Suitors not welcome

Sales are slower this year, and employee bonuses will be smaller. But Ed Daisey, CEO of Adhesives Research Inc., still gives the same short answer to potential suitors: no.

Daisey said he spurns about two offers a week from people interested in buying Adhesives Research, a 40-year-old manufacturer

Even in good years, the pressure to consolidate is strong in the adhesives industry, a mature market whose growth closely matches the U.S. economy as a whole, experts said.

Rather than settle for matching the overall economy's 4 percent annual growth, many adhesives companies shoot for a 10 percent expansion rate, said Bill Broxterman, chairman and CEO of ChemQuest Group Inc., an industry consulting firm in Cincinnati.

"Unless you're capturing significant market share from other people," Broxterman said, "it's very difficult to hit that growth rate without an acquisition."

Founded in 1961, Adhesives Research, Springfield Township, York County, has staked its claim as a small specialty manufacturer. Its adhesives are found in everything from disk brakes to disk drives, from computer screens to pregnancy tests. Since Daisey became CEO in 1995, annual sales have jumped from $25 million that year to $80 million last year, without a single merger.

"Adhesives Research really has done just an admirable job of developing customer intimacy and working very closely with their customers to solve their problems," said Bob Smith, a director of ChemQuest Group.

Adhesives Research employs 325 people in Springfield, a rural township south of York city.

The privately held company also has plants and sales offices in Asia, Europe and Latin America, pushing its global work force above 450.

Competitors include several heavyweights, such as Minnesota Mining & Manufacturing Co., St. Paul, Minn., with $2 billion in annual sales, and Tyco Adhesives Inc., a division of Bermuda-based Tyco International Ltd., with estimated annual sales of more than $250 million, according to Adhesives & Sealants Industry magazine.

The larger companies pursue a commodity approach to the business, Smith said. The big players make a profit on volume products that can be used by anyone.

In contrast, Adhesives Research takes pride in striking up long-term relationships necessary to meet the needs of individual customers.

And unlike competitors who sell through distributors, Adhesives Research sells directly.

Despite an economic downturn this year, the specialist strategy of Adhesives Research is paying off.

Daisey predicted a 5 percent increase in overall sales, to $84 million in 2001. About three fourths, or $64 million, will come from domestic sales, where the industry as a whole has been flat. Sales in 1999 were $70 million.

Growth

The Adhesives Research campus, a warren of low-slung white buildings, includes administrative offices, research labs and manufacturing lines.

In previous years, U.S. sales accounted for about 90 percent of the total. But as customers opened factories overseas, Adhesives Research has done the same, Daisey said.

Sales growth this year is fastest in Europe, at 65 percent, and in South America, at 30 percent.

A new factory is planned for Singapore.

Not all growth is overseas. Over the next three years, the company hopes to add 24,000 square feet of manufacturing space in Springfield, creating 10 to 12 new jobs, Daisey said.

The company also works with York College to strengthen the latter's chemistry program and offer more internships. said Melinda Hopp, Adhesives Research's director of marketing.

"To find the right people," she said can sometimes be a challenge."

In the company's labs, a small army of goggled scientists develops new chemicals for use in manufacturing. They also troubleshoot existing chemicals.

Some of the researchers, such as Brian Harkins. are York County residents happy for an opportunity to use their scientific skills close to home.

Harkins, 25, graduated from York College in May 2000. While he did not have an internship at the company he knew of Adhesives Research. He said he was happy to land an interview after answering a help-wanted ad in a newspaper.

Today, Harkins is engaged in developing new products, a task that can take years, but one that is essential to the financial health of Adhesives Research.

The company banks on roughly a quarter of its sales coming from new products, which offset shrinking profits on older products. Daisey said.

As the sole source for many of its customers, Adhesives Research is reluctant to raise prices from year to year.

Long-term research is supported by the company's strong cash flow, Daisey said. Being a private company also helps: it eliminates the pressure, felt by public companies, to show quarterly profit growth.

"We tend to be a very patient company,"' said Daisey, a calm, grayhaired veteran of the adhesives industry with a Boston accent and monogrammed shirt cuffs.

Patience is rewarded by a higher profit margin, Daisey said. Customers are willing to pay a premium for expertise and custom products.

Larger competitors, such as Tyco, are vying for the markets served by Adhesives Research, said Smith of ChemQuest. But Adhesives Research holds a strong hand, Smith said. "They have developed some very unique products."

The company, for example, will be making the adhesive used in a widely anticipated birth-control patch, Hopp said.

Customers may be reluctant to move on, since a switch imposes new costs, Smith said. "When you sell an adhesive to somebody, you have to pretty much screw up before they'll switch to someone else."

That leaves competitors with the option to buy their way in. But at Adhesives Research, would-be suitors are turned away.

Efforts to reach Edwin Huber. company founder and chairman, were unsuccessful. Huber, an octogenarian, plans for the company to remain private and independent after he is gone, Daisey and Hopp said.

Shares in Adhesives Research may pass into a charitable trust or similar vehicle, they said.

I know a lot of people would love to consolidate" with Adhesives Research, said Smith.

"But their ownership structure is such that I doubt, at least in this generation, that they'll ever be sold."