By Carlos David Mogollón, WC&P Executive Editor
This year is a breakout one for Erie Water Treatment Controls, said executive vice president Mike Kopacz.
It’s been roughly 1-½ years since Aquion Partners L.P., parent company of RainSoft and ClearWater Tech, bought the new division. The well respected, 50-year-old name in water treatment valves was allowed to decline drastically under previous owners in recent years. Keep in mind, it was only 1996 that then-Erie head Robert Taylor was president of the Water Quality Association.
In a single weekend, though, Kopacz and company moved Erie lock, stock and barrel from Milwaukee to Aquion’s Chicago headquarters in Elk Grove Village, Ill., with the operation back in production that Monday, he boasts. Only one of the 20-some employees left chose to make the move, current sales manager John Hofherr.
Before the Erie acquisition, Kopacz was RainSoft international sales director for three years. With more than 30 year’s experience, he began his career in college, selling softeners to help pay for his senior year at Southern Illinois University, whose Salukis from Carbondale, Ill., made an impressive run in the NCAA men’s basketball tournament this spring. Kopacz graduated in 1967 and earned a post-graduate business degree from Carlson School of Management in Minnesota.
With RainSoft and now Erie, his mission has differed only by scale and the building blocks he had at the outset. Much of the effort at Erie is rebuilding, he said, going out to current and previous customers and assuring them their supplies are secure and improving in both quality and service. There’s also been an effort to reassure the market Erie will remain an independent entity separate from Aquion’s RainSoft branded systems and retail/dealer network. He admits a number of sensitivities had to be taken into account, particularly among major assembler/distributors such as R&M Manufacturing and Wood Bros., that might compete with RainSoft in some markets.
Another challenge was that along with Erie came an operation in Belgium, which had to move to its own facility last summer. That subsidiary gives Aquion valuable exposure in a rapidly growing European market, particularly Eastern Europe, the Middle East and Africa. It also exposes it to conflict over European standards harmonization and internal politics of Aqua Europa, a federation of national water treatment associations. For that reason, Kopacz returns to active involvement with the WQA World Assembly Division, which he helped found when working with a competing manufacturer to Aquion.
Before getting to the interview itself, here are a few details on Erie:
Erie Water Treatment Controls
A Division of Aquion Partners L.P.
2080 E. Lunt Ave.
Elk Grove Village, IL 60007
Tel: (800) 724-6763 or (847) 437-9400
Fax: (847) 437-1594
Email: [email protected]
Management: Mike Kopacz, executive vice president; Nick Govaert, general manager, Erie Belgium; John Hofherr, sales manager; Leonid Burda, dedicated engineer
Employees: 41—30 in U.S.; 11 in Belgium
Revenue: Privately held Aquion has an eight-figure annual income; domestically, Erie suffered a 2% decline but expects 10% growth this year; while Erie Belgium has seen 5-8% annual growth in five years.
Goals: Erie expects to double domestic unit and dollar sales in three years, expand Erie Belgium’s growth, and raise volumes in Asia up to five-fold. Asian sales—in China, Korea and Japan—already have jumped three-fold.
And now for the interview:
WC&P: Tell us a little bit about yourself and how you got into the water treatment industry, to give readers an idea of who you are. I looked at the RainSoft website and it still has you listed as international sales director there, but you’ve been at Erie for some time now.
Kopacz: Let me give you some background. This goes back a number of years, but I actually got started in the water treatment industry in college between my junior and senior years. Times were a little tough so I sold water softeners for a very large manufacturer that’s still the predominant manufacturer in the water treatment industry.
WC&P: One you’re competing with now?
Kopacz: There’s some truth to that. And, as a way to earn money my last year in school, I did that. Lo and behold, I didn’t know I’d be working for that company down the road, which happened years later. Then, I went to work for a very large retailer that also carried and sold water treatment equipment. And I was manager of their home improvement category, which was approximately five states.
WC&P: Feel free to mention the name of these companies where you feel it’s appropriate.
