Essef Corporation History

Company Perspectives:

By continually investing in new product development, emerging technologies, world-class manufacturing processes, and market-channel management, Essef is strengthening its competitive advantage in the essential worldwide market of components for the movement, storage, and treatment of water.

Company History:

A market leader and industry innovator, Essef Corporation designs and manufactures components to move, store, and treat water through the use of engineered polymeric materials and proprietary process technologies. Operating on a global scale during the mid-1990s, Essef also relied heavily on the swimming pool and spa business through its Pac-Fab subsidiary, the country's second largest supplier of swimming pool filters, pumps, heaters, controls, and lights. Supported by its involvement in these two industry segments, the company was recording encouraging financial growth during the 1990s after faltering during the 1980s. Internationally, Essef operated manufacturing facilities in Italy, Belgium, and the United Kingdom. In the United States, the company's manufacturing facilities were located primarily in its home state of Ohio and in California.

Origins in the 1950s

Essef began business in 1954 as Structural Fibers, Inc., an Ohio-based company founded by Korean War veteran James Horner. From Structural Fibers' inaugural year forward, the company was focused wholly on developing the use of fiberglass reinforced plastics as an alternative to steel. Lighter than steel and with greater corrosion-resistant qualities, fiberglass reinforced plastics promised to be the manufacturing material of choice in the decades ahead, but it was up to companies like Structural Fibers to win support for its use in cast, forged, and other formed or fabricated parts. Toward this end, the Ohio-based company scored early success, pioneering the use of fiberglass reinforced plastics in the Polaris and Hercules missiles, jet engines, electrical components, and other national defense-related items. The experience gained through this work steered the company in a new direction, quickly changing its focus after a few short years. While producing fiberglass reinforced plastic components for missiles and jet engines, Structural Fibers developed a proprietary molding technology involving the use of fiberglass reinforced plastics in the mass production of seamless pressure vessels. The technology--a perfection of the internal bag-molding process--represented a turning point in the company's existence, then still in its infancy. By 1959, five years after its formation, Structural Fibers began to specialize in the manufacture of seamless pressure vessels.

Through its proprietary molding process, Structural Fibers was able to carve a solid position in the pressure vessel market, using its internally developed technology to penetrate the market for water treatment equipment. In a little more than a decade, the company established itself as one of the strongest competitors in the country, bolstered by the business developed during the 1960s. By the beginning of the 1970s, Structural Fibers' core business in the pressure vessel market was strong enough to warrant the company's diversification into other business areas and its expansion overseas. Early in the decade, Structural Fibers acquired Pac-Fab, Inc., a manufacturer of iron, brass, and steel pump and filter products, and changed the company's manufacturing capabilities to include polymeric materials, which were used to produce swimming pool filters and pumps. Eventually, Structural Fibers' swimming pool business would account for roughly half of the company's total sales volume.

Before Pac-Fab developed into an integral facet of Structural Fibers' business, the company expanded across the Atlantic. In 1972, Structural Fibers acquired a German company, Nor-Cal Engineering Co. GmbH, and the following year organized a German subsidiary christened Structural Fibers International, GmbH. As the 1970s progressed, Structural Fibers continued to expand overseas. In 1976, a Belgian subsidiary was formed. Based in Herentals, Belgium, the subsidiary operated as Sa SFC NV and manufactured and distributed fiberglass reinforced plastic pressure vessels and swimming pool filters for European customers.

1981 Acquisition of FAME

By the beginning of the 1980s, Structural Fibers' nearly three decades of involvement with engineered plastics held the company in good stead. Its two business segments, water treatment equipment and swimming pool equipment, were each respected competitors in their respective industries, upheld by the increasing role plastics were playing in the manufacturing world. To increase its exposure to the opportunities offered by plastics, Structural Fibers began to look toward other business areas during the early 1980s, hoping to replicate the success with water treatment equipment and swimming pool equipment in other markets where plastics could be used. This desire to diversify led to the acquisition of FAME Plastics, Inc. in 1981, an acquisition that marked the beginning of an unfortunate chapter in the history of Structural Fibers.

