Matrix Service Company
Address:
10701 E. Ute Street
Tulsa, Oklahoma 74116
U.S.A.
Telephone: (918) 838-8822
Fax: (918) 838-8810
http://www.matrixservice.com
Statistics:
Public Company
Incorporated: 1989 as Matrix Environmental Company
Employees: 3,641
Sales: $288.4 million (2003)
Stock Exchanges: NASDAQ
Ticker Symbol: MTRX
NAIC: 236220 Commercial Institutional Building Construction
Company Perspectives:
Our company excels as a full-service contractor, providing our clients with qualified professionals, technical expertise, skilled craftsmen and excellent project management in a number of areas.
Key Dates:
1984: The company is founded.
1989: A holding company, Matrix Environmental Company, is formed.
1990: The company is taken public as Matrix Service Company.
1999: Brad Vetal is named CEO.
2003: Hake Group is acquired.
Company History:
Matrix Service Company offers construction services, and repair and maintenance services related to aboveground storage tanks (AST) and related facilities used by the petroleum, petrochemical, power generation, power delivery, terminal, pipeline, utility, chemical, transportation, pulp and paper, food and beverage, heavy industrial, and industrial gas industries. The publicly traded company is based in Tulsa, Oklahoma, with regional facilities located in California, Delaware, Illinois, Michigan, Pennsylvania, South Carolina, Texas, Utah, and Washington, as well as Canada. Construction services include turnkey construction, handling projects from the design stage to decommissioning; heavy mechanical installations; electrical instrumentation construction in the Northeast, offering process control and instrumentation installation and fiber optic cabling; civil, concrete, steel erection, and structures construction services; erecting and replacing boilers; retrofits, expansions, and modernizations; plant dismantling and equipment relocation; AST construction; the installation of floating roof and seal systems used by many ASTs as an environmental precaution; secondary containment systems employed by ASTs to detect leaks and prevent groundwater contamination; and fabrication services for new tanks, new tank components, retrofits, floating roofs, and seals. The Matrix repair and maintenance services business segment provides routine ongoing maintenance of ASTs as well as emergency response maintenance, plant turnarounds, outages, and industrial cleaning. More than a quarter of the company's consolidated revenues come from two customers: Chevron and BP.
Founding the Company in 1984
Matrix was started in 1984 by former executives of Tank Service, Inc., a company involved in the repair and maintenance of tanks used in refineries and marketing pipeline terminals. The founders included Doyl D. West, former president of Tank Service; C. William Lee, vice-president, finance, at Tank Service; and Martin L. Rinehart, an executive vice-president with Tank Service. West became the CEO for Matrix, Lee became vice-president, finance, and Rinehart was appointed vice-president, operations. In 1988 the company formed a subsidiary, Petrotank Equipment Inc., and a year later Matrix Service Environmental Company was incorporated in Delaware as a holding company for the two units. In September 1990 the company adopted its present name, Matrix Service Company, and was taken public. PaineWebber Inc., Robertson, Stephens & Co., and First Analysis Securities managed an initial public offering (IPO) that sold 3.25 million shares of stock priced at $8 per share.
At the same time as the IPO, Matrix closed on the acquisition of Midwest Industrial Contractors at a cost of $22 million in cash, stock, and notes. Midwest Industrial provided maintenance and construction services to refineries and specialized in "turnarounds," the quick maintenance of a refinery's critical operating units. This transaction was just the first in a string of acquisitions Matrix made over the next four years, as part of a plan to diversify. In June 1991 the company paid $10.2 million for San Luis Piping Construction Co., Inc. and West Coast Industrial Coatings, Inc. to become involved in water storage tanks. San Luis Piping did fabricated plate work, and West Industrial provided sandblasting, coating, and other services in the maintenance of potable water storage tanks. In December 1992 Matrix completed a pair of acquisitions, picking up Colt Construction Company and Duncan Electric Company. Matrix looked north to Canada in 1993, acquiring Health Engineering. The Sarnia, Ontario-based company performed maintenance on oil storage tanks. Finally in 1994, Matrix bought Georgia Steel Fabricators, Inc. and its principal operating subsidiary Brown Steel Contractors, Inc., which designed, fabricated, and erected aboveground water storage tanks for both industrial customers and municipalities.
