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Acquisition of IFCO Systems Plants Launches PalletOne;
Howe Wallace Leads New Company; PalletOne to Focus on Manufacturing

By Staff
Date Posted: 12/1/2001

A new, national pallet company has been formed, and it quickly became the largest pallet manufacturer in the U.S. by acquiring the 12 remaining pallet manufacturing plants of IFCO Systems. The new company, PalletOne, was established by senior executives and managers of IFCO.

PalletOne will be based in Bartow, Fla. and led by chief executive officer Howe Wallace, 46, former executive vice president for IFCO.

The PalletOne management team holds a majority position in the ownership of the new, privately-held company. "We are pleased to have the opportunity to take an equity position in ownership of a business we have been managing for quite some time," said Howe. "Our team has been working together, in some cases, for over 30 years. The transition for customers and employees will be seamless."

The 12 pallet manufacturing plants are located in Bartow, Fla., Smarr and Hazlehurst, Ga., Shipshewana, Ind., St. Francisville, La., Livermore Falls, Me., Butner, Mocksville and Siler City, N.C., New Boston, Tex., and Waterloo and New London, Wis. The operations had revenues of $134 million in 2000, according to PalletOne. Terms of the sale were not disclosed.

The 12 plants employ over 1,000 workers, and PalletOne did not anticipate any immediate, significant changes in employment. Customers will have the same sales contacts and can expect the same level of service.

The divesture by IFCO leaves the company with four main product and service areas: reusable plastic containers, pallet management, industrial containers, and wood waste management. In the pallet arena, for example, IFCO will continue to provide sales, rental-leasing, reverse distribution and back dock management, retrieval and recovery, recycling and reconditioning, data management, pallet design, and more.

Howe, 46, began his career in the pallet industry in 1983, when he went to work for Florida-based Ridge Pallets. He eventually became part of the senior management team, which purchased the company and soon decided to form PalEx with two other pallet companies.

When PalEx was acquired by IFCO Systems, Howe was named executive vice president for human resources and had global responsibilities for personnel functions. He was a member of the company’s management board and later was assigned the task of finding a buyer for the company’s pallet manufacturing operations.

PalletOne has no immediate plans for expansion, said Howe. "We’re not going to be looking at a lot of acquisitions right out of the box." The 12 plants enjoy good revenue bases and strengths in the marketplace. "We’re going to focus on being the best at what we are," he added. For the time being PalletOne will seek only to "fine tune" its operations, he said.

The new company will focus on pallet manufacturing although some of the individual plants have limited pallet recycling operations. "We intend to be in the manufacturing business," said Howe.

The managers of all 12 of the pallet manufacturing plants will be kept in place, said Howe, who has developed a strong leadership team. Casey Fletcher, chief financial officer for IFCO and also formerly with Ridge, was named vice president-chief financial officer.

PalletOne has four regional level managers: Russ Miller for Texas and Louisiana, Tom Mathews for Florida and Georgia, Jerry Reavis for North Carolina, and Donnie Isaacson for Maine. The Wisconsin and Indiana plants are led by the local plant managers.

Keith Reinstetle, responsible for national sales for IFCO, will oversee PalletOne sales and marketing in the Southeast.

"We are going to run a very lean organization," said Howe. "We don’t have a lot of corporate officers." Operations will be "fairly de-centralized."

Each plant will operate with a large degree of autonomy. "We certainly believe that a decentralized approach is essential," said Howe. Pallet lumber prices are localized, he noted, as are customers. "You can’t be as agile as you need to be in the marketplace" if decision-making authority and control are centralized in the organization.

The corporate staff will focus on such other universal aspects of operating a business as information technology, accounting, safety and marketing. "Our focus is going to be on supporting people in the field," said Howe. Jennifer Daniels, in charge of marketing communications for IFCO, also was named to the staff of the new company and will perform the same duties.

Howe plans no immediate changes in operations, yet there will be one significant difference in the company’s financial structure that should benefit PalletOne. "These were excellent companies when we acquired them," he noted. "They have been performing reasonably well" despite the slow-down in the nation’s economy, so they will be "pretty solid as we go forward." Because IFCO was highly leveraged, Howe added, it was not able to take profits and re-invest them to improve its pallet manufacturing operations. That will change, he predicted. "For the first time in several years, we will be able to take profits and use them to improve operations or reduce debt to improve the company. That’s one of the biggest new things we have going for us."

