Maxim bites back

When US crane rental giant Maxim Crane Works went into Chapter 11 bankruptcy in June 2004, the rumours began to circulate, and the vultures began to circle

Maxim’s critics argued that it had got itself into a financial mess from which it would fail to emerge unscathed, largely because it was no longer run by “crane guys”. There was talk of a takeover, or of slicing up the company and selling it off piece by piece.

In fact, Maxim won approval for its reorganisation plan at the end of last year, and emerged from Chapter 11 on January 28 this year.

Unsurprisingly, therefore, the view from inside Maxim is very different from that of its detractors. Chief executive officer Art Innamorato told Cranes Today: “This was a very well organised bankruptcy. Our equipment vendors have all been paid. We took delivery of equipment last year – they have all been paid. There were never any strained relationships. The business picked up from June last year. The last half-year was the best six months the company has had in five years.

“We are quoting work all the time. We have increased our revenue since last June, and we haven’t had any issues with customers.”

Tony Marlin, Maxim’s VP of sales for the mid West region and manager of the Indianapolis branch, believes that, once they realised its plight, the company’s senior management put in place a well thought-out strategy.

He says: ”I think it was as seamless as any Chapter 11 entrance and exit could be, and because of that we were able to maintain the relationships, not only of our customers but also of our vendors because it was the intent to restructure our debt. It was never the intent to get out of paying any obligations.”

So did Maxim lose many customers as a result of the financial upheaval? An emphatic “no” from Innamorato, and Marlin confirms this from his perspective on the ground. He says: “I can only speak for the 600 or 700 customers that I know of, and I don’t know of one that we did lose. It was all very open and proactive.”

The crane industry is – more than most others – a people business, and Maxim has been criticised for being run by “MBAs” rather than “crane guys”. Innamorato rejects this accusation out of hand: “It can’t be. We have six operating regions run by senior vice presidents (see box). We are like any normal company. I have MBAs in my finance staff, and I have MBAs doing analysis, but this business is being run by guys that have 20 years plus experience in the field, and that has always been the case.”

He also denies that Maxim is losing many of its top people, another allegation that has been levelled at the company. He says: “It’s just not the case. I haven’t lost any of my senior VPs for three years.”

For Innamorato, the whispering campaign is unjustified and unfair: “What’s kind of funny is that a lot of the stuff that people wanted to talk about just wasn’t true. A lot of people were wishing Maxim would go away. The recession hit the United States marketplace in 2002. There’s a big oversupply of cranes in the market. They would love Maxim to go away. But we are doing very well.”

Indeed, Innamorato sees a bright financial future for the company. The original budgeted revenue for 2005 was $333 million, and cashflow before capital expenditure was $76m. Innamorato says Maxim is exceeding the budgeted numbers, although he is unwilling to divulge by how much, saying that the business’s stakeholders have yet to be appraised of the figures.

However, he adds: “Our capital expenditure for the year on a gross basis will be roughly $40m, and on a net basis (because Maxim will sell equipment too) $30m. So the company itself will have free cashflow (after capital expenditure) of $46m.”

Maxim emerged from bankruptcy with $195m in equity and $475m in asset values, and the starting debt was $280m. This figure is now less than $250m, says Innamorato.

He adds: “My leverage factor by year end will be below 3 to 1 (debt to cash flow). In the industry, that will put us at the top of the pile.”

He is not really interested in getting completely out of debt: “It probably makes no sense. When you generate excess cash flow you are probably better off returning money to your shareholders. A certain amount of leverage always makes sense.”

Innamorato also believes Maxim is set up to win more business in the months ahead: “Not all the crane companies are configured the same. We have a large fleet of crawlers. They have been 100 per cent utilised for the last three years. We have a fleet of tower cranes, which have been 100 per cent utilised for the last several years. A lot of the project work has picked up which has increased the utilisation of our big hydraulic truck cranes. That is Maxim’s sweet spot – the big mobile cranes where you need the expertise in project work.

“The more complex the problem the better Maxim is. I have some very experienced guys here. We are in power plants and refineries, and we have a very nice industrial customer base. We do a lot of project work for the largest industrial companies across the US.”

Innamorato warns, however, that the industry as a whole isn’t making the kind of money it needs to. “Manufacturers are raising prices worldwide, and that puts more pressure on the rental houses to increase rates. But, because of the oversupply of cranes in the market, the ability to increase rates is limited at this point in time. So everybody has to adjust, and to have a lower cost structure to be successful.

“What we have done over the last several years is address our cost structure very well [by cutting] head count, labour management, administration costs – all the other friction costs that go with running a business. We have skinned them down. We have therefore been able to improve margins. We are leaner, more efficient, and now that the utilisation of our machines has increased, our margins are going from 24 per cent to 28 per cent. We have had nice margin expansion.”

So, concludes Innamorato, having reached what he believes to be “the right equilibrium”, the only way for Maxim is up: “We have professionalised our business, and we now have the right combination of entrepreneurs and professional managers.”