Challenging conditions in oil and gas markets continue to present some hurdles for hose and rigging equipment distributor SBP Holdings, but a balanced growth strategy over the years has made a “rock solid” company, according to President & CEO Don Fritzinger. Fritzinger recently spoke with Editor Jenel Stelton-Holtmeier about the company’s approach to changing markets and M&A.
2017 MDM Market Leader Profile
Distributor: SBP Holdings
Headquarters: Houston, TX
2016 Revenue: $331 million
Leadership: CEO Don Fritzinger; Vice President Peter Haberbosch; CFO Craig Osborne; Singer Equities President Sam Petillo; Bishop Lifting Products President Harold King
MDM: How’s business?
Don Fritzinger: This remains a solid industry. We share some of the same competitive pressures that everyone else may have in certain regions and some end markets, and it may be challenging at times, but it’s still a rock solid and sustainable business.
We experienced the same decline in oil and gas in the Louisiana and Texas regions that everyone else did. But, fortunately we didn’t have the same degree of run-up that everyone else had, so we didn’t have the same decline. We do still feel some pressures offshore. That activity’s just going to take a long time to return to any type of level that we had experienced before.
Our end-market and our geographic diversification really helped us work our way through that period of time relatively unscathed. Over the years, we’ve made a number of acquisitions of good companies in certain regions. We continue to work towards being able to add to that whole portfolio in the years ahead.
MDM: So you’re rock solid right now, but what’s your outlook for the rest of the year?
Fritzinger: We see some revenue upticks. We won’t see anything offshore, but the onshore oil and gas has certainly expanded. Petrochem industry’s been strong. Military looks like it’s working its way back. The aggregate business has been strong, and we think the aggregate/construction thing will be a good place to be.
What we’re doing is pointing our resources into the areas where we some growth over the course of the year. We expect some single-digit organic increases this year. I don’t see a real hockey-stick type growth curve of any kind, any time soon.
The good news – if someone would have said to me last year the election will make all the difference in the world in the sentiment moving forward, I don’t think I would have believed them. But after the election, after listening to all that nonsense over the last two years, it finally got to the point that “all right, the decision’s made. Here is what we’re going to do.” Since last December, we’ve seen an uptick in activity not just in the oil/gas, but in other areas as a result of some positive sentiment with quotes for capital projects that had been delayed for some time. It looked good.
If that will continue, we don’t necessarily know. Certainly, these markets aren’t really growing that significantly. We still have to rely on being sharper than our competition and take some business from the other guy to be able to get any type of significant increases in revenue.
MDM: You mentioned the offshore is still going to be weak for quite a while, but some of the onshore is growing. Are there specific geographic regions where you’re seeing a bit more strength than others, or is it really across the board?
Fritzinger: It depends. There are some specific regions. West Texas, of course, is really the hot spot that everyone’s keeping an eye on. We don’t do a lot of North Dakota. We were up there, but we closed a location.
The old story, if it looks too good to be true, it probably is? There were a lot of folks that ran into a lot of regions. They just watch the price of oil and they can say, “Boy, this is great.” The rig count continues to increase. The drillers have done a great job in making themselves more efficient. They’re drilling those holes a lot faster than what they did before, at a lot lower cost.
We’ll pick our fights. We know West Texas will be a good place. There’s some nice things happening in the Marcellus and the Utica region in the Northeast. There’s some things happening in Colorado, out across the center part of the country. We’re not in any hurry to be able to run and chase after any new drilling activity that might go. We’re going to be a little bit more disciplined than that. We think that there’s some other areas that just might be better opportunities for us.
MDM: It’s a little belated, but congratulations on your promotion. How are things going in your new role (of president and CEO of SBP Holdings)?
Fritzinger: It’s good. The simple thing behind it all is you just hire people that are smarter than you are. When you do that it’s a whole lot easier.
What we’ve been doing for some time is focusing on the management. Many of them are the previous owners who had been with our original businesses (that we acquired) and/or other individuals that had been moved in to these roles along the way. We do a great job of delegating and being able to have them run their individual businesses. Certainly we have our key things that we need to work on from day-to-day, but I delegate to them, let them run their show. As a result, this transition was one that was relatively easy.
