Industrial Magnetics, Inc. | Dennis O'Leary | Industrial Magnet Solutions

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IN-DEPTH INTERVIEWS WITH Top CORPORATE EXECUTIVES (727) 480-7070 info@ceocfocontact.com

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60 in the Books – How Industrial Magnetics, Inc. is Driving Solutions & Services Forward for the Next 60 Years

Dennis O'Leary

CBDO

Industrial Magnetics, Inc.

https://www.magnetics.com/

Interview conducted by:

Lynn Fosse, Senior Editor

CEOCFO Magazine

Published – April 12, 2021

CEOCFO: Mr. O’Leary, first of all, congratulations on your company’s sixty-year history. I see the tagline on Industrial Magnetics, Inc site is “Making Things Better.” What are you making and how are your products better?

Mr. O’Leary: It was intentionally vague, because it really depends on the many products that we manufacture. In some cases, it is our Tramp Metal group, which means that we are separating metal contaminates from a process stream, so we are making a product cleaner and protecting capital equipment. In our Automation and our MAG-MATE® groups, it refers more to magnetic material handling, where we are helping operators and robots pick up and move parts more effectively, more efficiently and safer.

We are helping to cut down on lost time, workplace accidents and injuries that can sometimes be catastrophic. If protocols aren’t in place for properly moving heavy steel beams, plate steel, metal bar stock it can result in product damage, workplace injuries or both. Throughout the entire process stream our goal is to help make that process better. Whether we are helping to make lifting or handling easier on the manufacturing floor or aiding a processing facility in providing a cleaner product we want our customers across a broad spectrum attain sustainable success.

So there are many different ways that we are making things better at a wide swath of the industrial space and all along the supply chain.

CEOCFO: What is new in magnetics? What is different about technology today? All I am thinking of is that a magnet picks something up, so start with that premise. What does magnetics involve?

Mr. O’Leary: You are not far off! Many people who are not familiar with the industry will say, “Oh, like little horseshoe magnets or electromagnets like we used to create in school with batteries and wire,” and all of those are true. However, what really evolves in magnetics on a regular basis, is the strength or the grade of the energy, and the quality of magnetic material. That basically means that when you take a piece of raw material and turn it into a strong circuit, that circuit is X percent stronger now than it was three years ago or five years ago. The energy of the products keep getting stronger.

In laymen’s terms, mega gauss (MGOe) is kind of like the horsepower of an engine. Fifteen years ago, 35 MGOe for a rare earth magnet was the strongest, most stable and commercially available strength grade and now we are up to 55 MGOe, so it has nearly doubled in strength. The result is a stronger magnet that can capture more contaminants, especially weakly magnetic metal fines and dust. Superior attraction and holding characteristics means a stronger magnet that is more effective and often in a smaller, more streamlined pack size. That is really the biggest change in the magnetics world in the last decade plus. It is taking the technology we have and making it stronger, tweaking it, optimizing it and making it better. There has not been a “Wow, this is brand new,” as far as material options go in quite some time.

CEOCFO: How can you make it stronger, even by a small degree?

Mr. O’Leary: We are an end user for a raw material. All the raw material, the commercially harvested steady available material comes from the Pacific Rim. We used to have production in the United States, but we do not anymore. Therefore, basically you are asking about is how the magnet material is composed, what the formula is or what is the recipe. The mix of neodymium, iron, boron, nickel or molybdenum- with a host of other materials that go into making what in the end becomes a piece of magnet material- we source and specify from the Pacific Rim to meet our design requirements.

The magic from that point is using our engineering intelligence to ensure that the magnet is as strong as possible by modeling a variety of circuits. We are kind of getting in the weeds here, but anyone can buy a piece of raw material; everyone can get access to that. It is what you do with it, how you marry it with other materials, how you protect it, how you complete the circuit, how you shunt the circuit, so that you can direct the energy as desired. That is the magic to taking the raw material and turning it into a “circuit”, maximizing its capabilities, and properly applying those results to achieve repeatable success. I told you- in the weeds.

CEOCFO: Good explanation for the fairly uninformed (meaning me)!

Mr. O’Leary: When people ask, “What do you do,” and I tell them and they say, “What do you mean, a refrigerator magnet? A magnet is a magnet is a magnet.” And I say, “That is the biggest fallacy in the world,” so we always get into these discussions about it.

CEOCFO: You mentioned competitors. Are there many? Is this a large industry?

