By Maureen Flanagan
More than 100 years ago - in 1899 - Jesse Kester started the Chicago Solder Company. His company, based in Des Plaines, IL, has produced solder and solder derivative products ever since. A leading global supplier of materials to the electronic, component assembly and electrical/industrial marketplaces throughout the world, Kester serves more than 1,200 customers worldwide. These customers look to Kester for an array of basic and high-tech attachment materials used in manufacturing products for the telecommunications, computer, automotive, military, components manufacturing, and consumer electronics industries.
After Kester was acquired by Litton Industries in 1967, the company's growth accelerated with an expanded international footprint, new acquisitions and the opening of facilities around the globe. Additional expansion continued under ownership by Northrop Grumman Corporation (NYSE: NOC) which acquired Kester in 2001 as part of Northrop Grumman Corporation's acquisition of Litton Industries. However, Northrop Grumman Corporation concluded that the Kester business did not fit its long-term strategic plan and decided to sell the business.
Given an opportunity to unlock value from Kester, American Capital Strategies, Ltd. (Nasdaq: ACAS) acquired the company in a February 2004 transaction. In a one-stop buyout, American Capital provided the complete financing package of $70.5 million. American Capital's investment took the form of a revolving credit facility, senior term loans, senior and junior subordinated debt and preferred and common equity; the purchase price was $60.0 million. Since 1997, American Capital has invested more than $2.2 billion in a wide range of middle-market companies.
For more information about American Capital's portfolio click here.
"American Capital's ownership, combined with management's equity participation, enables Kester to realize key value-creating strategic initiatives," said Roger Savage, the company's President. "The company is ready to enhance its position as a worldwide supplier, develop an even stronger Asian presence, reduce manufacturing costs, and focus on new product development. These new initiatives can be carried out while continuing the traditions of quality and reliability our customers have come to depend on."
Kester's core products include solder paste, bar solder, wire solder, liquid flux or process chemicals, which are sold to companies in the $1 trillion electronic assembly market. Solder is used as a connectivity material attaching one metal component, or substrate, to another. Soldering offers a clear advantage over welding and brazing alternatives by allowing metallurgical bonding to take place in temperatures below 350�C and in non-corrosive environments.
Kester also offers a complete portfolio of advanced, custom products designed for the component assembly (microelectronic) market. These include assembly attachment materials such as polymers, solder spheres for Ball Grid Array component assembly, solder columns for Column Grid Array component assembly, tacky soldering fluxes for ball attachment, and thermal management materials that minimize heat transfer within the component package.
As one of the three largest manufacturers of industrial solder products in the world, Kester focuses on end markets where its products add significant value in either the formulation (chemicals, alloys and pastes) or in the manufacturing process (wire solder with flux embedded in the core, thin diameter wire, etc.). The company also stresses product development where customer relationships and the company's research and development strengths combine to identify, develop and produce new market opportunities. With manufacturing and distribution capabilities spanning the globe, Kester is always in close proximity to its customers' worldwide manufacturing facilities. In nearly all cases, the company's products are pre-qualified for customers' manufacturing processes so that Kester can be listed as an approved vendor.
"Kester is a technically strong, high-quality supplier with opportunities to grow its customer base. In particular, the move to lead-free solders has created plentiful opportunities for the company as manufacturers re-qualify suppliers for their approved vendor lists," said Ian Larkin, American Capital Principal.
Kester has placed a priority on addressing the shift in demand to lead-free products. The company has executed license agreements with current lead-free alloy patent holders, enabling Kester to manufacture and sell lead-free solders in the form of bar, wire, solder paste, preforms, and spheres. The tin/silver/copper alloy system covered by these patents as well as existing unpatented lead-free alloys have achieved a high degree of technical acceptance in the marketplace. Lead-free sales are expected to increase 10 to 15% in 2004 and represent a growing portion of the company's future as a result of legislation in Europe and wider acceptance (and OEM requirements) in Japan.
The company has also been highly successful with product development, introducing several new advanced products in 2003 that attracted notable traction in their first year. In addition to solid demand from repeat blue-chip customers, Kester continues to add new companies to its customer base. As it continues to provide a high level of customer service, the company plans to optimize its manufacturing facilities and further strengthen overseas production.
Despite the recent electronics industry downturn, the outlook for electronic production, which drives the need for Kester's products, is strong. Growth has resumed in most major electronic market segments as analysts predict an overall industry growth rate of 6 to 7% through 2007. Over the long-term, the electronics assembly market is expected to continue to outperform the economy as a whole. This rapid growth is driven by such factors as the increasing electronic content of capital goods, the continuing trend towards miniaturization, new product development, increasing global PC use, higher levels of per capita use in developed and undeveloped countries, and the growing need for increased data storage.
Opportunity in the component assembly market is also expected to grow with the emergence of area array component packaging technology, one of Kester's proven areas of expertise. Projected semiconductor growth rates provide additional support, and the double-digit growth achieved in 2003 is expected to continue through 2004 and 2005.
Kester's new product and customer success stories, added to the improved outlook in the company's end markets, provide a healthy prognosis for future growth. Enabling the critical interconnections that form the backbone of the electronics industry, Kester will be a well-connected industry player for many years to come.