With the acquisition of FAME, Structural Fibers gained entry into a new business area with vast opportunities for growth. FAME manufactured tough plastic cabinetry for the business machine and computer industry, a market that was about to embark on a decade of prolific growth. In the business of manufacturing and marketing computers no company was bigger or more influential during the early 1980s than International Business Machines Corp. (IBM), the behemoth in a burgeoning industry. Through FAME, Structural Fibers tied itself to the fortunes of IBM, obtaining a contract to manufacturer plastic cabinetry for the company known throughout the world as "Big Blue." Structural Fibers' contract with IBM represented what seemed to be a pivotal accord with one the world's largest companies, giving the much smaller Ohio-based company entry into a new market under the auspices of the undisputed market leader. Before the decade was through, however, Structural Fibers' alliance with IBM would saddle the company with burdensome debt and precipitate sweeping changes in management.

As FAME's work with IBM gained momentum during the 1980s, Structural Fibers continued to build on its core businesses of developing and marketing water treatment systems and swimming pool equipment. The accomplishments of the decade were significant, creating a flourishing enterprise that was posting record financial figures at the decade's end; but the growth achieved during the 1980s was not enough to compensate for the losses recorded by FAME. Several months before the acquisition of FAME was completed in September 1981, Structural Fibers purchased Quality Products, Inc. (QPI), then transferred its manufacturing operations to Structural Fibers' Chardon, Ohio facility in 1985 to bolster production of pressure vessels. On the heels of this move, Structural Fibers (renamed Essef Industries in 1982 before adopting Essef Corporation as its corporate title in 1985) completed its initial public offering of stock in June 1987, raising $13.5 million from the offering, which was used to finance coast-to-coast expansion, including the establishment of plants in Daytona Beach, Florida and Ontario, California. Next, in 1988, the company formed ENPAC Corporation, a subsidiary business that designed, manufactured, and marketed proprietary engineered plastic vessels for the containment and transportation of industrial and environmentally hazardous waste materials. The following year another subsidiary operation involved in mitigating the effects of hazardous waste was formed when the company organized Contaminant Recovery Systems, Inc. to develop equipment for limiting hazardous waste generation and recycling process water produced by plating, metal finishing, and other chemical process industries.

By the end of the 1980s, Essef's original businesses were generating record earnings, but the foray into the computer market through FAME was causing the company on the whole to flounder. Sales of IBM's hardware slumped during the decade and the decline had a direct and decided effect on Essef's business. The unanticipated losses incurred by FAME were exacerbated by the increasing reliance placed on the success of FAME to sustain Essef's entire operations. By 1987, sales to IBM accounted for 40 percent of Essef's $102 million in total revenue; in 1988, sales to IBM represented more than 40 percent of Essef's total revenue volume, compounding the effect of anemic computer hardware sales. As a result, Essef's debt rose to $42 million by 1990, when the company took a $20 million charge and discontinued operation of its FAME subsidiary, marking the end of the company's ill-fated relationship with IBM. In the wake of this devastating financial loss, the primary objective was to restore the vitality of the company and close the book on the problems of the 1980s. In reference to the misadventure with IBM, Essef's chairman, James Horner, noted to a reporter from Crain's Cleveland Business, "We learned a lot: Don't stick your neck out in business machines."

Recovery in the 1990s

Horner relinquished his post in 1990 after leading the company for 36 years and was replaced by Thomas B. Waldin, former chief executive officer of building products manufacturer, Donn, Inc. Under Waldin's stewardship, Essef mounted a comeback by reducing debt and expanding its mainstay businesses, particularly abroad. The $42 million of debt in 1990 was trimmed nearly in half during the ensuing year, dropping to $22 million by the end of 1991. Sales, meanwhile, rose from $89 million to nearly $96 million, while net income climbed out of the red, increasing from the $500,000 deficit recorded in 1990 to a gain of $2 million. Late in 1991, Sa SFC NA, Essef's Belgium-based subsidiary, formed a new subsidiary in Barcelona, Spain called Structural Iberica S.A., which operated as a distributor of water treatment, well system, and swimming pool products.