Kopacz: This was Sears Roebuck. I don’t know if they should be mentioned. It was just a large worldwide retailer, let’s say. Again, I had the home improvement category and was the merchandise manager as well as the marketing manager. Part of that product line that we marketed and merchandised was in the water treatment category, so I had familiarity with it again. Then, shortly thereafter, I was hired away again by the company that supplied the water treatment products to that retailer. I spent a number of years, approximately 15, with that company, where I managed the sales and distribution of products back to that retailer and as well as later became operations manager for their international business.
WC&P: I take it basically listening to that procession, someone who knows the water treatment industry would be able to fill in the names anyway.
Kopacz: Oh, I’m sure they can. That’s very true. Then, I was hired away and worked for a company in California as vice president of business development. That was Ultraviolet Devices Inc., in Valencia, Calif. They’re primarily a manufacturer of disinfection products. My responsibility was to help diversify into new markets and new channels of distribution.
WC&P: You’ll recall when I first started here at the magazine, you were with UVDI and were one of the first people I contacted about writing articles for WC&P.
Kopacz: That’s true. Shortly thereafter, I joined Aquion Partners, the RainSoft Division.
WC&P: That would be when? </>
Kopacz: That was 1997. I was director of international operations for RainSoft. Then as the acquisition of Erie started coming to a close, I was asked to manage that business and became executive vice president with Aquion for the Erie business. That was in October of 2000. We’ve got a little over a year and a half under our belts now.
WC&P: Now, paint for us a picture, if you could. There are a couple of companies in the industry that remain somewhat ethereal as to who they are and what all they own. Marmon Group is one. People know the companies in water treatment it owns, but not much else. Aquion has been another of those that I’m fuzzy on.
Kopacz: Aquion Partners is a limited partnership. It’s basically an umbrella company with four companies that report to it really as business units. There’s RainSoft Division, which is primarily a marketer of systems to the water treatment industry; they’re a global marketer of water treatment products. Then, there’s CWT — Clear Water Technologies, which is an ozone company located in San Luis Obispo, Calif., and is focused on somewhat the residential but moreso the commercial/industrial ozone water treatment business.
WC&P: Ted Rich has written for us a lot from Clear Water Tech.
Kopacz: Ted’s a good guy. He understands that business well and has been with the company a long time. So, they’re a subsidiary of ours. And we acquired Erie in October of 1997, moved it from Milwaukee and integrated that into our operations at Elk Grove Village, Ill. With that business, came an affiliate operation located in Belgium that has distribution rights for Europe — both East and West, the Middle East and South Africa. They distribute product in Olen, Belgium, and primarily focus on the tweaking of those markets for the European market.
WC&P: Is that the fourth entity?
Kopacz: No, the fourth entity is Finco, which is a financing arm of Aquion. So, with Erie Belgium and Erie Domestic, we’ve divided the business into two segments, whereby Erie Belgium handles the eastern part of the world that includes Europe, Africa and the Middle East. Erie Domestic handles North and South America and Asia.
WC&P: How has the transition for you been on that?
Kopacz: The transition to Elk Grove Village has been very good. We’ve taken a look at the product line and it was an excellent acquisition. It was right for Aquion and right for Erie. We looked at the business and there’s two separate, I guess, marketing efforts. One is that you’re in the systems business or you’re in the components business. And our whole goal was to keep those businesses separate. There was some horizontal integration, but primarily very little; only in selective areas. Our whole goal is to keep the two businesses separate, where Erie will focus on the component industry and component channels to market and the systems business would remain separate as well. One of the things we did when we looked at the operations was we wanted to understand the market and evaluate the product line to selectively invest in product improvements and assess opportunities for growth. And it’s still an opportunity market.
WC&P: Now, tell me a little bit about the transition with Erie because, at the point that Aquion bought Erie, the company had declined somewhat. When Bob Taylor, the former WQA president who used to head up Erie, was with it, it was still a fairly vibrant company. It had dropped a bit in the years since he retired. When Aquion took it over, where was Erie and where would you like it to be?
