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June 2001: Volume 43, Number 6

Sta-Rite’s Mark Bertler Stays Pat
by Carlos David Mogollon, WC&P Executive Editor

A major announcement in mid-April 2001 positions Sta-Rite Industries Inc. to be an even bigger player among independent assemblers and the point-of-use/point-of-entry water treatment industry dealer network.

Sta-Rite and Clack Corp. entered into an agreement for Clack to become the key distributor of Park International tanks. Prior to this, Clack was the distributor for Pentair's Structural tanks, according to Sta-Rite vice president Mark Bertler. The move is the latest among several in recent years placing Sta-Rite more strategically within the highly competitive POU/POE market, Bertler notes.

Sta-Rite began as a well pump manufacturer in 1934 in Delavan, Wis. Today, its products encompass pumps for a range of applications, water treatment products, agricultural- and industrial-related components and accessories. It does not provide completed systems except through its retail filter brand Omnifilter, which markets through Big Box and do-it-yourself channels with clients such as Lowe's, Wal-Mart and General Electric. With products made in Australia, Canada, China, Germany, India, Italy, Mexico, New Zealand and Russia, Sta-Rite distributes to customers in over 100 countries.

Sta-Rite's transition began four years ago when it reorganized as the manufacturing arm of WICOR Industries. WICOR's "energy" arm, at the time, was comprised of Wisconsin Gas, a natural gas utility. At the same time, Sta-Rite bought Hydro-Flow of Murrieta, Calif., which specializes in plastic extrusion and makes inline and cartridge water filters, housings, UV filters, shower filters and accessories. A year later, it bought Dover, N.H.'s Fibredyne, which specializes in carbon block molding. And last August, it acquired Park.

Sta-Rite has since reorganized into global business units that include a Water Systems Group, Pool & Spa Group and Water Treatment Group. Manufacturing reports to group vice presidents, who coordinate customer relations for streamlined point-of-contact and more efficient operations, said Bertler, who spent five years with USFilter's Process Water Group and eight with Arrowhead Filter before joining Sta-Rite in 1999. Leveraging related synergy between the companies, international marketing efforts have been refocused with a boost in manufacturing capabilities.

"For instance, we're adding additional tank capacity, which will be coming online this month [April]. That's probably a testament to pretty strong demand for the product," Bertler said. "Again, [with Park] we've taken a private company that probably wasn't in a position to make the capital investment and enabled it to grow globally. We still have plant capacity in Long Beach, Calif. We'll add another third of capacity to that. It's a seven-figure investment." Sta-Rite also is investing in expanding Fibredyne's manufacturing capacity, he added.

Before we get to the interview, here's a little background on the company:

Sta-Rite Industries Inc.
Water Treatment Group
293 Wright St.
Delavan, WI 53115 USA
Tel: (262) 728-5551
Fax: (262) 728-4256
Email: stariteinfo@starite.com
Web: www.starite.com

Employees: 1,000

Companies: Hydro-Flow, Fibredyne Inc. and Park International

Sister companies: SHURflo, Hypro

Organization: Sta-Rite is a subsidiary of the holding company WICOR Industries, which was bought by Wisconsin Energy Corp. in April 2000. Wisconsin Energy, which includes electric and natural gas utility operations, has annual revenues of $3.3 billion. WICOR has revenues of $1.2 billion, of which $600 million is in non-utility manufacturing operations. Sta-Rite, which makes up $415 million of that, has three global business units -- Water Systems Group ($265 million), Pool & Spa Group ($100 million) and Water Treatment Group ($55 million). Sta-Rite expects an additional $40 million in 2001 sales.

And now for the interview…

WC&P: Tell me about the breadth of Sta-Rite because until recently it's been kind of a hidden name in the water treatment industry. Not many people knew it although they may have been familiar with its brand name companies. And there have been some transitions in recent years in terms of ownership and where the market's going.

