BUYING INITIATIVES ARE going to kill the folding carton industry, says Alan Crane, 76, president of Crane Carton Co., a premier independent folding carton facility in business close to 40 years. Their growing influence is a key reason why he decided to sell his business to Caraustar Industries, Austell, Ga., last October.
Darryl Svoboda, pressman on the plant's MAN ROLAND 900 press (seven colors, with coating), says the more he learns about Caraustar, the better he feels.
For the past few years, major folding carton consumers have been putting their business out for auction in what's known as a buying initiative. There's risk in doing this. Even though the winning carton maker might have gone through a prequalification process, it could get the business at a price it really didn't think through. So, ABC Carton Co. could win an order, but lose money filling it. Or, even more disconcerting, ABC Carton might find it can't complete the order on time.
"Our customers have grown so tremendously through acquisitions," Crane says, when asked why he decided to sell. "They keep getting bigger and bigger with plants all over the country. How long would they put up with a one-plant operation?"
Crane started thinking this way three years ago. He asked himself some hard questions, including where would his prime growth come from.
Business Opportunities Shrinking
"It would have come from mid-sized companies, bakeries, food processors, auto parts companies," he states. "But we saw too many of these companies being taken away from us. That does two things. First, we have to deal with whomever bought them. Second, it reduces the number of places we can go to get business. Our prime customers are disappearing while our major customers are getting bigger and bigger."
These buying initiatives have made creating profit dollars much more difficult for carton converters, especially for a single plant operation like Crane Carton, which does $43 million a year in sales. It also has made it hard for the company to continually keep up with technology. Now that Crane Carton is part of Caraustar, it can use Caraustar's digital imaging center in Cleveland.
Crane Carton's Alan Crane now works for Caraustar but he still makes key decisions at the plant every day.
"We don't have to do it all ourselves," Crane points out. "Even if we could afford a digital imaging center, we could only use 25 percent of its capacity."
Crane stresses that while profit concerns were an important factor in his decision to sell, the top concern was the future employment of his loyal workers. He discussed his decision to sell with his son Bruce, the chief operating officer, and his two daughters, Beth and Jennifer, who also are owners. Ultimately, the Crane family sold Crane Carton to Caraustar because it felt the future financial security of the employees would be much more secure as part of a larger company.
"Not to consider their future is something our family couldn't do," Crane says. "We have practically no employee turnover. You can't ignore loyalty to this company and our obligations to [employees]."
No Preconceived Ideas
But why Caraustar? Many companies have expressed an interest in buying Crane Carton over the years. Crane's answer was always the same: We're not for sale. But by the time he decided to sell, he knew he wanted Caraustar to be the buyer.
"Caraustar is our type of people," he says. "It doesn't want to come in and take over our operation, molding it into a preconceived idea of what a carton company should be. I saw what Rock-Tenn has done with the companies it has purchased, coming in and changing the whole character."
Peter Vredenburg, company director, quality, notes that as Crane Carton management was deciding who would acquire it, he talked frankly with industry friends working for Caraustar as a result of previous acquisitions.
"I had very positive input from everyone," he says. "There wasn't anyone in a management position that felt it would be a bad move. Caraustar's and (president and chief executive officer) Tom Brown's style is one of understanding where true wealth is created, and that's in the ranks. Caraustar has extended employment contracts for all of us with no strings attached."
The negotiation process, which started a year ago, went very smoothly, says Crane. There was no haggling, no lines drawn in the sand. "The quality of the people and Crane's customer base are what attracted us," says Caraustar Vice President, Custom Packaging Group, Jim Walden, directly involved in negotiations.
"The accounts it has and the markets it serves weren't areas that we were in. I only wish we had done this deal sooner. There's a good cultural and philosophical fit. They also use a lot of recycled boxboard, which didn't go unnoticed by us."
Caraustar paid $24.8 million for Crane. This price includes the assumption of approximately $5.8 million in outstanding debt and the issuance of $19 million in Caraustar common stock. Why did Crane elect to receive 75 percent of the purchase price in stock?
"Caraustar didn't want to part with that much cash," says Crane. "On our part, the stock market is depressed right now. It seemed to me the chance of Caraustar's stock going down much further was much less than a future rebound. Also, by purchasing considerable amounts of board from their mills and factoring in profits we can add, we should be able to help the stock."
Crane Carton didn't buy any board from Caraustar before this purchase. Once board is turned into folding cartons, many buyers assume that every carton maker can print well and service their needs, he adds. So for them, all that really matters is price. These buyers will save some money, but how much of it will fall to the bottom line when they start having to shut lines down because cartons from its bargain basement carton maker didn't arrive on time or at all?
"You just can't continually try to get more blood out of a turnip," he says. "Pretty soon, the (integrated) guys will raise (carton) prices because they control capacity and there is no competition."
But in the meantime, don't look for Crane to change how he does business. "Competing against the big guys is duck soup for us," he says. We could be on our presses before they even decide what they want to do. We're not going to back away or change the rules of the ball game."