Private Equity Manufacturing Sector Meltdown

With all the plant shutdowns in the manufacturing sector one begins to wonder when the economy will hit bottom especially without a reserve chute to arrest the devastating free fall and adverse economic damage to local communities.

Big Picture Emerges
Recently, while tracking combustible dust fires and explosions at manufacturing facilities, the Combustible Dust Policy Institute noticed plant shutdowns and the enormity of the situation is on scale more damaging than any combustible dust fire or explosion. A plant shutdown is a total loss. At least in the majority of combustible dust incidents, the workforce survives.

Most Americans have never heard of the towns such as Fairfax or Stevenson, Alabama. There's dozens of other towns like these throughout the America's heartland experiencing plant shutdowns and leaving a void less visible than a lunar landscape. At least with the moon there is talk of maybe going back.

Manufacturing Sector Gamble
Private equity leveraged buyouts of the manufacturing sector reaps phenomenal financial returns for institutional and private investors. Any financial investment is a gamble with it's highs and lows in the financial market. Like getting dealt a couple bad hands at the poker table it's only sensible to gather one's chips and cash out.

Now with the economy in the doldrums, a similar situation is taking place with private equity cashing out or reorganizing their manufacturing sector portfolios. Investors can move on to a more suitable investments yet the nation's workforce in the manufacturing sector has no such option with a plant shutdown.

Disturbing Metaphor
Instead our manufacturing sector's destiny is literally going down the drain. Metaphorically, a prime example would be Eljer toilet manufacturing plant in Ford City, Pennsylvania (population 3,451) where it was reported last Thursday that the plant, which is in the portfolio of Sun Capital Partners a leading private equity firm, may shutdown after nearly a century of operations, resulting in nearly 150 employees without a job.

Plant shutdowns such as these don't reach the major news networks and besides who has ever heard or cares about what is going on the east bank of the Allegheny River, in Ford City, PA? Yet when these small towns with plant shutdown appear on the map a trend begins to emerge like connecting the dots, which is a big picture affecting all Americans and not just the local economy of Ford City.

Private Equity Portfolio
Private equity interest in Eljer began in 2005 after Jacuzzi Inc reported an operating loss of $30.7 million on sales of $150.5 million for the fiscal year ended Oct. 2, 2004. Shortly thereafter, Jacuzzi sold it's Eljer operations to an affiliate of Sun Capital Partners, a private investment firm. For the last three years Sun Capital have maintained Eljer in it's financial portfolio.

Three months ago American Standard, Crane Plumbing Holding Corp. ("Crane") and Eljer Holding Corp. ("Eljer") merged as affiliated portfolio companies of Sun Capital Partners, Inc. ("Sun Capital"), with Bain Capital Partners, Inc. ("Bain Capital") as a minority partner in the consolidation.

Bright Future
The future for the merger was looking bright especially with the annual market research report related to the home improvement industry provided by ReportLink.com highlighted that American demand for plumbing fixtures and was expected to increase nearly 3 percent annually for the next five years to $11.4 billion . On the downside, imports gained a higher share than local production with imports disturbingly increasing 17 percent annually between 1996-2006. Where are the import tariffs in protecting America's manufacturing sector?

Eljer's workforce surely must of felt their jobs were secure following the merged affiliation. Especially in the press release when the CEO of American Standard Brands stated, "that the merger would offer a stronger , more compelling value proposition to it's customers." If many customers no longer have a job then what sort of value proposition will exist in the future?

Americans need to take a hard look of whats occurring in the nation with the meltdown of the manufacturing sector and ensuing loss of jobs to foreign countries. Alternative solutions in lieu of plant shutdowns must enter into a dialogue amongst our leaders on Capital Hill. With the current presidential race at the top of the agenda it may be another year before any damage control occurs. Can we afford to wait that long?
Photo Credit: Dominic's Pics

Plant Shutdowns Google Map
Private Equity Council