Koil Energy Solutions Inc. (KLNG)

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a great article on DPDW:

http://pressherald.mainetoday.com/story.php?id=193726&ac=PHbiz

Poised to ride wave of oil drilling

A Texas corporation buys the Biddeford company, growing its line of deep-sea products.

By MATT WICKENHEISER, Staff Writer
June 13, 2008

The Texas corporation that recently acquired Biddeford’s Flotation Technologies Inc. sees a bright future for the local company in the crushing depths of the sea.

Deep Down Inc. has been on an acquisition tear over the past year, acquiring Flotation Tech and two other companies that make products for the ultra-deepwater offshore oil drilling market.

The Biddeford company makes a variety of high-tech flotation devices that can survive the super pressures of the deep sea and provide buoyancy to drilling pipelines and other equipment, relieving stress.

Flotation Tech had revenues of $13 million last year, double the year before.

Robert E. Chamberlain Jr., Deep Down’s chairman of the board and chief acquisition officer, said he believes the product lines from each of the three acquisitions – including Flotation Tech – could grow to $100 million in revenue in the next three to five years.

“If we make our expectations on one of them, our story is a very good one,” said Chamberlain. “If we can do all three, it’s a stellar story.”

The most recent projections estimate that drilling companies will spend $79.3 billion in subsea projects between now and 2013, according to Steve Haag, Deep Down’s vice president of investor relations.

“The strategy of the company is we already know X amount is going to be spent. With the acquisition of more and more of these complementary businesses, it’s our goal to get a larger slice of the pie we know is already being served,” said Haag.

DEEP DOWN REVENUES UP

Deep Down has been around for 10 years and went public in 2006. It had profits of $952,509 in 2007 on revenues of $19 million, more than double its 2006 revenues.

Haag noted that already this year, Deep Down has announced a $5.5 million order and two letters of intent at $9 million each, totaling $23.5 million. The bulk of the $9 million deals are for buoyancy systems made by Flotation Tech.

Deep Down has no plans to move the business out of Maine, said Chamberlain.

“We’re going to leave it in Maine, expand it in Maine. We’re quite happy with the way the business is being run, and we believe through our relationships we can significantly increase the level of business there,” said Chamberlain.

For Flotation Tech, its acquisition for $23.3 million in a stock deal was the latest step in a structured plan.

Being acquired by a larger firm was always a plausible exit strategy, according to David Capotosto, company president.

In 2002, the company shifted its focus from its traditional concentration in the oceanographic science market. Flotation Tech made a conscious decision to get more fully into the offshore gas and oil segment, Capotosto said.

The firm had been a “good, solid” family business, Capotosto said. It had been in Biddeford since its founding by David Cook in 1979, and the company was profitable.

But the family was looking for both greater profit margins and market share in a sector that was sustainable, Capotosto said.

Flotation Tech got its ISO 9001: 2000 certification, an audit process that specifies the basic requirements for a quality management system that a business must meet to consistently provide products that meet customer quality needs as well as statutory and regulatory requirements.

The certification allowed it to bid with some of the bigger companies in the offshore energy market, because those firms often require suppliers to be ISO-certified.

The company also put together a supervisory team that included an operations manager; engineering manager; sales manager; and a quality, safety, health and environment manager.

“We basically were staging the company for growth,” Capotosto said.

Last year the company bought and moved into a building in the Biddeford Industrial Park, doubling its physical space to 45,000 square feet. It also doubled its work force to 67 employees today, working two shifts.

HIGH-TECH FLOTATION

Flotation Tech is a comprehensive business, with its own casting and mold-making lines, a machine shop, woodworking shop, metal fabrication capabilities and composites facilities.

The foam the company makes and uses in its products isn’t the stuff your coffee comes in. It’s syntactic foam, an engineered material that has hollow glass microspheres encapsulated in a resin matrix, providing buoyancy and strength.

The end products are engineered floats that can stand up to the 10,000 pounds per square inch of pressure found 7,000 meters under the ocean’s surface.

“There are some very smart engineers and some great designers here,” Capotosto said.

From the Cook family’s perspective, selling the business was one way to enjoy the fruits of labor while positioning Flotation Tech for sustainable growth, Capotosto said.

In recent years, as the family was approached about possibly selling the business, they quietly expressed interest, he said.

Last fall, Deep Down emerged as a suitor, Capotosto said. Deep Down met the family’s criteria: It was an established company, and becoming part of it would add value to both businesses.

Deep Down also was committed to leaving what had been built in place.

Deep Down sets up undersea operations for oil and gas companies, and also sells products for those operations. The company has been a customer of Flotation Tech for years, Capotosto said, using the buoyancy systems to take structural stress off the equipment.

Now Deep Down has Flotation Tech’s products lines as part of its comprehensive offerings, and the two companies can work together on sales, hopefully getting more business together than they could separately.

When it comes right down to it, the two companies match up on a very basic level, said Capotosto:“All of their stuff sinks, and all of our stuff floats.”

Staff Writer Matt Wickenheiser can be contacted at 791-6316 or at:[e-mail]