I have been engaged to perform a business valuation for a powder coating operation in the Midwest and am contacting you to gain some insight into the industry. In particular, the viability of the fluidized bed method of powder coating.
The shop I am valuing performs thermoplastic applications using only the fluidized bed method of powder coating. The type of parts it currently coats include kitchen appliance parts, parts used in sterile trays used for surgical instruments and wire cages. It has recently lost business to the electrostatic process. In reviewing various web sites such as www.pfonline.com and the Powder Coating Institute, it seems much more literature is available for thermoset applications using the electrostatic process.
I would like to know if the fluidized bed technology remains viable in the industry or if end users are migrating to other processes. If the process remains viable (as I imagine it does for applications that need a thicker coating for functionality over appearance), is the market for this process growing or is it in decline? Are there parts that lend themselves well to this application? Any industry in which fluid bed powder coaters are looking towards for growth?
The shop I am valuing uses a very labor-intensive process of hand dipping the small parts into the powder. The equipment is mostly homemade. Based on this, the barriers to entry seem low. Does the process lend itself to automation or new technologies?
Are there any trends toward consolidation in this industry? Are larger companies purchasing these small powder coating businesses? It seems that this shop has also lost business to stamping houses that have purchased their own powder coating lines. D. D.
There are limited applications for applying thermoplastic powder coatings using fluidized bed. I expect that this market is around 5–8% of the entire powder coatings market. The largest portion of the market is electrostatic spray of thermoset powder coatings. The reasons for this have nothing to do with thinking that one technology is "better or worse" than the other. They are just different and used on different products. Thermoplastic powder coatings are typically applied as functional coatings with some aesthetic properties (usually color), while thermoset powder coatings are typically applied as a paint replacement (often selected for their color with functional properties considered secondarily). The good news is that for wire goods (i.e. the type of products that you are describing), thermoplastic powder coatings are most often used and they are most often applied on these products using fluidized bed technology.
The problem with your client’s business is that both the cost of the fluidized bed and the cost of the powder it takes to fill the bed prohibit offering very many powder coating choices. This is especially true with very large fluidized bed systems where the bed may have 10,000 pounds of powder or more in it. Changing powder in the bed is very difficult and having many additional fluidized beds this size is very costly. So if your potential customer has a need to coat their parts with what you have available, then great! Otherwise increasing your customer base is pretty difficult.
Offering unlimited coating choices, on most all products, is relatively easy when applying powder coatings using spray apparatus. Changing powders, or colors, is often accomplished in minutes with spray equipment. Spray equipment can be fitted with special nozzles and set-up to coat most all shaped products. This makes more potential coating opportunities available using spray powder coating equipment. However, if you are looking for a thick functional powder coating (more than 10 mils) on your product (especially wire goods) the only reliable way of applying it is to use a fluidized bed.
Automation for fluidized beds is available at a high entry cost. This is mainly due to the dipping motion of the product, which must be performed using a hoist (programmable or manual), a power-and-free conveyor (using a lowerator), a walking beam conveyor (or a "Square Transfer" conveyor) or moving the bed up and down. All this equipment is very costly to purchase and operate.
The powder coating market, in general, is maturing and is tightly tied to manufacturing. If products are not being manufactured, they don’t need to be coated! Manufacturing is trending towards moving "off-shore" in most industries in the United States. Both of these facts mean that the opportunities for growth in the powder coating market are limited. This can be seen in the reduced number of systems installed in the United States in the last couple of years (50–70% of what was installed in 2000) and the reduced volume of powder coatings sold. So you are right to assume that there is some consolidation in the powder coating industry at this time. However, frequently this consolidation does not include buying smaller companies by larger ones. The larger companies just steal the business from the smaller companies using their own equipment.
As for stamping houses getting into powder coating, many fabricators are installing their own powder coating systems to offer other in-house services to their customers. It allows them to provide "one-stop" shopping to their customers and minimizes their customers looking for lower cost alternatives since these may not offer the powder coating on their product for the same price.
I guess if I were looking at buying the business you describe, I would be looking at the customer list to establish how stable they are, what are their long-range product plans, are they committed to staying in the United States and so on. If these answers are all good then buy the business; if not, walk away.