My predecessor, Otis Dufrene, is still working with us, predominately on the merger and acquisition side. He’s available any time that I need to be able to consult with him on something that happened in the past. It’s been a great run. A little more travel, maybe, than I would like sometimes, but it’s exciting because we have a lot of really good, young people within the organization.
MDM: With Otis Dufrene working more on the M&A side now, what is the M&A outlook for you?
Fritzinger: It’s strong right now. We have a number of opportunities available at the moment that we’re working through.
We do a thorough review on areas that we want to be able to target. Looking forward, with changes in the tax laws and the potential lowering of capital gains rates, I think that will create further opportunity in M&A as owners want to exit.
Certainly that owner wants to make certain that he’s selling when the business is rebounding. He’s worked this business his whole life. If they went through any type of economic challenges over the last few years, any type of rebound may create a more attractive exit point for them. I think there are a lot of people that are looking for different types of opportunities and solutions.
We typically have a case where there’s a pipeline of people that we’re talking to over a period of time. It starts with an initial call, then sitting down and talking about the culture of their business and our business. How would it fit? What happens to employees? How would the exit process work? Will the name stay in place? How will this work moving forward?
Many times, they’ll ask the question: What are we going to do to invest in their company? It’s something that’s a process. It doesn’t happen quickly, sometimes over a period of years. We have to exercise patience with the individuals who are looking at selling their business. In many cases, it’s been an important part of their life or something that’s been tied to several generations within their family. We’re very, very sensitive to that.
We like to be able to go out there and see what’s available. See what we can do to create some opportunity for them and for us. It’s exciting times on that end. M&A shouldn’t necessarily be seen as threatening in any way, shape or form. It’s a natural thing that’s going to happen when someone decides that they’re going to retire and don’t have someone within their family who’s going to keep the business going.
MDM: Historically speaking, it seems that SBP likes to bring in the managers and the people who have experience within the company being acquired.
Fritzinger: You bet. We don’t simply say, “We have people we’re going to move over there and plug in.” It’s happened in some cases. Individuals said they wanted to retire, and they had a relatively small business. We want the previous team to remain in place. We’re typically very, very excited if the owner has a number of young people that are working there who are looking for opportunities.
We clearly try to minimize the amount of disruption that takes place any time there’s an acquisition.
MDM: We’ve heard a lot about leadership and its importance for creating a strong company culture. What are some of the ways that strong leaders can guide a company through rocky and prosperous times?
Fritzinger: Experience means a lot. Having been through it before is important. It’s like anything else. You get into a piece of business, or you go into an area, you start a new product line, you may really put some sound decision making into place up front, but you may ultimately find you made a mistake along the way. It’s always a good idea when you have an entry strategy that you also have an exit strategy just in case.
We like having balance. We like the geographic diversity. We like the idea of having varied end markets. Having a pie chart that has a lot of equal segments is very important to us. We don’t necessarily stray too far off what is our normal, core products and services.
I tell our leaders time and time again, it’s our job to steer around the icebergs. Be very vigilant, think more than just next month or next quarter. Be thinking several years down the line.
What’s important is that everyone communicates. You’re in a position where you can act as a mentor, and you share those notes throughout the entire organization. I also think it’s important to do a tremendous amount of reading and understanding what’s going on in the other businesses and what other companies are experiencing. Giving managers the opportunity to interact with peers in other areas has always proved to be very healthy. You’re not in the battle all alone.
MDM: How has the approach to sales changed over the years?
Fritzinger: It’s a different ball game today than what it was 30 years ago. Literally, there was very little sales training that took place back then aside from product training. You handed an individual the keys to the car, you gave them a list of contacts, you gave them samples, and you sent him on his way. “Go out and find us some business.”
There was a time when you didn’t need appointments. You knew exactly where you had to target your relationships. Today you’re in a position that’s a lot more difficult. You have to be able to communicate to people through voicemail, through emails, and what have you. Just wandering to the guard shop doesn’t give you the opportunity to get into a business. People don’t have time to see salespeople. You better have a true value offering if you’re knocking on that door and trying to create an opportunity for you and your company.
It’s exciting, though. It requires companies to change. Change creates opportunity. We’re in a position that we have to be able to react to that.