Kopacz: Erie, obviously, people in the industry know the company and that, over a period of time, it had lost its momentum and that there was a desire to divest of that business by the corporate entity that owned it. The company still had very solid products. The products, we’ve evaluated them, offer unique flow features and they’re solid products.
WC&P: Well, it’s a respected name in the industry.
Kopacz: Very well respected. It’s been in the industry for over 50 years.
WC&P: It was somewhat refreshing when Aquion entered the picture. From what I heard, you were able to salvage the name and the products.
Kopacz: Right, and there was a lot of conversation early on that Erie, like I said, had lost its momentum and its pizzazz in the marketplace primarily because of the uncertainty of what was going to happen to it. Was somebody going to buy it, put it on the shelf and use its products to develop other systems or different system brands. Our intention, as I mentioned, was to buy the business, keep it as a component business to the industry and revitalize its aim and its stature that it used to enjoy within the industry. With the recognition and longevity it had in the market, that was very important.
WC&P: I take it that, from what we’ve spoken about previously, there were some sensitivities that Aquion wanted to make sure they paid attention to regarding the position of Erie and how it would fit in with Aquion as well.
Kopacz: There was a lot of sensitivity there. And there was a lot of emphasis on our side to make sure that everybody understood that our efforts and energies were going to be focused on keeping Erie as a very recognized brand on the component side of the business. Our first year, we moved the business overnight.
WC&P: From where to where?
Kopacz: That was from Milwaukee to Oak Grove Village. We established ourselves and settled down a manufacturing facility. Unfortunately, we were only able to retain a couple people.
WC&P: Wasn’t it pretty much down to about 20 people?
Kopacz: Right, we had a big chunk to bite off and that chunk was to transfer the technology to Elk Grove Village so that we could still maintain the quality manufacturing and quality products it was putting out. And also then, to fully understand the functionality of the components, make sure our customer base was well aware that we were not going to in any way affect their business. We undertook a very in depth campaign to contact each customer, visit each customer and assure them that Erie was here to stay and that we will support their business both from a quality products point of view as well as from a high quality service point of view.
WC&P: I have two little questions. One is where did you move it to, specifically; and, by that, I mean did you have to build a new building or did you rent another facility…? The other question is what part of that regimen you had to undertake as far as with Erie customers had to do with the fact that some of these customers might have been competitors to RainSoft, which was now a sister company? I assume that’s part of the equation.
Kopacz: Yes, there was a lot of uncertainty. No. 1 was the direction of where Aquion was going to take the company. Let me jump back for just a second, though. The manufacturing facility was located in Milwaukee and we had underutilized space at Aquion at the time. It made sense to move it to Elk Grove Village and integrate it as part of our total manufacturing plant.
WC&P: So you didn’t have to build a new building or lease space.
Kopacz: Which was great. The primary investment was to move the product, make sure the manufacturing cells were set up so that we didn’t interrupt any of the supply to the market. We accomplished that and I was very pleased that we didn’t experience any havoc at all in maintaining our distribution channels.
WC&P: You didn’t on a weekend, didn’t you?
Kopacz: We did it in one weekend. We closed the facility on a Friday in Milwaukee, had approximately seven 53-foot trucks, moved it over the weekend and started manufacturing again Monday in the afternoon without a hitch.
WC&P: Who were the people you brought with you?
Kopacz: We brought John Hofherr, who is now our sales manager, and we had an engineer who we brought on board from a contractual point of view as a quality engineer. He did not want to move to Chicago, so he has since left us. So, we really only retained one person.
WC&P: When you were doing some of these calls on Erie customers, how did some of the conversations go as far as the sensitivities you mentioned were involved?
