Marwick's team, Roy Filkoff. "He had global vision," recalls Nichols. Any number of senior partners might have been assigned the Infiltrator Systems account, but Nichols and Haines insisted on the more junior Filkoff. He's now the company's chief financial officer.
Don't pigeonhole. Roy Moore knew plastics manufacturing inside and out, but no one would have mistaken him for a salesperson. Except maybe Nichols, who met Moore through an industry contact in Atlanta. When Nichols approached Moore about selling Infiltrator systems in the Southeast, Moore was initially taken aback. "I had never sold anything in my life," he says. Georgia is now Infiltrator Systems' largest market.
Understand the power of company lore. "When we were first approached to take on the Infiltrator line, I thought it was crazy, because it just wasn't a typical product for our company," recalls Kathy Herbert, vice-president at Parnell-Martin, a plumbing-supply distributor in Atlanta. "But the people--Roy Moore and zone manager David Click--they had a story to tell." Herbert was so intrigued with the tale that she even helped Infiltrator Systems gain local regulatory approval.
