Vallen Corporation

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Vallen Corporation

13333 Northwest Freeway
Houston, Texas 77040-6086
U.S.A.
Telephone: (713) 462-8700
Fax: (713) 462-7634
Web site: http://www.vallen.com

Wholly Owned Subsidiary of Hagemeyer N.V.
Incorporated: 1960
Employees: 1,100
Sales: $306.1 million (1999)
NAIC: 421450 Medical, Dental and Hospital Equipment and Supplies Wholesalers

A subsidiary of Hagemeyer N.V. since late 1999, Vallen Corporation has provided industrial safety products and services and fire-fighting equipment for more than 50 years. The Houston-based company generates nearly 95 percent of its revenues from its Industrial Distribution segment, which caters to both public and private customers through its subsidiary Vallen Safety Supply Company. In addition to its regional distribution centers in North America, Vallen also maintains in-plant stores in certain locations for major companies such as Dow, Alcoa, and Mobil. In addition to distributing the products of 1,600 suppliers from around the world, the company’s subsidiary Encon Safety Products, Inc., manufactures some products, including protective clothing, eyewash products, nonprescription eyewear, emergency drench shower units, and storage cabinets. Vallen Safety also provides safety inspection services, training and consulting, and product repair through its Vallen Technical Services, Vallen Knowledge Services, and Vallen Occupational Health Services divisions.

Starting As Guardian Safety in 1947

Vallen’s founder, Leonard J. Bruce, grew up in Chicago during the Depression. With his father out of work, he had to pick stray coal from a local roadbed to keep the family furnace burning during the long, frigid winters of the Midwest. Like many in his generation he developed an overwhelming need to establish a secure livelihood and a practical sense about how to make money. Not eligible for the service in World War II, he became familiar with the safety business while working as an inspector of bomb factories. He gained further experience working at Chicago Eye Shield selling goggles and other products to area steel mills and foundries. Bruce also served as a sales rep for a hospital supplies company, but, now married, he began to question his long-term career prospects. According to Bruce, “I found out what my district manager was making after 16 years with the company.” When his employer wanted to transfer him to the East in 1947, the 27-year-old Bruce decided he would do far better by striking out on his own. Having read about a major explosion at a Texas refinery, he sensed an opportunity and decided to spend two weeks visiting petrochemical factories along the Gulf Coast. He learned that not only was there a growing demand for safety equipment in the area, but a new supply company would face little established competition.

Bruce convinced his wife Valerie to move to Houston, Texas, and in October 1947 they started doing business as Guardian Safety Equipment Company, representing Chicago Eye Shield products. Having little money they were the only employees, working initially out of a tiny office furnished with Army surplus items. By 1955 Bruce was successful enough that he opened a second branch of Guardian Safety in Baton Rouge, Louisiana. The company began to add product lines other than those of Chicago Eye Shield during the 1950s. In 1960, Bruce incorporated the business in Texas under the name Vallen Corporation—an amalgam of Valerie and Leonard—since Guardian Safety was a trade name of Chicago Eye Shield Company. In that year the company generated revenues of $670,000.

In 1964 Bruce incorporated Encon Safety Products, Inc., which was to become involved in the direct manufacturing of products, including emergency showers and eyewashes, goggles, and a cool air delivery system used under protective clothing. Unable to find the right kind of chemical goggles required by his customers, Bruce decided to make his own. He established Encon, hired a design engineer, and within six months had a viable product to sell. Encon catered, in particular, to the Gulf Coast petrochemical industry. In 1965 Vallen made its first acquisition and, as a result, established a foothold in Corpus Christi, Texas. Vallen grew steadily, helped along in 1970 when Congress passed the Occupational Safety and Health Act (OSHA). Vallen did not experience any major surge in new business, however, since many of its customers were large companies that had already instituted similar safety standards on their own. Even during the recession of the early 1970s, Vallen maintained a steady increase in revenues. The business was healthy enough to support the purchase of a five-acre parcel of land and the construction of a 50,000-square-foot corporate and distribution headquarters in northwest Houston in 1978.

