Nick Philips, Founding Member of Ideal Electric, joins us to talk about the recent spin off of Ideal from Hyundai and how this historic company is setting up for future growth.
Please excuse any typos in this hasty transcript.
Matt Register: Welcome back to the show. I’m your host Matt register. We’re at the 46th Turbomachinery & 33rd Pump Symposia, down at the Georgia Brown Convention Center in Houston, Texas, which is brought to you by the Texas A&M University Turbo Lab. We’re talking rotating equipment. There’s a tremendous amount of activity here at the show. One of the things that we’d like to bring you from this, is to bring you some of the interesting products, interesting deals that we see here at the show. This is no different. Nick Philips is the founding member of Ideal Electric Company. Welcome to the show, Nick.
Nick Philips: Glad to be here.
Matt Register: Talk to me about your business. Because this is a Houston-owned, Houston commercially headquartered company. This is a pretty new deal, like in the last quarter or so. Talk to me about the business, and we’ll get into the deal here in just a second.
Nick Philips: Sure. We’ve been in the motor business for several years, mostly focused on new technologies and application of new technologies of high horsepower machines, to different applications in oil and gas, all the way through renewables, wind, to hydro. Say third quarter last year, became apparent that Hyundai Ideal Electric Company was going to become available for purchase. This is Hyundai, as in Hyundai.
Matt Register: Right, right. The big-
Nick Philips: The real deal Hyundai.
Matt Register: Big multibillion-dollar multinational company. Now, the decided to spin off some of their overseas operations. Is that right?
Nick Philips: Yes, they did. Also, break up the business to more focused business units in South Korea. We looked at the deal, and was able to make that happen. We’ve acquired 114-year old manufacturer of electric motors, generators, switch gear and controls in Mansfield, Ohio. This is a legacy brand that is known for innovation, creating benchmark products, creating standards that the entire industry, certainly in North America and elsewhere in the world, has been built upon for over a century.
Matt Register: Well, not only is the structure the deal and the ability to get the deal done remarkable, but we now have a private company. A smaller mid-sized private company in the United States that is the only place to get this equipment that’s not going to one of the multibillion dollar companies, right?
Nick Philips: Sure, yeah. It’s interesting because our main competitors are majors, ABB, Siemens, GE. We’re the last man standing when it comes to being able to build machines on those size and scale with all the tools, and designs, and engineering that we have. But we’re three guys in a room who can make a decision today about how to do that.
Matt Register: That agility can mean everything, right? You have the ability to make decisions quickly. You have the ability to not have to break a assembly line or break a product line to be able to do something custom. You can build what your customer needs, right?
Nick Philips: Absolutely. Historically, Ideal has really excelled in private hands. The company was started in 1903, family-owned, all the way through the ’50s. They started in street car motors, and then started working with a company called Carrier, and invented motors that allowed air conditioning to come to the forefront. That ultimately led to the acquisition of the company by Carrier. Carrier was acquired by United Technologies. Then, was actually … Sold the company, UTC sold the company to a NASA engineer, who worked on the Apollo Program and several other programs, and was just looking for a business to get into. Run the business for many years until 2007, when Hyundai acquired it.
Matt Register: Now, Hyundai was using it in their own products. What were they doing with it?
Nick Philips: Hyundai really wanted to have a beachhead here in the Americas. With this type of machinery, service and support is a big part of the cell. These machines lasted very long time, run very critical processes. It’s important to be here. That’s what they saw in addition to Ideal’s benchmark technology, in the types of machines that Ideal was building, and certainly in the Hydropower industry, and steam and gas turbine generators. They’re the benchmark. Ideal ultimately benefited tremendously from Hyundai’s investment in the facility there, multiple investments, new machinery, new tools, new processes. That served them well for over a decade.
