Aceto Corp. History

Address:

One Hollow Lane
Lake Success, New York 11042
U.S.A.

Telephone: (516) 627-6000
Fax: (516) 627-6093

Public Company
Incorporated:1947 as Aceto Chemical Co.
Employees: 125
Sales: $184.79 million (2000)
Stock Exchanges: NASDAQ
Ticker Symbol: ACET
NAIC: 325612 Polish and Other Sanitation Good Manufacturing; 42269 Other Chemical and Allied Products Wholesalers

Key Dates:

1947:: Arnold Frankel and Seymour Mann found Aceto Chemical Co.
1956:: Aceto begins 27 consecutive years of increasing sales and profits.
1969:: The company purchases a New Jersey manufacturing plant (closed in 1993).
1975:: Aceto believes itself to be the world's leading producer of phenylpropanolamine, a synthetic drug (ultimately banned by the FDA in 2000) used in nasal decongestants, cough medicines, and diet pills.
1990:: Company annual net income reaches $5 million for the first time.
1999:: China is supplying Aceto with about 29 percent of its supplies.

Company History:

Aceto Corp. is engaged in the marketing of chemicals used primarily by the agricultural, color-producing, pharmaceutical, nutraceutical, and surface-coating industries. The company sells about 1,000 chemicals used in these and other fields. Most are purchased in Europe or Asia for sale throughout the United States, but some are sold abroad as well. A small segment of Aceto's business is the manufacture of industrial sanitary supplies.

Growing Importer and Manufacturer: 1947-80

The company was founded by Arnold Frankel and Seymour Mann and incorporated in 1947 as Aceto Chemical Co. with initial capital of $4,000. Sons of immigrants, Frankel and Mann met while studying chemical engineering at the City College of New York, which Frankel later described to Anne Bagamery of Business Week as 'a traditional route for poor boys in New York to enter the middle class.' They were employed by TNT plants in World War II. After the war, Mann was working for a consultant when he saw barrels of aniline chemicals outside the plant of a client who had no use for this byproduct. He knew it could be used in dyes, so he bought it for $200, refined it, and resold it for a $200 profit. Mann and Frankel then borrowed from their parents to found Aceto, opening an office in Flushing, a community in New York City's borough of Queens.

The surplus chemicals business, as Frankel later described it to Rhonda Brammer of Barron's, was then 'a dirty word--garbage! Now it's called `recycling-environmental enhancement.' Since American companies, for the most part, had their own sales outlets, the two young men traveled to Europe to purchase chemicals otherwise unavailable to them. There they bought off-grade aniline, paying for it by purchasing surplus solvents and chemicals from paint and varnish makers in Brooklyn and Queens and shipping these products to their European clients. The two also bought methyl alcohol produced by drug companies in the manufacture of penicillin and sold it as off-grade antifreeze. The Korean War boosted demand for Aceto's chemical stocks, and by war's end in 1953 the fledgling company had a net worth of $100,000, plus contacts with hundreds of buyers and sellers in the United States and Europe.

Beginning in 1956, Aceto ran off a streak of 27 consecutive years of increased sales and profits. By 1961 Aceto had raised its annual sales to $1 million and its net worth to about $200,000. The company made its initial public offering the following year and, for $50,000, leased its first manufacturing plant, in Long Island City, another Queens community. Net sales grew from $2.38 million in fiscal 1964 (the year ended June 30, 1964) to $7.41 million in fiscal 1968. Net income increased from $40,000 to $184,000 over this period. Aceto raised an additional $250,000 by selling more stock in 1969 and purchased a larger plant in Carlstadt, New Jersey, from Inmont Corp. Production there was aimed at organic chemicals for the pharmaceutical, cosmetic, and veterinary fields.

The company also included Pfaltz & Bauer, Inc., a research subsidiary purchased in 1965 that was maintaining one of the world's largest 'libraries' of rare chemicals, with 40,000 listings. Pfaltz & Bauer moved into Stamford, Connecticut quarters in fiscal 1974. In 1975 Mann told a group of securities analysts, 'During the last 10 years we have made 10 acquisitions ... [including] divisions of major companies. We are proud of the fact that all 10 of these acquisitions were losing money at the time we acquired them and all 10 are running profitably now.'