Kopacz: Well, you know the primary concern for everyone was: “What are you going to do with the business? Do I have to go out and source new products? And what are your goals and strategies for the business, as far as where you’re going to take it?” And, in every instance, once we finished the conversation and discussed each individual business, they’re relationship with Erie prior to our acquiring it, our goals and opportunities and strategies going forward, we felt very comfortable that they felt comfortable about where we were going to take the business, that we were going to support them better than they were supported before and that we were going to continue to invest to upgrade the product lines.
WC&P: How many employees is Erie up to now?
Kopacz: In total, Erie has — including affiliate operations — approximately 40 people.
WC&P: And how has production changed? What type of goals have you set and how have you been able to achieve those to date?
Kopacz: Our primary goal was not to disrupt any of the manufacturing processes that were in place. And we used 2001 as the year to, we’ll call it, maintain and settle down the manufacturing work cells; because, to bring in a whole new manufacturing process and move the manufacturing operation and the business and not disrupt channels to the market — our whole goal was to get the operation moved, get it in place, then totally analyze how we wanted to reformat the business, reformat the manufacturing so that it provided higher efficiencies and also a higher quality product. Last year was primarily a year to tweak the production as we had purchased it and moved it into primarily manufacturing cells. We’re in a process right now of we’ve done all our evaluations and are going to start upgrading and realigning the way we produce those products. The goal there is to be more efficient and implement ISO standards and quality manufacturing processes like “first pass yield” and some of those issues.
WC&P: What’s “first pass yield”?
Kopacz: That’s a standard whereby you can estimate the number of products that you complete and the number that have to be reworked for any type of abnormality.
WC&P: It’s a quality control process.
Kopacz: Yes. The objective there is to get to two, three or four segments so that you’re reworking fewer products and you have an efficient manufacturing process.
WC&P: So, you’re sort of looking at the core processes, not just this is our product line and we know we have to improve it; but first we’ve got to get to the core of how we’re doing things.
Kopacz: Right. You have to move the quality of manufacturing. You have to have that in today’s world; otherwise, you I think you’ll become the last great dinosaur. Consequently, we’re looking at vendors, the products that they supply so we’re assured the components we receive from them are very high quality such that we can move them right to the floor with no chance that those components or pieces may be bad. And then in our manufacturing process, we’re putting in processes that will also ensure that as the product moves down the line, it comes as a high quality product with very, very few defects in it.
WC&P: What was it that you inherited? What sort of things make this more important?
Kopacz: Well, Erie had, in Milwaukee, implemented a cell manufacturing process and also had pretty high quality standards. And, so we were able to take those and we just want to build upon them. If we look at how we’re going to grow, I think one of the ways we have to is our major emphasis has to be we’ve got to produce a pretty high quality product in a rapid manufacturing process so that as our business continues to grow. Our whole goal is to take quality products to the market and the only way you can do that is to improve your manufacturing processes.
WC&P: What all was included in Erie’s product line?
Kopacz: Erie primarily has two product lines, focused at the residential-light commercial market. They have a diaphragm valve, which is 3/4-inch; it’s been a stalwart in the industry for a long time. And the single rotary valve, which is the 1-inch valve; and it has very high flow rates, is an extremely solid valve and also will service light commercial industry.
WC&P: How many units were they putting out the year prior to Aquion buying Erie?
Kopacz: Jeez, I don’t know if I want to delve into that.
WC&P: I’m trying to get an idea of where it was vs. where it is today vs. where you want to take it. You could do this in numbers or percentages…
Kopacz: Right. Erie had lost market share prior to us acquiring the business from a domestic point of view. Erie Belgium was able to maintain and grow its market share because of remaining emphasis on a product and growth of that business. Domestically, we remain very, or relatively, stagnant and with a very, very low market share. We’ve been able to start realizing some growth in the last six months. Our whole objective is to double the business within the next three years domestically. Globally, we also anticipate good growth. But from a domestic point of view, we want to double the business in three years; and that’s in both units and dollars.
WC&P: What’s the growth been like at Erie Belgium?
