Betz Laboratories, Inc. History

Company History:

Betz Laboratories, Inc. is a specialty chemical products manufacturer with emphasis on the engineered chemical treatment of water and wastewater in industrial and commercial applications. In the early 1990s, the company had 13 U.S. plants and eight overseas locations.

The inauspicious beginnings of a father and son partnership in 1925 gave little indication of Betz Laboratories' major participation in the future development of the water treatment industry. William H. Betz and L. Drew Betz founded their modest business in Philadelphia, Pennsylvania to produce a water purification compound. Nearly seven decades later Betz Laboratories, its international sales alone exceeding $153.5 million, reaped the benefits of a growing movement in favor of pollution control. With the enactment of the 1971 Clean Water Act and increased government incentives to place the burden of regulation on the industries themselves, the company's customer base grew to include the accounts of major oil refineries and steel mills. However, developments in these industries--reflecting problems of overcapacity in petrochemicals and a drastic reduction in domestic steel production-&shy+aced Betz's future expansion at a turning point. Although much of its traditional customer base has been significantly diminished, Betz management proved to be considerably adept at conforming to a changing market.

Betz's first product, K-Gel, a colloidal substance used in the purification of boiler water, remained on the manufacturer's list for fifty years. After just one year of sales, this product made the company approximately $30,000. Despite the difficulties of the Depression, Betz fared well in the 1930s. With sales surpassing $100,000 the company announced the addition of Collogel to its product line. This chemical compound dispersed sodium alginate in domestic water systems. Two years later a third product line, named Adjunct for its use in connection with K-Gel, entered the market. Although the company experienced two years of decreased sales, by 1936 a consulting service had been started that would eventually grow large enough to warrant a separate division.

As the company expanded into new areas, its older operations benefitted from a more integrated production. A new processing plant on the coast of Maine exploited natural resources available in the ocean floor. Using algin and alginic acid extracted from ocean kelp, this plant successfully processed ingredients later used in the production of K-Gel. Although initially successful, the plant was subsequently sold when a 1945 hurricane destroyed the kelp beds. Interestingly, at this point in Betz' history, the company's services, now widely recognized as a reputable leader, were solicited in order to fulfill an unusual request. To ensure the comfort of their unprecedented visit to the White House in 1939, George VI and Elizabeth, the reigning monarchs of the United Kingdom, were given tea brewed with synthetic London water. Betz was given the honor of synthesizing and bottling this water.

In 1940, John Drew Betz, the son and grandson of the company founders, officially joined the partnership. The young executive's tenure at Betz began while still in high school; the boy worked as a sample bottle washer in the summer of 1932. Eight years later the company embraced its third generation of family management, enabling this newest partner to participate in the manufacturing of Betz's first patented product. Remosil, a chemical compound of magnesium oxide used in the treatment of water containing silica, received U.S. patent approval in January of 1943.

By the end of the decade Betz entered its first foreign market through a Canadian partnership. During this period of time research was also underway to combat pitting and tuberculation in industrial cooling water systems. This research ultimately produced a line of patented products under the name Dianodic, and due to their innovative uses established Betz's position as an industry leader. One such product, a zinc-Dianodic, so effectively protected systems against corrosion that it remained a preferred product for years. In addition to these achievements sales surpassed, for the first time, the $2 million mark.

Water treatment chemicals were not the sole representatives of Betz's product line. In entering the paper processing industry the company developed biocides and other products useful to the manufacture of paper. In 1957 the original partnership established over 30 years earlier was transformed into a corporation and renamed Betz Laboratories, Inc. Two years later, while serving as chairman of the board, William H. Betz died. L. Drew Betz then stepped up to the position of chairman and John Drew assumed the title of president. The company issued its first common stock in 1965 signaling the transition from private to public ownership.