Aceto was, in 1970, supplying its clients with pharmaceutical, cosmetic, and veterinary chemicals; chemicals for the color and photographic fields; textile and rubber chemicals; plastics and paint chemicals; agricultural chemicals; and industrial organic acids. Arsynco, Inc., the Carlstadt-based manufacturing subsidiary, was making about 50 products that, in fiscal 1971, accounted for about one-third of company sales (compared with three percent before the purchase of the Carlstadt facility). Among these products was phenylpropanolamine, a substance used in cold tablets such as Contac (and banned by the Food and Drug Administration in 2000). By 1975 Aceto believed itself to be the world's largest manufacturer of phenylpropanolamine. Other products included homomenthyl salicylate, principally used as a sunscreen agent; trimellitic anhydride monoacid chloride, used for polymers that were highly resistant insulations for electric motors; dyes used in Clairol hair-coloring products; and synthetic penicillin intermediates.

By 1975 Aceto was importing industrial chemicals from about 25 countries, with Japanese and European (mainly English) companies each accounting for about one-third of the total. These foreign companies, for the most part, were doing such business with Aceto on an exclusive basis. The Roehr Chemicals division in Long Island City was complementing Arsynco by supplying raw materials to it as well as finished fine (as opposed to bulk) chemicals for pharmaceutical and other uses. Two subsidiaries--one of them in the Bahamas--were handling export and other sales to the approximately five percent of customers outside the United States. Another one--Hyde Petrochemical Corp.--was marketing petrochemicals and related products.

Continued Prosperity: 1980-97

Aceto's net sales reached $89.12 million in fiscal 1980, compared with $14.19 million in fiscal 1970, and its net income was $2.92 million, compared with $362,582 a decade earlier. Frankel and Mann owned 35 percent of the common stock at this time. During fiscal 1983 sales dipped for the first time since 1955, but income continued to rise until fiscal 1985. In that calendar year the company changed its name to Aceto Corp. Among the profitable niches Aceto was exploiting at this time was as a supplier of amino anthraquinone, the orange dye in auto taillights and in the amines that allow paint to stick to auto bodies. Such chemicals were required only in minute quantities, but the markup made them lucrative for Aceto to import, working through its established network of overseas suppliers. Sales and income advanced in fiscal 1986 but dropped the following year, a decline the company attributed to the poor performance of the agricultural sector. Growth then resumed, and in fiscal 1990 sales reached $121.59 million. Net income reached $5 million for the first time that year.

In 1991 Aceto shut down its Long Island City plant and shifted its production to Arsynco. By this time manufacturing was accounting for only ten percent of the parent company's revenue. In that year an accident at the Carlstadt plant released a yellow dye used in Clairol hair coloring (a Bristol-Myers Squibb brand) into the neighborhood. This substance was not toxic, but it discolored cars and houses and cost the company about $500,000 in damages. Also in 1991, Aceto moved its headquarters from Flushing to suburban Lake Success, New York. Aceto continued to prosper despite the 1990--92 national recession, and in the latter year had $18 million in cash in its coffers, offset by only $3 million in long-term debt. Its customers included Eli Lilly & Co., Eastman Kodak Corp., and Celanese Corp. Frankel still held about 15 percent of the shares, while the heirs of Mann, who died in 1989, held about ten percent. Aceto closed the Arsynco plant in 1993. The only U.S. producer of phenylpropanolamine hydrochloride at this time, it reached an agreement by which Dixie Chemical Co. began manufacturing the substance and other specialty organic chemicals produced at Carlstadt, while Aceto retained exclusive marketing rights for the products.

Frankel retired in 1997 and was replaced as Aceto's chief executive by Leonard Schwartz. At this time--the company's 50th anniversary year--its specialty chemicals included ones for clarifying beer, keeping potatoes from sprouting, and providing pain relievers, antihypertensives, and antidepressants. The company continued to buy more than half of its chemicals from Europe, but another 35 to 40 percent were being purchased from Asia. Schwartz, who first traveled to China in 1976, compared the country to California during the gold rush because of cheap labor and the thousands of chemical factories being opened in the absence of stringent environmental laws. China, where the company established an office in Shanghai, also had become a lucrative market for Aceto's sales. Schwartz also opened sales offices in Bombay, Frankfurt, Sao Paulo, Tokyo, and Toronto.