Matt Register: Well, it certainly sounds like the deal of a lifetime, right, to be able to get in at the time that you did, with the facilities that you did, right? You have the benefit of all of that capital expenditure that Hyundai put in to grow. They had a change in strategies that meant that they got rid of it. You got your foot in the door. The fact that Ideal itself is a brand, was the brand, and not totally relying on a Hyundai brand means that your phone rings and not Hyundai’s, right?
Nick Philips: Absolutely. The first thing we did was get back to supporting the customer. There was a lot of question about what was going to happen to the business. Like I said, support is everything. We understand that. We come from this business, we come from support. We want to be there, we want our parts there, we want them in stock, we want to be able to fast ship this stuff. We’re doing that on a global scale from one location in Mansfield. Now, we have a sister company here in Houston, so we’ve been able to expand that footprint and put it in two locations. With the large installation base you have in the Gulf Coast and in the oil and gas industry, it’s a real benefit for our customers. But again, we wanted to get back to that first. Now we’re moving into developing, building, and selling new machines that Ideal did from a historic standpoint, but then also new technology we’re going to bring into the Ideal brand, and expand the offering that Ideal always had.
Matt Register: You’ve put in a tremendous amount of effort and energy in capital, and organization, and into the R&D, and the engineering side of your business. What area specifically are you looking to expand into that aren’t being serviced in the way you think there’s room in the market for, right?
Nick Philips: Sure, yeah. I think that the oil and gas business is going through a renaissance right now when it comes to new technology and going for operational efficiency. Higher capital spend to bring in technologies that will lower operating costs is what’s happening now. As the previous generation of engineers is moving on, they’re open to new ideas. We’ve got a legacy brand that says a lot about yes, we know how to do this, and we’re matching them step for step as we bring a more entrepreneurial approach to the manufacture of large rotating machinery. That’s what excites me the most about the business, and why there aren’t a lot of young folks in the industry. That’s what we want to try to do, is bring them back. Ideal is the perfect place for that.
Matt Register: I believe it. I find it interesting, because this is also an industry that is hesitant to change, right? Change is hard to do, but it’s inevitable, right? It’s got to come.
Nick Philips: Absolutely. Say what you will, but brands mean a lot.
Matt Register: Sure they do.
Nick Philips: That legacy and that comfort level that customers have, and that we’re going to continue to do that, and continue to do it even better than it was done in the past, I think that’s going to give us a real leg up. Particularly, as a lot of the majors look to consolidate, look to derisk in customer machinery or having all of that capacity on standby. One thing I keep saying is, I think that the facility we’ve acquired, no one will build again. The global capacity for this type of machining is achieved, if not overbuilt, and we’re going to weather that storm. We understand the ups and downs of the industry. You’re going to have hits, you’re going to have misses. We’re prepared for that, in a way that the street will not allow you to be.
Matt Register: Well, Nick, I appreciate you joining us. Nick Philips is a founding member of Ideal Electric Company, commercially headquartered in Houston, located in Ohio. Thank you very much for joining us.
Nick Philips: [crosstalk 00:08:35]. Thanks.
Matt Register: Very interesting. It sounds like a deal of a lifetime. Congratulations.
Nick Philips: Well, happy to come back and update you as things progress.
Matt Register: Yeah, please do. Fascinating story. Guys, we’re down here at the Georgia Brown Convention Center. We’re at the Turbo show. We’re talking about rotating equipment, we’re talking about gears, and pumps, and turbines, and anything that goes round and round.
Nick Philips: Generators.
Matt Register: Generators. That’s right. That’s where we are. That’s what we’re doing. We have brought you the best of the show. We are out of time. We’re going to go get smart on something else, bring you something else next week. We enjoyed it. Same time, same place next week. We’ll see you then guys.
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In addition to hosting "Texas Business Radio," Matt is an investment banker and serial entrepreneur from Montgomery, Texas. He is the owner of RREA Media and Register Real Estate Advisors and a Managing Director and Principal at Corporate Finance Associates. He has a BS from the United States Military Academy at West Point and an MBA from Rice University in Houston. You can read more about Matt HERE.