Going Public in 1979

Bruce took Vallen Corporation public in 1979 at $13 per share and in the process enriched himself by some $3 million, while still retaining a 63 percent interest and raising $1.8 million for expansion. Vallen Safety Supply made three acquisitions over the next two years, the largest of which added nearly $3 million in annual revenues and operated 11 distribution facilities, with two in Louisiana, seven in Texas, and one each in Alabama and Pennsylvania. Each depot served a territory that was roughly 150 miles in radius. While gaining a toehold in the East, Vallen continued to focus attention on its Sunbelt markets, although it harbored some national aspirations. After turning over the day-to-day running of the company to someone else for the first time, in 1984 Bruce again stepped in as president and CEO, serving in that capacity for more than a year. In June 1985, J.M. Wayne Code was named president and CEO of Vallen Corporation. Code came to Vallen after serving as CEO of Safety Supply Company, a subsidiary of Imperial Optical Co. of Canada. Vallen, at this point, generated some $2 million in annual net earnings on $40 million in revenues. Under Code’s leadership, the company would expand its product lines and customer base, extend its sales territory, and as a result take revenues and profits to a new level. Revenues exceeded $50 million in 1986 and by 1989 stood at $98 million, helped to some degree by hospitals and laboratories buying goggles that were used to prevent the spread of AIDS to caregivers and researchers. In 1990 revenues would reach $125 million, then exceed $151 million in 1991. Vallen’s stock, priced at $3 in 1985, was worth $27.50 in early 1991. With Bruce still owning a substantial majority stake, the company split its stock three-for-one in 1989, followed a year later by a three-for-two split, thereby increasing the number of shares available for trading from 300,000 to close to one million.

During Code’s first six years at the helm, Vallen grew both externally and internally. In December 1985, the company purchased assets of the distribution operations of E.D. Bullard Company. In 1989 Vallen grew by acquisition again, this time buying a Tennessee-based operation, thus adding some $8.6 million in annual sales and new territory in the mid-Atlantic states. In 1990 Encon bought one of its Houston contractors, a maker of safety goggles and hard hats, giving Encon additional strength in contract plastics manufacturing. Later in the year, Vallen Safety Supply acquired the assets of another Houston company, Instrument Services Inc., which specialized in the sale and service of gas-detection and environmental-monitoring equipment. Internally, Vallen established onsite stores, which allowed it to be the exclusive supplier at the facilities of some major customers. Not only were supplies available on a just-in-time basis, Vallen owned all the inventory, and its computers kept track of each department’s usage. Vallen even maintained onsite optometrists to write prescriptions for safety glasses.

Vallen’s rate of growth tailed off during the recession of the early 1990s. Revenues increased to $167.3 million in 1992, then $175.6 million in 1993, but net income remained flat at $6.3 million. Companies continued to need Vallen’s products, but with many workers laid off in a number of industries and building starts curtailed, there was simply less need for gloves, goggles, hard hats, or emergency showers. Only pulp and paper mill and railroad segments continued to display robust growth for Vallen. Compared, however, to smaller safety equipment firms, which saw sales decline, Vallen remained quite healthy. It now looked to sell its products outside the United States and, in late 1992, Vallen Corporation purchased a 50 percent interest in Proveedora de Seguridad Industrial del Golfo, a Mexican distributor of industrial safety equipment. The next year, Vallen established a presence in eastern Canada, which it then enhanced through a series of acquisitions. Despite these purchases, Vallen had more cash than long-term debt and was clearly not taking full advantage of its position to make even more acquisitions.

Company Perspectives:

Our core business has long been the distribution of thousands of safety products from the world’s finest manufacturers. Today, we’re increasingly focused on the rising demand for safety devices. We’re providing technical services, fire services and training and consulting. We’re also expanding our occupational health services. Safe practices not only reduce accidents, they dramatically lower Workers’ Compensation costs, insurance fees, medical bills, and lost time. We fit our consulting expertise, maintenance services, and products to each customer’s requirements. When it comes to safety, no one offers more than Vallen.