Bertler: Sta-Rite is an old company, originally founded in Delavan, Wis., in 1934. Primarily, it's been a pump company in the past. People we sell to include a lot of well drillers who would buy our pumps for well applications and, over the years, they've diversified that product line to include sump pumps, utility pumps, effluent pumps, etc. That had been Sta-Rite Industries for many, many years. Probably over the last 15-20 years, they got more into the pool and spa business, in which they were creating primarily accessories for the pool and spa market. That would be things such as pumps, filters, lights, heaters -- just about any and all different type of accessories you can imagine for that market. About four years ago, Sta-Rite reorganized as part of WICOR Industries, recognized the market opportunities in water filtration and water treatment. As such, they made an acquisition of Hydro-Flow, located out in Southern California, [in 1996] and they kept that as a standalone business for the last four years. About three years ago [1997], they made an acquisition of a company called Fibredyne, located out on the East Coast in Dover, N.H.

WC&P: What did Fibredyne bring to the equation?

Bertler: Well, Fibredyne really brought a proprietary carbon block manufacturing operation. And I would just like to say that Sta-Rite is really first and foremost a basic manufacturer. Almost everything we do we manufacture. That's not to say we don't outsource various items. But I would say really that our core competency is manufacturing. So, with what Fibredyne brought, they have a proprietary process for creating a carbon block. It's what I'd call a modified carbon block.

WC&P: How does it compare to competitors in the industry?

Bertler: Most competitors in the industry would have typically let's say an extruded carbon block or a molded carbon block. What we end up doing is we actually using the properties of both fiber and carbon, we actually create a different kind of carbon matrix using binders. And we're able to create a product that has many of the properties of carbon block technology yet also offers the ability to have a good dirt-holding capacity. In fact, you get almost two types of filtration in one. From an application standpoint, the most important application with this kind of technology is really in the very large and growing appliance filtration market. It's an excellent application.

WC&P: So, for instance, you're going into refrigerators and things like that?

Bertler: Yeah, our carbon block tends to be in a lot of those types of applications. And, in our role as an OEM supplier, we act in that capacity.

WC&P: What's your market position with Fibredyne? Among your competitors, where do you fall on the totem pole, so to speak? Or is there a way of presenting that in the manner in which you've positioned the company?

Bertler: I would say right now I'm looking to try to get a better handle on that.

WC&P: In introducing new markets?

Bertler: No, just in terms of how we stack up competitively and what are the different price points and things like that. This industry being somewhat a tight industry, we buy and sell products that just don't quite fit our needs or our applications as well. So, where somebody could maybe be construed as a competitor, the reality is they also could be a customer as well as a supplier to us. It's hard for me to say really here's how we stack up in the carbon block business. I have not really made that comparison per se.

WC&P: What about Hydro-Flow?

Bertler: Hydro-Flow, again, I'd say would be probably from a competency standpoint, what they bring to the table is that they are experts in plastic injection. They will take all sorts of different types of filtration media and, working with customer specifications, create a standard product or a modified product or a custom product. A custom product could be all the way from somebody coming to us and saying I need a filter that has these product specifications, it needs to be this size, it needs to remove these specific contaminants and they will design and create that product. That's really the core competency of Hydro-Flow. I would say that from a kind of standard product that we produce that we'd be well known for would be inline filtration.

WC&P: And the markets that this would be targeted at would be everything from…?

Bertler: Most of our product ends up at some point or time going to the ultimate consumer, the person who goes to a water dealer or a retail store, etc. That would be the primary consumer here. But we also manufacture product that goes into the food service industry, for example.

WC&P: Is that a growing market?

Bertler: The answer is yes. I think each and every year, just like the consuming public getting more or increased market awareness of what role water plays where before it was always taken for granted, I would say in the food service industry they're recognizing that water from different sources can impart different, let's say, flavor characteristics to the ultimate product. And, I'd say in companies' quest to control all the different variables, water is like many other things one of the many variables that they want to control. It has certain product specifications.

WC&P: I noticed in thumbing through the Hydro-Flow brochure that you have not only inline filters, you've got cartridge filters, what looks like moldings and housings for what looks like RO and almost every other filtration device. You've also got UV filters. And you've got showerhead filters and accessories. It's a pretty broad market line.

Bertler: Yes, I would say that probably comes from Hydro-Flow's original beginnings in which they had a lot of different customers coming to them asking for a lot of different things. And as a smaller startup operation, they became quite diverse in terms of the product offerings. The key is that we tend to provide components to a lot of different people out there. And people will incorporate those components into a system. Say, somebody who's manufacturing an RO system would buy certain components from us that would go into that system.

