Despite a fondness for cheap, made-in-Asia, goods, Americans still like to buy American-made goods. Ivan Rebello, vice-president of Zenan Glass, a $19-million-a-year firm that makes customized beer and spirits glasses, bottles and other sorts of specialized stemware, came to this realization about four years ago; his epiphany was to become the driving force behind the company’s expansion strategy into the U.S.
At the same time, Zenan Glass was filling smaller orders for U.S. customers, but the shipping and customs costs were proving to be onerous. Their margins were so narrow that Zenan (ranked No. 260 on the PROFIT 500) walked away from an order from a huge customer—Diageo, one of the world’s largest liquor companies, according to Rebello. The company wanted Zenan to supply glassware to 20 locations across the U.S. But when Rebello and his colleagues ran the numbers, they realized they’d lose money on the order. “We couldn’t fulfill this profitably.”
It was a head-slapping moment.
Throughout 2011 and 2012, Zenan worked their way out of this problem by purchasing a pair of financially strapped glass and dinnerware factories in the U.S., one in Rochester, New York, and the other, in Ohio, outside Pittsburgh. Together, the acquisitions cost almost $2 million.
Rebello said Zenan’s bankers told him not to make the investment. He didn’t listen, saying, “Entrepreneurs like myself get a kick out of taking risks.”
Since completing the acquisitions, Rebello has spent hundreds of hours traveling between Zenan’s Toronto headquarters and the two factories as he pushed ahead with restructuring the facilities so they could begin to deliver on the promise of improved access to large U.S. customers.
What are the 3 crucial steps when acquiring a foreign company? You’ll find them in this week’s PROFIT Trade Tipsheet
Rebello soon found himself focusing on several key issues that arose in the wake of the acquisitions:
- Do due diligence on the due diligence. “We almost lost our shirts” with the first acquisition in Rochester, says Rebello. Before the deal closed, Zenan relied on a local lawyer to supply financial information about the target firm. But once Rebello’s team took possession, they discovered that the information they’d been given included a lot of falsified payables and receivables, and double-bookkeeping. Zenan paid $250,000 for the plant, yet ended up spending $1.2 million to sort out the problems. It’s taken almost two years, Rebello says, to stem the losses.
- Demographics and the workforce. At the Ohio facility, most of the employees were nearing retirement. Zenan embarked on an aggressive recruiting process to bring in younger workers who would be able to use new technologies and deliver increased productivity. Today, about half the employees are new hires.
- Hire trustworthy managers who understand your vision. When Zenan completed the purchase of the Rochester factory, the company decided to keep the former owner on as the operations manager. After a year, Rebello says, it became clear that this manager was “a major problem.” The former owner was replaced with his second-in-command. The new manager had a military background, which pleased Rebello, a former lieutenant in the Indian navy. “He had the necessary discipline with the operation. Knowing my background and this man’s background, I would give him instructions and they would be followed to the letter.”
- Invest in the right technology. Zenan picked facilities that had ovens capable of reaching the temperatures needed to make glass and dinnerware. However, much of the rest of the equipment in the plants was outdated, so Zenan replaced the aging machines with modern ones identical to the ones used in the company’s Toronto facility.
These days, Zenan’s revenues include almost $4 million in sales in the U.S. Heading into fiscal 2014, Rebello feels confident that he’s worked out the kinks that came with Zenan’s new U.S. holdings. Thanks to the technology and management changes, Zenan managed to win back some of the previous customers of the two U.S. plants, and is now better positioned to bid on large deals that have to be shipped to American destinations.
“This year we’ll show profit on the two factories,” he says. “Next year, I’m looking at substantial growth.”