After observing the inauguration of Betz de Mexico, L. Drew Betz retired as chairman of the board of directors on the same day he turned 71. However, his list of achievements continued to grow until his death in 1971. The company's board of directors conferred upon him the position of chairman emeritus, and several years later the Drexel Institute of Technology awarded him an honorary doctorate in engineering. Following L. Drew's retirement, John Drew assumed the title of chairman and a young executive by the name of John J. Maguire, who was not a family member, was promoted to executive vice-president. Only two years later Maguire assumed the position of company president, signifying the end of the founding family's traditional tenure in this position.

Under the new president's leadership, industry observers watched the company consolidate its newly initiated European operations (including a joint venture with the British B.T.I. Chemicals Limited and a marketing office established in Belgium) into Betz International, Inc. This wholly owned subsidiary held the responsibility of guiding Betz's entrance into the international market. By 1972 Betz International successfully established operations in Central and South America, the Caribbean, Africa, the Middle East, and parts of Asia. In addition, an office was established in Austria for the purpose of penetrating communist bloc countries in Eastern Europe, and an office was established in Taiwan to arrange for Betz products to enter the market of the Republic of China.

The company's consulting business, operating under an independent division, similarly experienced a period of expansion during the later 1960s and early 1970s. First acquiring Albright & Friel, a consulting firm with over 75 years of experience, and then purchasing Fridy-Gauker & Fridy, a planning and architectural company, Betz's consulting services grew to achieve industry prominence. So important did this aspect of Betz's operations become that it was consolidated in 1971 into Betz Environmental Engineers, and later cited as a catalyst in the company's ability to secure customers. While Betz's product line consisted in commonplace bulk chemicals, its marketing of the uses and benefits of these products tallied the figures of the company's success.

By 1975 consolidated sales surpassed $100 million as compounded annual earnings growth reached 20 percent. The company's success was due not only to increased foreign operations and expanding services but also to a highly favorable economic and political climate. The enactment of the 1971 Clean Air Act, as well as the summit accord reached between U.S. President R. Nixon and Soviet Premier L. Brezhnev to cooperate on environmental protection issues, created an constructive environment for the pollution control industry. With estimates high for domestic expenditures needed to protect national resources, the government searched for ways to defray costs. These attempts included tax relief incentives for industry to regulate itself, tax-exempt pollution control bonds, and federal legislation. In addition, the high price of oil served to bolster Betz's profit margins. Scale deposits on boilers increased fuel bills; Betz's products removed scale deposits and therefore decreased the cost for maintenance.

While Betz continued to control an impressive 18 percent market share during 1984, fluctuations in the economy reflected a changing market configuration. The company, on the whole, operates independently from the drastic effects of economic cycles; no matter how much industry suffers through a recession, few companies would forgo the cost of basic maintenance. Yet fundamental changes in the economy demanded a realignment of Betz's customer base. 75 percent of the U.S. market for water treatment chemicals can be attributed to under 12 companies. The reason for this market dominance was due to the fact that these customers represented four heavy industries, including oil refineries, petrochemical plants, and steel and paper mills. Yet production overcapacity in both the petrochemical and paper industries as well as the virtual disappearance of many domestic steel companies and oil refineries found Betz searching for new customers.

Much of John F. McCaughan's tenure as Betz's chief executive officer focused on this issue of securing new markets. Despite the difficulties surrounding Betz's four major industry customers, McCaughan pointed to the company's success in consolidating business in the 'middle' market, such as the auto and textile industries. Similarly, Betz executives emphasized the fact of dropping levels of water tables as an incentive for future growth. Since water represents a finite resource, some industries find themselves searching for alternative coolants, including the use of treated sewage water. Furthermore, an innovative new product called Dianodic II, an organic water treatment compound, entered the marketplace in a company effort to conform with the Environmental Protection Agency's policy on discontinuing the use of allegedly toxic chemicals contained in some water treatment compounds.