James W. Thompson Becomes CEO in 1995

In 1994 Vallen took some steps to revise its strategy. After an assessment, the company closed four distribution branches, which were deemed to be located too close to regional hubs, resulting in the elimination of some jobs. In addition, the company cut positions at its corporate headquarters. More important, Vallen hired 42-year-old James W. Thompson in June 1994 to serve as president and chief operating officer. He had been senior group vice-president of Westburne Supply Company of Naperville, Illinois, and before that gained 18 years of experience at Westinghouse Electric Supply Company. Code soon retired, while remaining a member of the board, and Thompson took over as CEO effective January 1, 1995. He realized that Vallen faced a changing landscape, with increased competition that required a more cost-effective business. According to Thompson in a July 1998 issue of Barron’s, “Vallen was the IBM of the safety industry. They had a terrific niche—they were the technical experts. . . . But maybe they had become a little complacent with their position.” He invested in new computer systems for order processing to cut costs and increase productivity. He emphasized the high margin, repair, and maintenance business. He also looked for more external growth, especially outside of the United States. He extended Vallen’s Canadian business to the western part of the country by acquiring a 50 percent interest in Century Sales and Service Limited, an Edmonton, Alberta, distributor of mill supply and industrial hardware products. Despite economic problems in Mexico, Vallen increased its commitment to its Mexican operation, thereby gaining market share and placing itself in a strong position when the Mexican economy rebounded later in the 1990s.

At home Thompson also looked for further expansion. Between 1995 and 1999, Vallen Safety Supply acquired the assets of several more companies that expanded Vallen’s presence in the Midwest, Ohio Valley, and southeast United States in safety supplies, mill supply, and industrial welding supplies. In addition, Vallen entered into a venture involved in the manufacture and distribution of clothing and other products used in the nuclear power production business. Also in 1996 Vallen entered into a joint venture with Lion Apparel, Inc. of Dayton, Ohio, to maintain an inventory and distribution center for military recruit clothing for the Air Force. In 1999 the pace of acquisitions picked up, as Vallen Safety Supply added even more service providers to its fold, as it acquired the assets of a provider of respiratory testing and safety consulting services as well as acquiring the assets of three separate providers of fire extinguishers, fire alarm, and fire suppression systems and services. Also in 1999 Vallen Safety Supply and Lion Apparel, through a joint venture, landed a Department of Defense contract to provide a distribution and inventory system for military recruit clothing in 11 states of the Southeast. Furthermore, Vallen Corporation acquired an additional 40 percent interest in Proveedora and the remaining 50 percent of Century, thereby increasing its participation in the North American market.

Under Thompson, Vallen Corporation showed a renewed upward trend in revenues and earnings. In 1995 the company topped the $200 million mark in sales and exceeded $300 million in 1999. Net income during this period ranged from $7.1 million in 1995 to $10.2 million in 1999. To reach an even higher level, however, management felt that Vallen Corporation needed a partner, and the company was put up for sale. Moreover, Bruce was now approaching 80 years of age. In November 1999, Hagemeyer North America, Inc., a subsidiary of Hagemeyer N.V., reached a deal to acquire Vallen Corporation, in the process buying the majority stake in the company still owned by Bruce and his family. The $201 million price included $17 million in assumed debt. Hagemeyer, after years of operating in the United States, was in the midst of an aggressive international push, having made two significant acquisitions in the United States in the previous year.

Hagemeyer elected to run Vallen Corporation as a subsidiary and retain its employees. Now as a part of the North American holding company of a multinational conglomerate, Vallen looked to enter a greatly expanded arena of business. With the globalization of industry and the need to service major customers with far-flung operations located around the globe, Vallen had no choice but to grow larger. The company that once consisted of just Leonard and Valerie Bruce was now ready to gain international recognition.

Principal Subsidiaries

Vallen Safety Supply Co.; Encon Safety Products, Inc.; Safety World, Inc.; All Supplies, Inc.; Vallen Safety Supply Company, Ltd.; Century Sales and Service Limited; Proveedora de Seguridad Industrial del Golfo, S.A. de C.V.