Approaching a decade as the brand known as Matheson Tri-Gas, the future looks bright for the company both at home in the US and also across the globe, as Chairman, President and CEO Bill Kroll speaks to Rob Cockerill.
As a member of one of the Tier 1 leading global gas suppliers in Taiyo Nippon Sanso Corporation (TNSC), Matheson Tri-Gas Inc., is a blossoming company with what is now a growing global footprint.
Through a combined network of manufacturing and distribution facilities around the world, Matheson Tri-Gas (MTG) has a number of products which can be found in every major integrated circuit plant and R&D facility in North America, Europe and Asia.
Indeed, it is from the company’s early days as a respected source of high quality scientific gases & equipment to specialty gas applications and the semiconductor industry that the success story began.
Back in 1927, Matheson Gas Products began forging a reputation as an industry-leading company capable of designing and manufacturing products for specialty gas applications and scientific use. Such a nurtured understanding saw the north New Jersey-based company develop the lecture bottle in 1929, now widely used by virtually every major scientific college and institution around the world, and later help pioneer the integrated circuit board.
An accomplished involvement in the semiconductor industry followed. In 1983 the company’s North American business came under the umbrella of Nippon Sanso, while nearly 10 years later Nippon Sanso also acquired the relatively newly-formed Tri-Gas Inc. – the liquid/bulk and industrial cylinder & equipment company based in Irving, Texas.
Having run the two business operations separately for seven years, Nippon Sanso (which would later be involved in a merger itself in 2004 with Taiyo Toyo Corp and become Taiyo Nippon Sanso Corporation, or TNSC,) opted to bring the two business divisions together to form Matheson Tri-Gas Inc. (MTG) in 1999.
Since that fruitful formation in 1999, MTG has established itself as a successful international operation. Back in 1999, the aggregate sales of Matheson Gas Products and Tri-Gas Inc. stood “somewhere north of $300m,” according to CEO Bill Kroll. In less than 10 years the company has more than tripled such sales figures, as Kroll explains.
“Today if you look at all of our strategic business units, we are a billion dollar corporation. We’ve more than tripled our sales and much more than quadrupled our operating income. I think the TNSC Executive team is happy with our performance.”
Although heralding the beginning of the MTG brand, Kroll doesn’t see the events of 1999 as the most significant period in MTG’s recent history. Instead, Kroll identifies a collection of acquisitions years later as the ‘defining moment’ and a stepping stone which spawned a ‘steady and calculated expansion’ for the company ever since.
In 2004, Air Liquide acquired the assets of Messer in the US – a deal which forced the French industrial gases giants to divest some business interests and in turn, presented MTG with a prime opportunity to acquire and expand their own business.
Kroll comments, “While 1999 was important, the merged business sort of floundered. I came back from retirement full-time in 2001 and took over as President and CEO in 2002. From that point we changed the way we did business. We looked at our growth strategies and we decided that we could leverage off the various successful businesses that we had.”
“You have to remember that as you look at us, we’re made up of a number of different strategic business units, some of which are strictly domestic businesses and some of which are international businesses. We got very busy in trying to expand our packaged gases business, our industrial business and our merchant business.”
“I think probably the defining moment for us was when Air Liquide purchased the assets of Messer or MG here in the states, and then was forced to divest the six air separation plants. We mounted a very strong programme to acquire those plants, and those efforts paid off as we were successful in the bid. In 2004, the acquisition was completed and since then we’ve gone through a very steady and calculated expansion of our ASU capability here in the US,” he says enthusiastically.
Describing the springboard for such expansion that these acquisitions provided, sixty three year-old Kroll added, “It was more of a defining moment, it was a statement, it gave us a larger footprint, and gave us a launching pad – it certainly gave us more merchant liquid capability.”
“It gave us pipelines to various customers and it’s given us the ability to expand our specialty and packaged gases to industrial businesses as well.”
This larger footprint is now evident across the US as the company has adopted a strong presence throughout, stretching from California on the west coast all the way to New Jersey and South Carolina on the east coast.
The company’s strengths vary in different areas of the country, as is perhaps to be expected of a geography as large as the US. As Kroll is keen to point out, even in terms of business split, “it depends where you’re at geographically.”
“We have different strategic business units. You have to remember, the US is a large geography so it depends where you’re at. We will have some areas where we’re 40% equipment and 60% gas, then we’ll have some that are exactly the reverse and we’ll have some where it’s 50/50,” he explains.
In terms of geographical strength, MTG has cultivated a vast network of varying operations ranging from ASU’s (tonnage supply) and retail (bulk and cylinder) outlets, to helium trans-fills and electronic gas facilities. As we talk bulk, tonnage and packaged gases, Kroll describes the growing depth of MTG’s organisation.