When asked why the new owners think they can succeed as a large pallet manufacturing enterprise given the problems faced by PalEx and later IFCO, Howe dismissed the suggestion that IFCO and PalEx were not successful in the pallet manufacturing arena. "I don’t know that I regard that as true," he said.

A number of different circumstances affected the ability of PalEx to grow, he noted, and they revolved around its relationship with Chep, which at one time was its biggest customer. When PalEx dissolved its relationship with Chep, it went in a different direction. After being acquired by IFCO, the company’s focus was on pallet services and pooling, not manufacturing.

"We can get back to the basics of building a good manufacturing company by first focusing on being the best where we are and looking for opportunities for growth," said Howe, "just like we have historically done." PalletOne has "strong depth of management and the resources to grow and go forward," he added.

Being a privately-held company will be an advantage, according to Howe. Publicly-held companies — such as PalEx and IFCO — must address market expectations of performance, he noted. "The wood pallet business is not something you look at on a quarter-by-quarter basis." Being privately-held will enable PalletOne to have a "longer-term perspective."

"What’s really important to note is that we’ve learned a lot," said Howe. PalEx and later IFCO made improvements in processes and "organized ourselves to be as effective and efficient as possible. We made all those decisions as we went."

Although PalletOne will take a decentralized approach to its operations, at the same time it will seek to take further advantage of overlapping or similar operations. Three plants operate sawmills, for example, while several work mainly with softwood lumber and dimension stock for raw material. In the case of plants with similar operations, PalletOne will seek to benefit from their combined expertise by establishing best practices and making process improvements.

Under the terms of the sale, PalletOne bought all the assets of the plants, their machinery and equipment. There is no one typical plant because all of them had evolved earlier as independent pallet manufacturing businesses before becoming part of PalEx. Each plant is designed and equipped to meet its particular market and customers. Some began as sawmills and later expanded into pallet manufacturing while others were launched first as pallet companies and never integrated with sawmills. "They all are a product of their customer requirements and raw material mix," noted Howe.

In all, there are about 30 investors in PalletOne — mostly employees and members of the board of directors. The transaction was engineered by The White Oak Company, a merchant banker that "put together a solid group of investors," said Howe. "Our management team has joined with two strong equity firms, Equus and Capital Southwest, to arrange the initial equity and financing to form our enterprise." Financing also was provided by PNC Business Credit.

The PalletOne board of directors will be made up of experienced pallet industry leaders and financial partners. Serving on the board with Howe will be Al Holland, former chief operating officer and founding partner of PalEx and previously president of Ridge Pallets, Donnie Isaacson, former owner of Isaacson Lumber Company (a PalEx company), Joe Longino, senior partner at The White Oak Companies, Gary Forbes, senior vice president with Equus financial group, and Nolan Lehmann, president of Equus.

The plants of PalletOne will continue to have a business relationship with IFCO as pallet suppliers. "IFCO is looking for us to be a good vendor for them," said Howe, to supply IFCO with new pallets for its customers.

IFCO Systems North America president Jim Griffin also indicated that his company would have a close business relationship with PalletOne. "We are pleased to already have a solid working relationship with the PalletOne team and look forward to continuing it," he said.

IFCO announced last year it would divest its pallet manufacturing operations in order to focus on its core logistical systems and services businesses — particularly pallet and container management, services, and rental. Earlier this year it sold off three plants in Sonoma and Salinas, Calif. and Yuma, Ariz. as a unit.

The jury is still out whether pallet manufacturing lends itself to large companies with multiple plants and locations. It may be an advantage, however, that PalletOne is privately-held. In addition, it will certainly help to be able to re-invest profits in the company’s facilities in order to properly maintain them and upgrade machinery, equipment and systems as needed to remain efficient. Another factor in the company’s performance will be its people, and it is fortunate to have plant managers in place who built or developed their original businesses into successful pallet companies. Ultimately, the success of PalletOne will depend on its management team and the company’s execution of a sound business plan.

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