During this period Matrix also looked overseas for new business. In 1993 it forged a joint venture in the Kingdom of Saudi Arabia with Al-Shafai & Sons Constructors to provide maintenance on oil refineries. For decades the Saudis had relied on the export of crude petroleum but were now pursuing a long-range strategy of becoming a producer of refined petroleum. As a result, the kind of services that Matrix provided in the United States would be needed in Saudi Arabia. Al-Shafai & Son supplied $2.5 million worth of equipment and buildings and took a 51 percent controlling interest in the venture, named Al Shafai-Midwest Constructors Ltd. For its part, Matrix put up $500,000 in cash and a pledge to invest another $1.5 million if needed. Matrix also controlled four of the joint venture's seven board seats.
During the first ten years of its existence, Matrix enjoyed steady growth, and at first its expansion program appeared to position the company to reach the next level. For the year ending May 31, 1992, revenues totaled $86.5 million and net income reached $5.6 million. A year later, sales topped $123 million and net income increased to $9.2 million. Business fell off the following year, with revenues dipping to $103.8 million and net income to $4 million. Acquisitions would boost sales over the next few years, but profits would suffer as the company's diversification plan began to unravel. The Saudi Arabia joint venture also succumbed to poor economic conditions in the Kingdom of Saudi Arabia, which led to Al Shafai-Midwest Constructors discontinuing operations in 1995. For the fiscal year ending May 31, 1994, Matrix posted sales of $133.5 million and net income of $2.7 million. Although revenues grew to $177.5 million the following year, the company lost $189,000, due in part to the lost investment in the Saudi joint venture. For fiscal year 1996 Matrix returned to profitability, recording net income of $2.4 million on revenues of $183.7 million. Although sales receded slightly in 1997, to $183.1 million, the company increased net income to $3 million.
Restructuring and Continuing Development into the 21st Century
In 1998 Matrix acquired General Service Corporation and affiliated companies, which provided similar services and products. In addition, Matrix began to enjoy the benefits of a five-year contract with Chevron Corporation to modify and repair its above-ground refining, fuel marketing, and pipelines across the country. It was a massive responsibility, given that Chevron maintained 900 ASTs in its pipeline operations alone.
Despite these positive developments, Matrix was almost sold during 1998. In December 1997, Iteq Inc., a Houston-based company that provided equipment, systems, and services to process, treat, store, and transport gases and liquids, agreed to pay $10 a share, or $94 million, to acquire Matrix. Several weeks later, however, the two parties terminated the deal "due to unanticipated difficulties in connection with the expected integration of personnel from divergent corporate cultures." Matrix now embarked on an effort to restructure its operation, to cut costs, close redundant facilities, and improve efficiencies. As a result of the General Service acquisition and Chevron contract, revenue jumped to $225.4 million in 1998, but the company recorded a net loss of $11.6 million, caused by costs associated with the restructuring and the operating losses incurred from discontinued operations.
Business conditions, particularly in the water tank segment, were poor in 1999, leading to a drop in revenues. Before the year was complete, the management team was replaced. Mike Hall became the chief financial officer and Bradley S. Vetal was named president and chief executive officer. Vetal graduated Cum Laude from the University of Michigan with a degree in Mechanical Engineering and had been with Matrix since 1987. For the past three years he had served as vice-president of the tank division, responsible for all AST operations. In the words of the Tulsa World, Vetal and Hall took over a company that had pursued "a series of fruitless ventures and investments in non-core areas such as municipal water storage. Those businesses, which led to losses in previous years, were quickly shed after Vetal and Hall took the helm." The operations of Midwest Industrial Contractors were discontinued, as were the operations of San Luis Tank and West Coast Industrial Coatings. The municipal water tank subsidiary, Brown Steel, was sold to Caldwell Tanks Inc. for $4.3 million. Matrix also adopted a poison-pill anti-takeover plan and hired the investor relations firm of Carl Thompson Associates to create a proactive investor relations program to help maximize shareholder value.