“We have very good coverage right now from Florida, up through the southern part of South Carolina and Georgia, going west through the south especially in Texas, certainly New Mexico and Arizona. Now, that’s the case in southern California, too.”
“We had no real cylinder packaged gas in California operations. We had bulk and liquid only. We’ve purchased Five Star Gas and Gear, so now we have a combination of two air separation units and eight retail operations in southern California. We also have two helium operations (two helium trans-fills), two specialty gas operations and one major electronic gas operation, an ASU in the Bay area and we now own Polar Cryogenics up in the northwest in Oregon and Washington. So we have a combination of specialty gases and small bulk operations there.”
This growing network is underlined as Kroll adds, “As you move north, out of Texas and Oklahoma into the Midwest from essentially Colorado in the west to Iowa in the east, we now have over 30 retail operations. We have one helium trans-fill, and we have one, soon to be two, air separation units. One is about 300 tonnes and the new one will be 600 tonnes.”
The company is clearly performing healthily in its domestic US market, reaching out far beyond Matheson’s original New Jersey home of its formation more than 80 years ago.
Much of this growth appears to have taken place since the turn of the Millennium and Kroll eagerly illustrates this rapid rate of expansion as he reflects, “You’ve got to get west of the Mississippi, then down through the whole southern tier of states west and then all the way back through South Carolina, Florida and Georgia and you will find us – in force.”
“But if you look back to 1999, the only place you would have seen us was Texas, Florida and New Mexico, so we’ve grown and expanded a great deal since then.”
Business beyond the US
So how about business beyond the realm of the US? A domestic focus is obviously important to MTG, though it shouldn’t be forgotten that the company is an international business too.
Around 30% of the enterprise’s overall income is export-based and generated outside of the US. Immediate neighbours in the North American gases market include Canada and Mexico.
“The other thing is, we’re made up of a number of different SBU’s (strategic business units) and some of these business units are international in nature. Our dominant domestic business unit is our packaged gas, bulk and tonnage business, with distributors in the Bahamas and Jamaica.”
“Considering, do we sell any product into the Caribbean and into Central America? Yes, we do sell merchant liquid directly into the Caribbean and Central America. Do we put product into Mexico? Yes. Do we actively sell product into Mexico? No. We sell wholesale liquid into Mexico, not necessarily to direct customers.”
Just as with the company’s electronics business, a key avenue for expansion beyond the US are the helium operations that MTG has acquired.
MTG operates a number of helium facilities both in the US and internationally, a business arm that was significantly bolstered by the acquisition of the BOC helium assets in 2006.
As Linde took over BOC in 2006, a stipulation of the transaction (anti-trust enforced) required the divestment of a number of assets, including the helium business of BOC. MTG was on hand to capitalise, a move which Kroll sees as another defining moment for the company.
“The helium business I think has been another great defining moment, because one of the customers that was acquired with the helium business was our own parent company. We had a joint venture with BOC in Japan called the Japan Helium Centre, so in essence, part of what we acquired was their interest in the joint venture. A lot of the product that we produce here now in the US, we ship to Japan to our parent company.”
“Under the acquisition of BOC by Linde, the divestiture of certain assets was mandated, of which some were air separation units and some were part of the helium business. We were a bidder for that helium business and the helium business consisted of a certain amount of product contracts from BOC at the time. Along with that also came certain customers.”
“But understand, what we purchased amounted to a sold-out business, so our ability to grow the business has been really very limited. We’ve made a lot of strides however, in improving the profitability of the assets we acquired, and of course we (ourselves and Linde) were given two years to disentangle ourselves. We have done that.”
“Essentially they have left our location in Texas and our location in Florida, and we have left their two locations in California,” he added.
The leverage of operating under the powerful TNSC umbrella has enabled MTG to grow and indeed, flourish through a global footprint.
Such integration and business alignment has taught those at MTG a great deal. So what has been learned from the experiences of working with Japanese management?
Many consider the Japanese to be relatively conservative in terms of strategic thinking and as the Japan gases market finds itself comparatively mature in status, much more of a thinking-outside-the-box type approach may be necessary.
As head of TNSC’s largest subsidiary division, Kroll is well placed to comment on both the Japanese market and the business mentality of his esteemed colleagues in the North Pacific Rim. So how does he see things shaping up for gas companies in Japan?
“I run their single largest subsidiary division – somewhere around 25% or more of their revenue, and we represent a larger share of their operating income.”