Aceto was maintaining 34 warehouses of chemicals to assure quick delivery to its clients. Speaking to Gregory Morris of Chemical Week, Schwartz pointed out that the company's sources of supply were only as good as its own personnel made them. Referring to China and India, he said, 'When you're buying 200 tons of the 500-ton worldwide market, they have to listen to you. [But] when raw materials are tight, or when domestic sales are strong, sometimes the factories just won't ship. That's why we're over there with the people at the factory every two weeks if necessary, making sure we get the first stuff.' Aceto's assets included the average 28-year tenure of its nine top executives, since, as Schwartz also said, 'Our strength is sourcing, even more than selling. We know markets.'

Aceto in 1999-2000

Aceto continued to emphasize its Chinese market in 1999, when this country provided the company with about 29 percent of its supplies. A full-time Food and Drug Administration employee was hired to work in its Shanghai sales and sourcing office to help customers meet federal regulatory issues. Following the signing of a trade agreement between the United States and China, Schwartz said he would upgrade the Shanghai office to a wholly owned enterprise. To develop another potential growth area, Aceto began manufacturing and distributing institutional sanitary products, including biocides and odor counteractants. Leased space was acquired in an industrial park in New Hyde Park, Long Island, for this purpose. The acquisition of Queens-based CDC Products Corp., a manufacturer of janitorial supply products, presented a legal problem after Aceto fired the company's president and chief executive. In January 2000 Aceto acquired the aroma/flavor, nutraceuticals, and industrial chemicals distribution business of Schweizerhall Holding AG of Switzerland for about $6.4 million. Together these activities represented $32 million in annual sales.

Aceto's fiscal 2000 sales of $184.8 million was divided into six segments. Organic intermediates and colorants, whose products included dye and pigment intermediates used in color-producing industries such as textiles, inks, paper, and coatings, accounted for 27 percent. Industrial chemicals, including a variety of specialty chemicals in adhesives, coatings, foods, fragrances, cosmetics, and many other areas, comprised another 27 percent. Pharmaceutical biochemicals and nutritionals products, including the active ingredients for generic pharmaceuticals, vitamins, and nutritional supplements, accounted for 19 percent. Pharmaceuticals intermediates and custom manufacturing products, used in the preparation of pharmaceuticals, primarily by major ethical drug companies, accounted for 18 percent. Agrochemicals, including herbicides, fungicides, insecticides, and the potato-sprout inhibitor, comprised six percent. Institutional sanitary supplies and other products, including cleaning solutions, fragrances, and deodorants, accounted for the remaining three percent.

In terms of profit, industrial chemicals accounted for 29 percent in fiscal 2000; organic intermediates and colorants, 23 percent; pharmaceutical biochemicals and nutritionals, 20 percent; agrochemicals, 12 percent; pharmaceutical intermediates and custom manufacturing, eight percent; and institutional sanitary supplies and other, eight percent. During fiscal 2000 about 45 percent of the company's purchases of chemicals came from Asia and about 40 percent from Europe. The company had foreign offices in Frankfurt, Mumbai (Bombay), Paris, Sao Paulo, Shanghai, Tokyo, Toronto, and Derby, England.

Aceto's net sales fell 7.5 percent in fiscal 1999 but rebounded nine percent to a new high of $184.79 million in fiscal 2000. Net income dipped 19 percent in fiscal 1999 from the previous year's record $7.56 million but rose four percent in fiscal 2000, to $6.34 million. The company's long-term liabilities came to only $908,000 at the end of fiscal 2000. Some 20 to 40 percent of net profits were being applied on an annual basis to a stock repurchase program. During fiscal years 1997--99 the company repurchased at least 1.13 million shares for this purpose, and at the end of fiscal 2000 it held 4.9 million of its own shares. Another 6.17 million shares were outstanding in fiscal 1999.

Principal Subsidiaries: Acci Realty Corp.; Aceto Chemicals Inc.; Aceto Industrial Chemical Corp.; Arsynco, Inc.; Arsynco International Corp.; Platz & Bauer, Inc.; Roehr Chemicals, Inc.; VGF Corp.

Principal Competitors: Ajinomoto USA Inc.; OSCA Inc.; RS Hughes Co. Inc.; Waxie Sanitary Supply.

Aceto Corp. History

Key Dates:

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