Kopacz: They’ve maintained a 5-8 percent increase in business in both units and dollars over the last five years. While on the domestic side, we’ve seen a reduction in market presence for Erie. I’d have to say a 2 percent reduction, but that reduction on a relatively small market base is…
WC&P: At 20 people, they couldn’t have been making a whole lot.
Kopacz: Well, right. I’m trying to dance around that one a little.
WC&P: Now, we’ve got it out of the way. Tell me about the Erie Belgium operation. You oversee that as well, correct? When did it originate? How does it fit into the whole European market, especially since you and I heard a lot at the WQA World Assembly Division meetings in New Orleans in March?
Kopacz: Right. Well, the Erie Belgium division, I don’t know how long it’s been in business. I want to say 15 years. And some of the complexity of the move we did in October of 2000, almost a 12 to 14 month period, is we not only had to move the domestic operation, but shortly thereafter, in July of last year, we also moved the Erie Belgium operation. So, we had a two-fold punch and it took a lot of energies and involvement from both the domestic side as well as our Erie Belgium operation. There’s approximately 11 people there. But we were located in Herenthals just east of Antwerp. As part of our acquisition, we agreed to move that operation to a free-standing operation, which we did in July to Olen, Belgium. That’s about 10 kilometers east of Herenthals. It’s about 20-25 kilometers east of Antwerp.
WC&P: Who heads that up?
Kopacz: We have a general manager there, Nick Govaert. He has 10 people on his staff.
WC&P: The European market is a whole other fish, so how do you approach that?
Kopacz: Well, the European market, that’s why as part of the strategy when we purchased Erie Water Treatment Controls — in fact, in the article, we need to refer to it as that. It was part of the agreement in the acquisition; actually, for the whole operation. Erie was a more complex company. They also had hydronic controls and controls for heating and HVAC systems, so they had a large diversity and one of them was the water treatment controls. In the acquisition, we only purchased that segment that was the water treatment controls. Going back to the Erie Belgium operation, when we acquired Erie Water Treatment Controls, part of the acquisition was also the European operation because that gave Aquion a presence in Europe.
WC&P: I didn’t know that you had a presence in Europe. I assume that was a big draw for you in the deal.
Kopacz: Right, that was part of the strategy and it was a key component of the acquisition. It gave us an operation in Europe and a presence in Europe. And, as you know, in the European market, you’re better off if you can have an operation there that can be very sensitive to market needs and trends, culture…
WC&P: And the various differences between the different countries in general.
Kopacz: Very true. There are different needs for a domestic product so it continues to be slightly altered to meet the European needs or the various country needs. What we do is we ship raw components to Belgium and then they assemble the products and manipulate the products to be used and sold in the East European market.
WC&P: Tailored for each market?
WC&P: Now, did RainSoft have a presence at all in Europe?
Kopacz: Yes, we had dealers in Europe in the UK; not a lot of distribution in Western Europe, but had excellent distribution in Eastern Europe and the Middle East. So, the presence that RainSoft and Aquion had in that market was primarily through branded dealers.
WC&P: And I would assume that with acquiring Erie in Belgium that also set up a certain goals level for the European market that was completely different from U.S. goals.
Kopacz: Very true. The European market is managed as a separate entity so that we make sure we focus our efforts at addressing the needs of the European market. Some of the things that we saw at the WQA are very important to that. Nick Govaert is heavily active in Aqua Europa, Aqua Belgica and is a key ingredient in assisting water treatment and WQA in those markets. It’s very important to keep it as a separate entity with a separate management so that he’s got his pulse on the market.
WC&P: Do the goals of RainSoft and Erie sometimes come together; are there some complementary issues that, particularly within Europe, draw closer ties there?
Kopacz: You know, the great part of having a European operation is there are benefits for the total company, for both RainSoft and CWT, because there’s feedback on the market taking effect. There is synergy within the operations, although they’re managed separately as separate business units. Each one is called a strategic business unit within Aquion.
WC&P: Or “Division of…”