“When you look at the Japanese market it’s no different than if you look at what’s happened in Europe and what’s happened in the US. There isn’t much more consolidation that can happen here in the US, nor in Japan. Which means if you are going to grow, you have to grow where the growth economies are.”
Kroll clearly doesn’t subscribe to the belief that the Japanese are limited in their approach to business either. He points to the success story at MTG as a good example of this, “I can’t speak for other Japanese companies but believe me, don’t paint the picture that all Japanese companies have an island mentality. I guess it’s a case of take a look at us – if TNSC were focused solely on Japan, how could we have sustained the growth we did?”
“Are the Japanese committed to a growth strategy? Absolutely yes is the answer to that! You can’t do what we did and not be committed to a growth strategy. It’s strictly a leadership, a joint trust, and having a desire to grow. To really understand this, read Mr Matsueda’s 10up plan in the current annual report.”
A desire to grow indeed. This aspiration to grow is abundantly clear as our interview moves on to the subject of the company’s future.
Already well established in China, Korea and through TNSC in Vietnam, Malaysia, Singapore
and the Philippines, the focus now appears to be on the growth economies.
“We’re already in China. We have air separation units in China. We already have cylinder trans-fills. We have our own silane trans-fill in China. We already have a specialty gas manufacturing operation as well as our chemicals operations. So in China, we’re already on the map.”
“We have over 100,000 square feet of gas manufacturing operation in Korea, so we’re very committed there. We have two operations, albeit focused on the electronics business, in Korea.”
“Certainly TNSC has operations itself in Vietnam, Malaysia, Singapore, and the Philippines, which they watch over primarily, although we also sell helium, electronic gases and specialty gases through them.”
Going where the growth is, Kroll adds, “We’ve already announced alliances in the Gulf area with Global Gases, and I think you’ll see us moving internationally in other places. Of course we’re interested in South America. We’re certainly interested in India, and we’re interested in Russia, though with slightly more trepidation these days.”
Credit crunch crisis?
Trepidation is also felt where finances are concerned these days. Another question that lingers throughout industry at present, is whether the current credit crisis is likely to impact on stability in the present and furthermore, growth for the future.
As the financial storm clouds increasingly gather around the world and threaten the very existence of many companies and institutions, is this something the industrial gas community needs to worry about?
According to Kroll, the answer is yes. Concern for the gas majors should stem from a concern for the customer, he suggests.
“A lot of this depends on small business, the small-to-medium size businesses. Or even to the large business. The fact is this is a credit crunch. Take a look at it today, credit is locked-up. The small-to-medium size businesses could wither and die. Who are you going to sell products to? Let’s forget ourselves for a minute, just look to the demand side.”
“As we well know, the financial system around the world today is inextricably tight. Somebody is holding somebody else’s debt. If you’re not able to give loans or take on debt, then there’s no cash and if there’s no cash, there’s either no growth or no company.”
“If there’s no company, I’ve got nobody to sell to and neither do any of my competitors – thank you very much! That’s a pretty simplistic view of it, but I worry about the small-to-medium size businesses because they’re really the backbone of what has been a growth engine for the global economy!”
Following our exclusive chat, Kroll was preparing for his visit to the Gases and Welding Distributors Association’s (GAWDA) 64th Annual Convention in the Bahamas in late September.
How apt then, that before our interview drew to an end we should discuss the future of distributors in the US – a role that Kroll does not see diminishing just yet.
While in Europe the supply structure of gases is very dominated by gas companies with few distributors, this situation is somewhat different in the US where distributors still hold great significance.
With the GAWDA convention in mind, gasworld asks whether Kroll sees a future role for distributors in the US?
Kroll is adamant as he replies, “Distributors are absolutely key to the supply chain, I’m in that business! I think the real difference is, who’s going to own them? The number of independent distributors has decreased. If you look at it today, about 35-39% of distributors in the US are still independent. The rest are really controlled by Praxair, Airgas and us (MTG). The question is: what’s going to happen with that thirty-odd percent? I don’t think that number’s going to grow, I think it’s going to decrease.”
“We partner with distributors, we have independent distributors, and we probably always will. In areas where a distributor wants or needs to get out, we certainly want to provide them with an avenue to offer a fair price for their business.”
Asked whether he felt distributors were over-valuing their business in light of the trend of acquisitions in the US in recent years, Kroll responded, “I think here in the US the game’s going to change. In terms of what’s going on in the markets today and also the regime change from one president or party to another, the driving forces to sell are going to change.”
“If you’re changing things like capital gains taxes, and business gets worse, their businesses automatically become less in value or worth.”
“If you throw in what’s happening with the mess on Wall Street, all of this is going to have an effect. I don’t know what it is but I don’t think it’s going to be good,” he concluded.