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Reciprocal Value

Producer consolidation has seen many instances of big operators deriving greater value out of mom-and-pops they absorb. Measuring strong financial returns

Don Marsh

Producer consolidation has seen many instances of big operators deriving greater value out of mom-and-pops they absorb. Measuring strong financial returns plus realization of a win-win deal by management and staff, few transactions of the past decade can challenge the U.S. Concrete Inc.-Smith Pre-Cast combination. Houston-based U.S. Concrete acquired Smith Pre-Cast six years ago, viewing the Phoenix operator as a bolt-on to its southern California operation. The deal has shaped up more like a bolt of lightning: An infusion of capital and management practices, coinciding with an Arizona building boom underpinned first by residential and now commercial work, has enabled Smith to nearly triple its revenues and attain some of the best margins among all U.S. Concrete operations.

We were locked into an operating mode with 50 employees and capacity insufficient to grow as construction took off, says Smith General Manager Bonnie Wasson. The company needed plant investment and additional resources to grow a service business complementary to manhole, vault and tank production.

Business continued at a steadily upward pace following the U.S. Concrete acquisition, she adds, then surged as a residential building boom took off and at a peak was bringing the Phoenix area more than 100 finished homes per day. With Smith's annual sales growing at a double-digit percentage clip, Smith management recognized that a significant plant overhaul was in order and a plan was presented to U.S. Concrete and approved. Smith is nearing completion of an upgrade of its 16-acre site south of downtown Phoenix. Major work has included construction of additional production space and crane railway for existing wet cast area; new, open air shelter for dry cast utility machinery and curing bays; and, a new batch plant with twin mixers feeding a monorail bucket (wet cast) and charge conveyor (dry cast machinery).

When dealing with an existing site running at capacity, every little transition had to be thought out, notes Production Manager Chris Sheehan. You have to use the old equipment up until the 11th hour, and change over to new equipment in the 12th.

Substantial completion of the plant structures and a reconfiguration of product handling and storage is making way for newcomers, he adds. In mid-2006, U.S. Concrete acquired Pre-Cast Mfg., a producer located in the Phoenix area. The business has brought Smith additional utility precast offerings, large and small boxes for electrical and telecom markets, and other specialty products.

U.S. Concrete has provided resources, tools and equipment necessary to have an immediate effect on Pre-Cast Mfg., just as it did when it acquired Smith Pre-Cast. Older equipment is being replaced and new equipment added Û giving team members the tools necessary to do their jobs in a more safe and efficient manner.

It was widely known we wanted to grow the Pre-Cast Mfg. business, says Operations Manager Dale Godwin. The transition has been nearly seamless and we have had almost 100 percent retention among the new staff. They know we have already gone through a process similar to what they're experiencing.

The Pre-Cast Mfg. business includes Shorty's Concrete, providing small site-mixed loads with a fleet of six volumetric mixers. The trucks not only serve an existing customer base of small contractors, but also allow Smith to supply concrete to its own field services group for site-cast headwalls, catch basins and other custom products often required in tandem with stock utility precast. The site-cast structures offering follows Smith's entry in the epoxy coatings service business, thanks to a 2005 acquisition of a local company, Riefkohl Contracting.

The demand for field-applied coatings on underground structures has grown exponentially, notes Godwin. Developers and municipalities commonly write coatings into project specifications. It made sense for us to offer epoxy coating as an extension of our field services.

TEAM WORK

Sales growth and market development have increased Smith Pre-Cast's internal visibility within a company better known in ready mixed than manufactured concrete. Smith joined U.S. Concrete as a sister business to San Diego Precast, a savvy producer of utility products geared to the California market, plus premium site furnishings with the potential for much greater shipping distances. San Diego Precast was acquired in 1999, offering U.S. Concrete a southern California presence. Smith Pre-Cast operates as a business unit within the Western precast concrete segment of U.S. Concrete. It includes San Diego Precast, which is preparing for a relocation to a 12-acre San Diego site and plant overhaul that will eclipse that of Phoenix.

In Concrete Products' early 2006 visit to U.S. Concrete headquarters, management reflected on successes in precast, and how the properties warranted investment and transfer of best practices much like those for ready mixed operations. Smith Pre-Cast has adopted the parent company's Winning the Game template, where employees Û known throughout U.S. Concrete as team members Û are engaged in management issues and dialog. Our culture has changed, says Bonnie Wasson. We support team members and use ÎWinning the GameÌ to solicit suggestions. We are all one team working toward the same unified goal.

U.S. Concrete is in the process of implementing the team-building effort across its concrete and aggregate businesses, she adds, with the intent of educating all on production and profit performance locally and company wide. Winning the Game closely aligns with enterprise-wide safety benchmarking. At Smith Pre-Cast, this is reflected in a 45 percent reduction in the rate of recordable injuries and 87 percent reduction in injury or accident- related costs from the previous year. More visibly, the philosophy is evident on 4-ft. square signs Û citing number of days since a plant's last lost-time injury, for example, or a simple reminder on seat belt usage Û posted around the plant and entry areas. Plant layout changes, increased precast delivery and volumetric mixer truck traffic, integration of Pre-Cast Mfg., plus the extension of field services involving team members in excavation prompted Smith to add a safety manager last year.

We believe that improvements in production capacity and changes in yard layout and safety procedures will make 2007 a good year, says Godwin.

We have a good product and service mix for this market, and expect stability and growth through at least 2010, adds Wasson.