Marc Bowers and boyhood friend Jack Kim founded the Grun Company in 2005 to tap into the soil erosion control market, which had gotten a boost from an increase in regulation on federally funded road and bridge construction.
Erosion control is a $13 billion annual market, and 98 percent of that work is done manually by planting trees and shrubs and laying down hay to prevent soil loss and excessive runoff. Grun, based in Modesto, California, makes two pieces of equipment that help contractors speed up the work by reducing labor costs: straw blowers, which mulch and spread straw, and hydromulchers, which spray a slurry of seed and fertilizer mixed with paper or a wood mulch. The company subcontracts its manufacturing through two facilities, one on the West Coast and one located in the East. Its equipment is sold through a network of dealers in 97 cities around the country.
The recession took a serious toll on Grun's sales and profits last year. But the American Road & Transportation Builders Association predicts that expenditures on bridge and road construction should rise some 8 percent, to $90.5 billion, in 2010, as infrastructure spending picks up after a slow start last year. Grun's owners say that's just what the company needs to grow again.
Price Rationale: The $3 million price tag is based on growth prospects and the company's dealership network. But to get that price, "the company would have to make a strong case for the strategy it intends to pursue," says Neil Shroff, managing director of Orion Capital Group in Menlo Park, California.
The Pros: Outsourcing manufacturing and producing gear based on firm orders keeps costs and inventories low. The company has reliable distribution through heavy-equipment dealers. Competition is limited, and none of the big manufacturers offer similar products.
The Cons: More than $2 million in orders have been canceled since late 2008, highlighting the uncertainty of construction-related businesses. Future business is dependent on existing government regulation staying in place.
The Bottom Line: The price may be high, but the company is well positioned to benefit from government spending on infrastructure. It could be a good fit for a manufacturer or a distributor that sells to contractors.
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