By the end of 1992, Essef's debt was whittled down to $16 million and the company was well on its way toward full recovery, having survived the financial ills stemming from what a reporter from Barron's termed the company's "FAME fiasco." Poised as a leading maker of plastic pressure vessels for residential, commercial, and residential water treatment systems, Essef once again was exuding the luster of a market leader and was projecting sales gains of between 15 percent and 25 percent a year for the next five years. Equally as important as its water treatment business was Essef's swimming pool equipment business, supported by strong market positions in filters, pumps, and other products that accounted for nearly half of the company's total sales volume. Looking ahead, the company saw tremendous potential for growth in large water-softening and other treatment systems, which were still made primarily with steel. Additional growth potential was seen in Europe, where Essef ranked as a minor player. During the early 1990s, Essef was generating roughly $10 million a year in European sales, but projections for the mid-1990s called for a substantial boost in its European business, perhaps as much as four times the dollar amount collected during the early 1990s.

From the $99.1 million posted in sales in 1992, a modest increase was recorded in 1993, when sales inched upward to $104 million. The string of moderate sales gains was broken in 1994, however, when sales leaped to $134 million. In 1994, Essef made two important moves, acquiring Purex Pool Systems, a manufacturer of swimming pool pumps, filters, and heaters, and forming a joint venture with Germany-based Reflex Winkelmann & Pannhoff GmbH to develop pressure vessels. Following the completion of these two deals, sales surged ahead again, rising to $157.5 million. In 1995, Essef expanded through acquisition for the second straight year, purchasing two pressure vessel manufacturers and a pool and spa valve manufacturer. The two pressure vessel manufacturers, California-based Advanced Structures, Inc., and Italy-based Euroimpex, broadened Essef's water treatment product range and strengthened its market leadership. The addition of Advanced Structures increased Essef's presence in the market for municipal water treatment systems, and the purchase of Euroimpex gave Essef a dominant market position in Italy.

Global Expansion for the Future

After devoting the first three years of the 1990s to consolidating its operations and trimming debt, Essef threw off the shackles prohibiting meaningful financial growth between 1994 and 1995. Acquisitions, innovative product development, and a focus on core businesses contributed to substantial sales gains during the mid-1990s, fueling confidence at the company's executive offices in Chardon. This confidence was manifested in May 1996 when Essef officials announced a global expansion strategy for the company's water treatment business. Essef's board of directors earmarked more than $5 million for the expansion of the company's manufacturing capabilities, including the establishment of facilities in India and the addition of manufacturing operations in Chardon, Ohio and in Herentals, Belgium. While announcing the company's global expansion plans, Essef's chief executive officer and president, Thomas Waldin, remarked, "This program has three clear benefits. First, it builds on our market position in the rapidly growing Far East market; second, it strengthens our local manufacturing capabilities in Europe and North America; and finally, it moves us strongly toward our goal of global cost leadership in water treatment components."

As if to validate the ambitious expansion plans announced in May, sales and earnings rose strongly in 1996. Sales jumped more than 27 percent to a record $200.8 million and net income swelled nearly 25 percent to $9.3 million. As the company moved forward with its global expansion plans, with completion slated for fall 1997, expectations for future success were high, instilling confidence that the market leadership established during Essef's first four decades of existence would lead to continued success during the late 1990s and the beginning of the 21st century.

Principal Subsidiaries: Advanced Structures Inc.; Compool Corp.; Contaminant Recovery Systems; ENPAC Corp.; Essef Manufacturing FSC, Inc. (U.S. Virgin Islands); Euroimpex Spa (Italy); Hobson Brothers Aluminum Foundry & Mould Works, Inc.; Pac-Fab, Inc.; Purex Pool Systems; Reflex-WellMate GmbH (Germany); Structural Europe N.V. (Belgium); Structural North America Water Treatment Systems; Structural North America WellMate Water Systems.

Further Reading:

• Byrne, Harlan S., "Essef Corp.: It Found That There Is Truly Life After IBM," Barron's, December 28, 1992, p. 27.
• Casey, Mike, "Essef Hurt by Setback in Its Top Business," Crain's Cleveland Business, December 5, 1988, p. 3.
• ------, "Essef's Nationwide Growth Will Add 25 Jobs in Chardon," Crain's Cleveland Business, January 4, 1988, p. 4.

Source: International Directory of Company Histories, Vol. 18. St. James Press, 1997.