Forbes - OCTOBER 20, 1997

You Don't Blow Smoke At These Guys
Metapoint is a buyout fund whose partners contribute know-how -- as well as money.

By John R. Hayes

METAPOINT PARTNERS, a small buyout group based in Peabody, Mass., won't take just anybody's money. It prefers chief executive officers as investors. Nearly all of Metapoint's 38 partners are retired or soon-to-retire chief executives of major corporations. Among them; Harold Poling, 72, of Ford; Burnell Roberts, 70, of Mead; John Georges, 66, of International Paper; and Robert Crandall, 61, chairman of American Airlines, Crandall recently joined Metapoint's third fund, in which new investors are limited to $500,000 contributions.

Metapoint gives partners the opportunity to continue using their experience even after the y retire- vetting acquisition candidates, recruiting new managers and serving on the boards. Metapoint specializes in buying small, mostly family-owned manufacturing companies. It puts in 20%, management as much as 20%, and the rest comes from debt.

Metapoint looks for companies that have reached a crossroads - an estate problem, a need for sophisticated financial systems or international expansion. When the company is on track, the initial savings realized and the debt paid off, Metapoint sells and moves on. Metapoint's first fund has returned 45% a year since 1988. The second, started in 1992, should return over 50%.

"My financial adviser is very pleased with the investment," says Martin Walker, 65, former chief executive of M.A.Hanna. "But the real fun is to be so close to the action-getting back on the shop floor, where there's a chance to matter to people.

The group was founded by Paul Casey, the 67 year old former chief executive of Ex- Cell- O, who now serves as chairman of Metapoint. Casey is a man who understands the potential of small family-run companies. Casey built his family's small New England rubber company through a series of mergers with larger companies until 1986, when he sold Ex-Cell-O to Textron for $1 billion. He was rewarded with a vice chairman-ship of Textron. "But there was no meaningful role for me there," Casey says today. "I felt I should leave and do something else."

Believing that many other small companies could benefit from a shot of management know-how, he started a buyout fund to find them and fix them. Money for the first fund- $11 million- poured right out of his address book. "I knew a lot of talented people with financial resources who had reached retirement age and would be looking for things to do and ways to keep involved." He then recruited Keith Shaughnessy and Stuart Mathews, both from Bank of Boston, to help run the buyout fund.

The first acquisition, in 1988, was Spir-it, Inc. which, at $7 million in sales, was the world's largest manufacturer of customized swizzle sticks for bars and airlines. "Our biggest problem," jokes Shaughnessy, "was how were we going to tell these guys (partners) we were going to buy swizzle sticks. We thought that since it made a product sold to airlines, we could get away with calling it an aerospace supplier."

Spir-it's owner, Herbert Oedel, an engineer with a degree from MIT, loved manufacturing but didn't care about marketing or finance. The spotless plant looked like a show-room, but Oedel carried over a year's worth of inventory for many of his customers and had no idea which products made money. He hadn't raised prices in far too long. How come? All his prices were listed in the company catalog and he didn't want to reprint it.

Casey and Shaughnessy convinced Oedel's son, Richard, to stay on and become chief executive. Then they tapped the network for new marketing and financial officers. Metapoint partner Coleman Hogan, former chief executive of McCord Corp., joined Spir-it's board and served as Richard's main adviser. "Colie knew what business was all about," says Richard. "If I came up with a brilliant new strategy, he'' say, 'okay, what are the margins? How does it fit with your overall goals?' He'd bring all these issues to the table and make sure we didn't forget."

Within a year Metapoint cut Spir-it's working capital to 44% just from the inventory reductions. Delivery times fell from three weeks to 48 hours. In three years the debt was gone and Metapoint was ready to sell. The new buyer: Richard Oedel. Return to Metapoint: 59% annually for three years.

Not every Metapoint deal has worked. A 1990 acquisition of rug-maker Colonial Mills fell apart. In 1993 an attempt to consolidate family businesses into a nationwide chain of icon door manufacturers collapsed because Sears, the largest customer, stopped selling the item.

But successes far outnumber the flops. In 1990 Gimpel Corp., a maker of high-performance emergency shutoff valves used in steam turbines, was available for purchase. Metapoint partner Thomas Holmes, retired chief executive of Ingersoll-Rand, asked Steven Sandy, who ran Ingersoll's pump division, to take a look at it. Gimpel lacked financial controls, operations were slipping, and customers like General Electric threatened to bolt.

Sandy told Metapoint he'd be willing to rum Gimpel. Sandy's plan: sell high-margin repair and maintenance services and expand internationally. The plan worked. Gimpel grew, and in 3 ½ years Metapoint was out, at a handsome profit, having sold Gimpel to its new management.

The entire Metapoint partnership gathers twice a year - Palm Beach in the spring, up north in the fall. These are working sessions. Shaughnessy mails out financials of all the operations ahead of time. "You don't blow smoke at these guys," says Alfred Samuelsen, president of Marathon Power Technologies, a battery maker Metapoint bought in 1994.

But do these big-company guys understand the problems of the smaller companies Metapoint buys? We put the question to Red Poling, who sits on the board at Shell Oil, LTV Corp. and Kellogg- as well as on the board of Crippen Manufacturing, a tiny manufacturer of seed-cleaning machinery that Metapoint bought in February. Poling smiled. "You just move the decimal place over a few places and you've still got the same basic management issues."

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