So successful was McCaughan's careful management of this period of market transition that he was honored by the Wall Street Transcript in 1986 with the bronze award for best chief executive in specialty chemicals. Citing his 'conservative, carefully calculated course,' the award commended McCaughan for the company's market strategy in a time of heavy industry consolidation, avoiding long-term debt, and capitalizing on growing demands for customized water treatment systems.

McCaughan's company achieved another important industry standard in 1992, when all 12 of its U.S. plants earned the International Standards Organization's (ISO) 9002 certification in only eight months. ISO sanction usually took 24 months. It was hoped that conforming to these primarily European criteria would boost Betz's international business, which had grown from $6 million in annual revenues to over $160 million. (Many overseas operations had previously been certified.) The company invested over $750,000 to bring its operations up to standard, but industry observers emphasized that certification sanctioned the company's quality claims, thereby opening new opportunities to the company. For example, Senior Vice-President B. C. Moore told Business Week in 1993 that two U.S. companies had placed sizable orders specifying that their water treatment systems be manufactured by an ISO-9000 certified plant. Annual savings of $100,000 in manufacturing costs were icing on Betz's cake.

Betz is proud that its products and processes not only help customers conform to internal and external water treatment standards, but also save them money. In 1992, the company's documented total annual return to customers on their investment in Betz treatment programs exceeded the firm's 1991 sales. In December of 1992, Betz was listed on the New York Stock Exchange. It was hoped that this exposure would bring the company increased liquidity and visibility.

In 1993, Betz marked an unfortunate milestone when, for the first time since the company went public in 1965, sales and pretax earnings decreased, from $706.97 million to $684.87 million and $82.05 million to $65.52 million, respectively. Company executives blamed a $16.2 million pretax restructuring charge for the deficiency. The charge reflected personnel reductions, facilities consolidation, divestment of unproductive assets, and the cost of reorganizing global marketing efforts. A key aspect of the reorganization was the decentralization of the company's largest operating segment, Betz Industrial. The subsidiary was split into four separate technology divisions: refining and chemicals; pulp and paper; power industry; and manufacturing industries.

Betz also cited 'sluggish growth in the industrial sector of the economy, particularly the chemical, refining, and paper industries, our major customers,' for its first decline, and raised its dividend regardless. John F. McCaughan resigned the chief executive office at the end of 1993 in favor of accepting the chairmanship. William R. Cook, who had joined Betz in 1972, added the responsibilities of CEO to his role as president.

In spite of Betz' slide, the outlook for companies in the water treatment business remained positive. According to Rick Mullin, writing for Chemical Week magazine, the proliferation of water treatment regulations, combined with the sheer volume of water used in the United States, would expand the $3 billion domestic market by six to eight percent during the mid-1990s. As the second largest player in its industry, Betz Laboratories' positioning as an environmental 'guidance counselor' to industry promised to help it recover from its sales and earnings lapse.

Principal Subsidiaries: Betz International, Inc.; Betz Entec, Inc.; Betz Process Chemicals, Inc.; Betz Europe, Inc. (Bel-gium); Betz PaperChem, Inc.; Betz, Inc. (Canada); Betz Energy Chemicals, Inc.; Betz Industrial; Betz Limited (UK); Betz MetChem Division; Betz G.m.b.H. (Germany); Betz N.V. (Belgium); Betz Sud S.p.A. (Italy); Betz Pty., Ltd. (Australia); Betz Pte., Ltd. (Singapore); Betz Bes.m.b.H. (Austria); Betz Industries S.A. (France); Finn Betz Oy (Finland); Betz Korea, Ltd.; Betz Kemi AB (Sweden); Betz de Venezuela, C.A.; Betz Environmental Engineers; Betz de Mexico.

Further Reading:

• Kiesche, Elizabeth S., 'Water Treatment: Measuring Up to the Challenges,' Chemical Week, May 15, 1991, pp. 24-32.
• Mullin, Rick, 'Above the Fray in Environmental Management,' Chemical Week, May 12, 1993, pp. 37-40.

Source: International Directory of Company Histories, Vol. 10. St. James Press, 1995.

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