Mr. O’Leary: Yes! It is absolutely a large industry. One of the challenges Lynn, is that we are all privately held. Therefore, trying to gain and glean any meaningful data, as far as annual revenues, is a challenge. However, there are legitimately in the North America market alone about fifteen competitors. It is a sizeable market representing $450 to $600 million in annual revenue. The challenging aspect of it, for any manufacturer- and we are certainly not insulated from this challenge- is that depending upon the scope of products that we offer, we have got different competitors in different markets.

We generate meaningful revenue in twenty-five to thirty different end markets, as well as our channel partner industries. We sell to big box stores. We sell through major channel partners/distributors like Motion Industries and Applied Industrial and to very specific distributors who take title to our product and sell them to their end user customers in their markets; food, feed & grain, petrochemical, pharmaceutical, appliance and office furniture manufacturing; you name it. Magnets are used in virtually so many different markets. In some markets we might have three certain competitors and then in other markets we have two different competitors and in a third market we have an even different set of competitors. It is a broad space.

CEOCFO: Do you manufacture in the US?

Mr. O’Leary: We do. We manufacture right here in Boyne City, Michigan, everything that we can- which is most of our products. As I had already mentioned, essentially all raw magnetic material comes from the Pacific Rim, so it lends itself to having high volume and/or low-cost parts assembled for import.

Intelligent manufacturers have figured out that it is not just a per piece cost. Most everything you can get quoted offshore is going to be less expensive than it would be to manufacture domestically, but it’s that ‘total value proposition versus per piece cost’ equation that really tips the scale towards the decision to reshore whenever possible. Hidden costs such as shipping time, transit time, freight, duties, import fees, delays and stock-outs; these all inform the decision and can be valuable if the process is objective. Therefore, we manufacture the bulk of what we sell domestically, right here and at our plant in Columbus, Ohio as well, which we brought on as part of an acquisition that we completed last September.

CEOCFO: Do your customers appreciate a US manufacturer?

Mr. O’Leary: Yes, I think they do. I do not want to go on all the FTC regulations about whether you can make a qualified or unqualified claim about magnets, because we cannot. The magnet material itself is part and parcel and we would not have a product if it were not for that. So, we cannot claim ‘Made in the USA’, because the magnet material comes from China. Some of our competitors do and that is their prerogative; it is just false advertising. However, our customers absolutely appreciate the fact that we provide unique solutions for their applications. We have seventeen engineers on staff, literally 15% of our workforce is degreed engineers and designers, so we are positioned to continue providing unique solutions for applications. We have a standard set of products we offer, but we realize after 60 years that over 60% of our customers’ needs are met by finding a solution unique to them.

Therefore, that part, they do appreciate. In fact, we have a massive support network as well, with have regional managers that live and work in their geographic regions, so our customers and channel partners get a lot of “face to face” time and attention to meet their needs. As I said, I think the biggest appreciation is the fact that they tell us what they want, and we get them what they need in the time frame that we promise them. Our goal is pretty simple: give the customer what they want, not what we want to sell them, and make certain they have it when they need it. It has worked for sixty years and I suspect that no matter what else may change as we evolve- delivery promises on a quality product will always be paramount to our success.

CEOCFO: Would you tell us a little bit more about magnet separators?

Mr. O’Leary: Magnetic separators basically serve two functions. They are either engineered and designed for capital equipment protection or consumer protection. If you think about capital equipment protection, we have all gone down the highway and we have seen a portable plant along the side of the road that has got conveyors and huge piles of aggregate and concrete, or asphalt and they are tearing up a highway.

You want to make sure that you can get the rebar out before it gets into the crushing equipment. If you did not it would be akin to you throwing a dozen knives in your sink disposal and turning it on until it seized and burned up the motor. Therefore, on the capital equipment side, we largely sell physical insurance. We are making sure that maybe a $10 thousand to $50 thousand dollar solution averts a one quarter million-to-two-million-dollar catastrophic downtime failure by not allowing any metal to get into primary processing equipment. And that’s capital equipment in a nutshell; it is physical insurance and protection.

CEOCFO: What about food and other items?

Mr. O’Leary: Yes, like I said, on the other side, whether it is wet or dry processing streams, we offer magnets to make sure that no metal contaminants get into to any of the foods we and general hygiene products. There are your soaps, your shampoos, your toothpastes; so many things we do not even think about, but all the processors have or should have magnetic purification. That is more of purification equipment, as we call it, where we are trying to keep any metal contaminants out of that product flow.

If you think about a cereal plant, all of the dry goods, the ingredients listed, if you will, that ends up coming out in a box at the end of the line, called Fruit Loops or Rice Krispies or whatever it might be. It all comes into the plant in super sacks or bulk trucks or rail cars; however, they get to the front door of the plant, it is generally transported in metal. There is a lot of opportunity for metal contaminants to unwittingly make their way into a product stream.

