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Kuhlman Electric Corporation
Kuhlman Electric Corporation
About Kuhlman Electric and the Transaction
Carlyle’s U.S. buyout fund, Carlyle Partners II, L.P., acquired Kuhlman Electric Corporation in October 1999. Carlyle managed this investment through tough economic conditions resulting from California’s deregulatory program, the collapse of Enron, major reductions in customer capital spending, falling wholesale prices and the sector’s challenging credit crisis, Carlyle wrote down the investment to zero. However, Carlyle remained committed to Kuhlman. In fact, Carlyle employees personally invested additional capital to strengthen the company. Nearly 10 years later, in August 2008, Kuhlman had executed a complete turnaround and was sold by Carlyle to ABB, the global power and automation technology group.
Kuhlman was founded in 1894, which made it the oldest independent transformer manufacturer in the industry, and had a long and successful history of providing power transformers and related products to utility companies. At the time of the sale to ABB, the company had approximately 800 employees and was headquartered in Versailles, Kentucky, with manufacturing facilities in Versailles and Crystal Springs, Mississippi.
During Carlyle’s ownership, Kuhlman designed, manufactured and marketed a broad range of transformers for electric utility distribution systems that served commercial, industrial and residential customers. Key customers included large utilities, such as American Electric Power, Duke Energy, Progress Energy, Southern Company and Southern California Edison.
Key Value Creation Metrics
- Supported Kuhlman with millions of dollars of additional equity and remained committed to the company’s management team through a severe market downturn.
- Shifted Kuhlman’s strategic plan to focus on new business development opportunities, creating a dynamic and thriving company.
- Established long-term customer contracts and secured relationships with key suppliers of critical raw materials.
- Increased revenue by 26%, 26% and 45% during 2005, 2006 and 2007, respectively.
- Increased total headcount by 25% and operational capacity in its largest business line by 60% from 1999 to 2007.
Positioning the Company for Growth
When Carlyle invested in Kuhlman in 1999, the electric utility industry was strong, and Kuhlman’s sales and revenue were increasing. Shortly after the investment, however, the electric utility industry was hit by a severe downturn. Kuhlman confronted major challenges presented by California’s deregulatory program, the collapse of Enron, major reductions in customer capital spending, falling wholesale prices and the sector’s credit crisis. With declining unit volumes and price pressure, revenue dropped four consecutive years, including 17% in 2002 alone. By December 2003, Carlyle had written down the value of this investment to zero.
Despite these challenges, Carlyle remained committed to Kuhlman and supported the company’s leadership team as it persevered and managed through the downturn. Together, Carlyle and Kuhlman took several key steps to save the company.
Carlyle increased the amount of equity it invested in Kuhlman, allowing Kuhlman to fund a series of strategic initiatives. Because the value of the investment was written down to zero, Carlyle did not seek additional investment from its investors. Instead, partners at Carlyle invested millions of dollars of their own money to keep Kuhlman afloat.
With Carlyle’s support and added capital, Kuhlman revised its strategic plan to focus on manufacturing technology upgrades and new business development opportunities. The company implemented extensive lean manufacturing initiatives to produce efficiency gains. Kuhlman also established long-term customer contracts and secured relationships with key suppliers of critical raw materials. It expanded manufacturing capacity and its range of products and services, while achieving best-in-class quality standards. From 1999 to 2007, operational capacity in Kuhlman’s largest business line, medium-powered transformers, increased by 60% while performance and quality also improved.
During Carlyle’s ownership, Kuhlman weathered a difficult period for the industry and emerged as a dynamic and growing company as market conditions improved. Kuhlman’s financial performance reflected this turnaround as well. For the fiscal years 2005, 2006 and 2007, Kuhlman’s revenue increased by 26%, 26% and 45%, respectively. In 2007, Kuhlman experienced record results in all three of its operating divisions. In addition, Kuhlman’s overall employment levels increased 25% during Carlyle’s ownership. During the downturn, Kuhlman maintained a positive relationship with its unionized workforce, and organized labor was an important part of the turnaround.