WC&P: OK, we can come back to this and I'm sure we probably will. The latest acquisition you've had, though, is Park International, correct?

Bertler: Yes, that was made in August 2000.

WC&P: What was the strategy when Sta-Rite approached that and how do you see it fitting in with the long term goals of the company?

Bertler: It actually fits in a couple of different areas. First and foremost, in the water treatment area, our goal is to be a strong supplier of components to the OEM and water dealer market. And Park has an excellent name and reputation really in the world market. It's not restricted only to the domestic side. That acquisition helped to support our goal in that area. A lot of our business has been primarily domestic and one of our strategies has been to grow globally. The fact that Park has a good name globally gives us another more immediate entré into international markets from which we can begin to springboard off of. The other part of why the Park acquisition was important was because they bring certain fiber-winding technology and competency to the table. And it ties into our other divisions within Sta-Rite, of which we have three divisions. We have the Water Systems Group, which is primarily our pump group. We have our Pool & Spa Group, which is self explanatory. And then we have our Water Treatment Group. If you look at the Pool & Spa and also the Water System groups, they produce and sell tanks that have fiber-winding technology. So, this acquisition of Park actually helps to supplement some of the things we're trying to do in those other divisions as well. The Park acquisition really supports all three of the businesses that comprise Sta-Rite Industries.

WC&P: In a complementary fashion.

Bertler: Exactly.

WC&P: What's this "Aquavision" I see on the back of your business card?

Bertler: For a lot of our standards products, instead of promoting them under unique brand names -- we'll use that as a unifying brand name in the future… Say somebody opens a catalog and wants to find just your standard generic filter housings or other products, any of those general products would be identified as Aquavision products. We had hoped to have something unveiled at WQA on that, but it's something that will be showcased over the next couple months. That way, you're really promoting Aquavision as the standard for all the different products you take to the market rather than all the different brand names. In a sense, you have equity in all these different brands, it's true; but as you make acquisitions, promoting all these different brands can get complicated -- or busy visually with respect to advertising and product literature.

WC&P: In flipping through literature for various other divisions, it's somewhat as if Sta-Rite has been on a mission to go a little vertical and a little horizontal in how you've arranged the company. I mentioned in previous articles or was told in other interviews that a lot of companies are doing this. They seem to be securing a supply line and ensuring somewhat their sources of product so that as the industry continues to consolidate they assure themselves of a constant source of quality product. For instance, the one that stands out most comparably to you recently would be Aquion/RainSoft's acquisition of Erie Controls to assure themselves of a good supply of valves. I notice that you don't have a valve supply in-house and was wondering if you'd bid on that or whether that is a competitive area you might be seeking to get involved in?

Bertler: First of all, there's a number of very good players out there on the market right now. I'd say that there are a couple of new entrants on the market right now…

WC&P: i.e., Clack Corp.?

Bertler: For example, Clack. They've got a valve that I've seen which based on a lot of input from a lot of different people seems to be a very good valve. I would say that in looking at where a company like Sta-Rite should invest its money we have to ask: "Do we make an acquisition?" Part of our growth strategy is acquisitions. Those are always things we look at. Or do you invest your money to create your own valve? I think that there's probably better places for your money. You're probably better off addressing that through acquisition or partnership or alliances.

WC&P: You'd mentioned earlier also that your customers are also your competitors.

Bertler: In some cases.

WC&P: So, there are other valve manufacturers that might to one degree or another be competitors, but they also may be suppliers as well for you.

Bertler: I would say that for the most part, most of the different valve companies out there I wouldn't view as competitors. I'd say that we have and are in the process of working various alliances out at this point. But what's interesting about this industry is you may find somebody with which you can form an alliance and they may have a product that competes against another one in your product line. That's just something that's inherent in the water treatment industry. For as long as I can remember, you've seen those kinds of things. You try to downplay the things where there may be conflict and strengthen the things that may be mutually beneficial to both parties.

WC&P: That kind of brings me to another question. The name Sta-Rite has been relatively low-key in the industry up to now. Until only recently, you've pushed the names of the divisions, Hydro-Flow, Fibredyne and Park International. Is there a company out there that you would compare Sta-Rite to and what it's evolving into?