Because of some of the steps Matrix took in 1999, revenues slipped to $211 million and the company recorded a net loss of $12.6 million. But the new management team was also in the process of developing a five-year plan to double the size of the company despite the selling off and elimination of noncore assets. Although sales fell to $193.8 million in 2000 and $190.9 million in 2001, Matrix returned to profitability, earning $6.6 million in 2000 and $4.6 million in 2001. While it did make an effort to diversify somewhat--in 2002 it began manufacturing parts for power grids--the company was preparing to take advantage of stricter environmental regulations about to take effect that would raise standards on the use of storage tanks by the gas and oil industry. Matrix was well positioned in its field, boasting a solid reputation and maintaining offices in all of the major refining centers in the country. It was the second largest builder of ASTs and the top provider of AST maintenance and repair services.
Acquiring Hake Group in 2003
Revenues increased to $222.5 million in 2002 and net income grew to $5.9 million. In 2003 revenues exceeded $288 million and net income totaled $8.2 million. Matrix was making steady progress, but it now took a step that would eclipse its five-year target in a single stroke. In February 2003 Matrix reached an agreement to buy Eddyston, Pennsylvania-based Hake Group, Inc. for $50 million, an acquisition that was the culmination of 18 months of work with Citigate Markowitz & McNaughton to identify companies that would provide a strategic fit for Matrix. All told, more than 240 companies were considered before Hake was singled out and its management expressed a willingness to sell to Matrix. In business since 1919, Hake provided industrial contracting services for the power generation, petroleum, chemical, and manufacturing industries. Not only did Hake's services nicely complement those of Matrix, the acquisition gave Matrix a major presence in the mid-Atlantic region and a strong relationship with high-quality customers. In essence, Matrix could now offer the same maintenance and construction services on the East Coast that it was already providing elsewhere in the country. The acquisition brought geographic balance as well as the addition of some capabilities the company did not previously possess. Moreover, Hake in its most recent fiscal year generated sales of $174.8 million and net income of $5.2 million. As a result, once the Hake assets were integrated, Matrix was in line to reach $500 million in annual revenues, an amount well above the five-year goal.
Wall Street showed its approval of the Hake acquisition by bidding up the price of Matrix stock. In October 2003 the company declared a one-for-one stock dividend on its common stock as demonstration of the board's confidence in the future of the company as well as to increase the number of Matrix shares in the marketplace and make it more attractive to investors. The company was enjoying strong business in fabrication and construction, but maintenance projects were unusually slow, as many energy companies, forced to spend money on upgrades to meet stricter environmental regulations that limited the amount of sulfur that oil refineries could include in gasoline, diesel fuel, and heating oil, were deferring preventive maintenance projects until cash became available. On the one hand, Matrix benefited from the stricter regulations because the company helped to clean emission from the smoke stacks of power plants and offered the equipment and expertise to help refineries in their efforts to cut sulfur levels. But because the maintenance and repair unit was saddled with high fixed costs, Matrix saw margins suffer. Management could still take comfort in knowing that repairs could not be delayed forever, and that the company would soon experience a significant rebound on the maintenance side of its business. Regardless, Matrix was well positioned to enjoy strong, sustainable growth for the foreseeable future.
Principal Subsidiaries: Matrix Service, Inc.; Hake Group, Inc.
Principal Competitors: Chart Industries, Inc.; Chicago Bridge and Iron N.V.; Denali Incorporated.
Further Reading:
- Alva, Marilyn, "This Firm Cleans Up, Thanks to EPA Regs," Investor's Business Daily, November 21, 2003, p. A04.
- Russell, Ray, "Tulsa, Okla.-Based Storage Tank Specialist Aims to Maintain Good Reputation," Tulsa World, January 11, 2002.
- Wilmoth, Adam, "Tulsa, Okla.-Based Petrochemical Services Firms Climbs on Acquisition," Daily Oklahoman, November 2, 2003.
Source: International Directory of Company Histories, Vol. 65. St. James Press, 2004.