Our goal, at the unload area at the front of that plant, is to make sure we can keep as much metal from even making it into the plant, because once the dry or wet goods are in the plant, there is already enough opportunity for contaminants to migrate into the product flow, just based upon the processing equipment that is in the plant. Therefore, we try to keep as much out before they even get started.

CEOCFO: You mentioned an acquisition. Do you do many? Is there consolidation right now in the industry or was it opportunistic?

Mr. O’Leary: We have executed five acquisitions since 2015 and I would say that three of them were opportunistic. There is not much consolidation in the magnet space. We were fortunate enough to buy Walker Magnetics Group, which is really interesting if only for the fact we are all celebrating sixty years, but the Walker brand is celebrating its 125th anniversary this year. Therefore, they are a well-known, well respected brand in the North American space and probably a little more abroad, and definitely broader than we are as far as international business rev-gen. In our space, generally there is not much consolidation. I wish there were more opportunities to purchase adjacent companies that have similar vision and passion.

CEOCFO: What are some of the challenges of building a company through acquisitions? How do you get everything together to run smoothly?

Mr. O’Leary: That is a great question. We started this latest acquisition with Walker as mentioned earlier, in earnest in June and closed on the 2nd of September, so it was a relatively fast process. I think the biggest challenge is making sure that you have got your markers in place for recognizing the potential potholes or pitfalls and setting up your markers and your checks and balances to make sure you can avoid those where at all possible. The big stuff is generally easy, the QofE and pro formas are as reliable as the data inputs. You look at the pro forma financials and you figure out if it is a worthwhile investment of if it is not. It’s the ancillary details that are often taken for granted by the company in the buyer’s position, and thus the buyer has the responsibility to communicate across the now-broadened company, so everyone receives the same messaging, details, parameters and expectations. I think the most important thing for us is culture and fit. We always like to say around here that, ‘magnets is not who we are, it is what we do.’

I love our workforce. Everyone in this company is fantastic and I believe if we decided tomorrow that we were not going to do magnets anymore, but we were going to build trailers, garbage cans or dumpsters, we would build the best one out there, because that is just what we want to do. Whatever it is, we want to make sure we are offering our customers the best products available. The question is, does the fit make sense when it comes to an acquisition? Are we just buying EBITDA or are we truly growing the brand through a meaningful acquisition? Are we bringing more products to our customers and on the flip side are we bringing our existing products to the customers of the company whom we acquired? If you can get that marriage then I think your returns are exponentially higher than if you are just buying a company that does the same thing you do and you are trading or cannibalizing revenue dollars. That does not make a lot of sense.

CEOCFO: How has Industrial Magnetics fared under COVID?

Mr. O’Leary: We faired very well. We were fortunate. As I said, we have got a dedicated staff. With all of the changes in the executive orders from the governor of the State of Michigan, there were many challenges, a lot of navigation on the part of Human Resources and making sure we were in compliance from a health and safety perspective. We implemented distancing here in the facility and have work from home/remote options for staff. We did not lose any employees. We did not fire any employees. We did not put anyone on short time. Everyone earned a standard weekly paycheck, so in all I believe we fared very well.

We had a couple of employees who, based on the executive orders, were forced to take a leave, because they have school age children and when the schools closed down, childcare closed down as well. Therefore, that became a work from home opportunity and if their role here did not lend itself to work from home, we worked with them on taking a leave of absence. Everyone is back, so it has been great. We feel very fortunate and thankful that the dedication of our employees allowed the acquisition team to often turn our attention from the day-to-day activities and instead integrate Walker Magnetics during a challenging time for our families, the economy and industry in general. Now, it is on to additional opportunities to build the brand in a meaningful manner and further secure the well-being of our employees, customers and shareholders.

Industrial Magnetics, Inc. | Dennis O'Leary | Industrial Magnet Solutions | Industrial Magnet Manufactures | 60 in the Books – How Industrial Magnetics, Inc. is Driving Solutions & Services Forward for the Next 60 Years | CEO Interviews 2021 | Industrial Companies | Industrial Magnet Designs, Industrial Magnet Engineers, industrial magnets for work holding, lifting, fixturing, conveying and magnetic separation, Magnets, Magnet Metal Separation, Walker Magnetics, Lift Magnet Services, Lift Magnet Testing, Magnet Plant Audit, Test Lab, Industrial Magnetics, Inc. Press Releases, News

“Our goal is pretty simple: give the customer what they want, not what we want to sell them, and make certain they have it when they need it. It has worked for sixty years and I suspect that no matter what else may change as we evolve- delivery promises on a quality product will always be paramount to our success.” Dennis O'Leary

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