Bertler: I would say of anybody out there, we probably most closely mirror Pentair.

WC&P: In what respect?

Bertler: Mirror them in terms of if you look at the Pentair stable of companies, they do have a water treatment group, they do have a pump group and they do have a pool & spa group as well. Truly from a competitive standpoint I'd say we most closely match up against them.

WC&P: Are they strictly a competitor or are they also a customer or supplier, say for valves? But you aren't doing finished product, so likely wouldn't need those…

Bertler: Yes, we're not doing finished product, so the people we sell to -- system assemblers -- they may say we'll take a Park tank and put a Fleck valve on it…

WC&P: Or Autotrol or Clack valve, for that matter.

Bertler: Yes. So, in a sense, the system assemblers out there don't view it as any issue. I'm not buying any Fleck valves and really where Pentair would be going is to bundle a Fleck valve with say a Structural tank. So, in terms of true competitors, our competitor on the Park side really is Pentair's Structural.

WC&P: Let's back up a little bit if we could because you mentioned WICOR and Wisconsin Energy, but explain to me how they came into the picture. That's a utility that's come in and bought Sta-Rite, correct?

Bertler: Yes.

WC&P: And how long ago was that again?

Bertler: That was April of 2000, so we'll be coming up on 12 months right now.

WC&P: Explain to me they're strategy in that, please.

Bertler: OK, but I need to take a step back into the early '80s. At that time, Wisconsin Gas basically -- for lack of a better term -- merged with Sta-Rite Industries to create a company called WICOR. WICOR was really more or less a holding company for those two groups.

WC&P: That were separate?

Bertler: Yes. It was to create more of a diversified company, one that was both utility and non-utility. WICOR -- which employs 2,200 people -- over the past 18 years had grown into a $1.2 billion company, of which manufacturing grew to a point where it represented about 50 percent of the revenues and the profits. So WICOR as a holding company created sort of a diversification that created a lot of value for its shareholders. What happened in April 2000, Wisconsin Energy Corp. -- or WEC -- which is a Milwaukee-based holding company, they wanted to acquire Wisconsin Gas, which was the utility side of WICOR. That acquisition was made and along with that came WICOR Industries, which is the manufacturing arm or non-utility arm of WICOR. Wisconsin Energy indirectly acquired the manufacturing arm. It wasn't done as a deliberate or direct move.

WC&P: So, you have WICOR formed as a holding company between two sister companies, if you will, and -- in taking over one sister company -- the larger holding company takes over the other sister company which is the manufacturing side. Does that sum it up?

Bertler: Exactly.

WC&P: Why? What was their intention?

Bertler: The original intent here was to further strengthen their base of gas customers here throughout Wisconsin. Wisconsin Gas being the largest gas utility in the state of Wisconsin, that helped to merge with the gas base that Wisconsin Energy currently had to create the largest one in state. That was the real drive behind that and the resulting synergies that they could achieve by merging all the gas customers under one company. That was really the driving force behind all of this.

WC&P: What's the relationship now between Sta-Rite and Wisconsin Energy or WICOR?

Bertler: Let me just provide a little background information on Wisconsin Energy Corp. Their fiscal 2000 revenues were about $3.3 billion. They employ about 10,500 people. Again, it's a holding company but primarily utility, which would include electrical generation and distribution as well as natural gas distribution. And, of that, about $600 million is made up of WICOR Industries. And WICOR Industries really adds a new dimension to the WEC non-utility holdings. As I had commented earlier, WICOR over the years had created significant value and growth through acquisitions. So, the goal here is to continue to acquire companies and also to make investments internationally to grow this non-utility arm of WEC.

WC&P: How much of WICOR or WEC is Sta-Rite Industries and it's revenues?

Bertler: Let me talk a little about WICOR Industries. WICOR, as a whole, has about 40 manufacturing, sales and distribution facilities in 14 countries. Total revenues for WICOR, again, are about $600 million. Two other sister companies besides Sta-Rite are SHURflo pump manufacturing and Hypro. Hypro Corp., they are also another pump manufacturer, primarily geared toward agricultural, marine and firefighting markets -- located in New Brighton, Minn., and acquired in 1995.

WC&P: They are separate from Sta-Rite?

Bertler: They are separate and the same is true for SHURflo, which is located in Santa Ana, Calif., and was acquired in 1993.

WC&P: SHURflo we've heard of obviously, and they're strengths are?

Bertler: I would say high performance pumps and fluid handling equipment for the beverage/food service market, the RV and marine markets.

WC&P: SHURflo was a big part of the article WC&P did last summer on RV and marine markets for POU/POE equipment.

Bertler: Yeah, they are probably the major player on the pump side and also very strong on the water treatment side for the whole RV market. And to get back to your original question, the revenues of Sta-Rite are about $450 million of that $600 million.

WC&P: How has the growth been in that? What sort of a growth rate are you looking at in revenue specifically to Sta-Rite?

Bertler: We've had double-digit growth every year and really comprised between organic growth and growth from acquisition.

WC&P: Every year since when? You can remember?

Bertler: I've been on board 18 months. I'd say probably for the last several years.

WC&P: What areas have seen the most growth for you?

Bertler: I'd say with the economy being very healthy, pool and spa has done very well. I suppose that relates to a lot of people having good disposable income over the years with the stock market doing so well up until this year. The other area -- and probably the fasting growing -- would be the water treatment segment, and that again is double-digit growth.

WC&P: You mention the stock market and the economy doing well. It seems like some would say that came to a screeching halt at the end of last year. How have you felt that impact?

Bertler: We would have expected to see some downturn, particularly on the pool and spa side. But we haven't seen a lot of softness. I guess each and every month -- we were just finishing up this past month our financials -- we would have expected to see more softness than what's actually going on, but business has been good. We are keeping a watchful eye on it.

WC&P: Since pools and spas are such a big ticket item, I assume you're viewing that as an early indicator of what may be coming. So, that's actually fairly positive.

Bertler: Yeah, if we're going to see any drop-off, it should be on the pool and spa side first.

WC&P: There's something you haven't really mentioned yet and that's your retail side with Omni. How does Omni fit into things and describe what it does as well, if you could?

Bertler: Omni was acquired in May 1999, so it will be coming up on two years. And I would just offer an overview comment that WICOR Industries has sought to participate in a number of different product areas with brand names that go back 20, 30, 40 or 50 years. There's a lot of equity in the brand names as well as we also private label a lot of products as well. These would be sold through retailers, distributors and original equipment manufacturers. These are really to customers in well over 100 different countries worldwide that we would sell these products. That's for WICOR Industries. If I look under Sta-Rite, it's major player really not only on the pro side of the pump market, but also on the retail side. So, really, among the DIY or the Big Box, we are a major player. Typically, the brand name is Flotech. As such, we have a lot of infrastructure in place to support the retail market. The Omni acquisition was to take advantage of the tremendous opportunity in the retail market.

WC&P: You mean the explosion in consumer interest in these products over the past several years?

Bertler: Exactly. Omni is really focused on the water filtration side of that business. We are not creating softeners. We are providing water filters, really point-of-use/point-of-entry inline filters for refrigerators and things like that.

WC&P: What are some of the big channels through which that's going through?

Bertler: If I had to look at specific stores, people like Lowe's, Menard's, Wal-Mart -- those would be the more recognizable names.

WC&P: I think Meijer's was mentioned to me too, and they've been expanding somewhat in the Midwest?

Bertler: Actually, we are a fairly large player with Meijer's as well. And the Omnifilter name, they were one of the pioneers 20 years ago in putting water treatment products into the hardware and the DIY channel. They've got a tremendous installed customer base.

WC&P: A couple of years ago, there were some lawsuits in California over lead-leaching faucets and -- while there were a number of companies connected to that -- Omni is one of the names I recall. You had not acquired them at that point. I assume that's an issue that's been dealt with and any negative impact on the name is gone.

Bertler: Yes, from my perspective, I don't even see that as an issue on the radar screen.

WC&P: Everyone learned their lesson on that and reengineered their product and repositioned themselves.

Bertler: Yes, I would say that from Sta-Rite's perspective, we take an extremely hard and aggressive line on always making sure from a regulatory and compliance perspective that we are always doing what we have to do. That's just the way we do business.

Click here to view a followup article:
  Sta-Rite’s Mark Bertler Stays Pat, Part 2