This year's ILMA Engage event saw industry experts gather in Fort Lauderdale, Florida, to share insights on the lubricants industry's biggest trends. Among them: George Morvey, Industry Manager of Kline's Energy sector, who took the stage to discuss "How the Landscape is Shifting in Favor of ILMAs.
Commencing with this article, each month we will shine our spotlight on a confirmed or potential M&A candidate, sharing our point of view – and expertise – on the opportunities that we see. This month, in our inaugural offering, we focus on OQ Chemicals and its potential divestiture by parent company OQ.
OQ, an integrated energy company that is wholly owned by the Government of Oman, is currently considering divesting OQ Chemicals (formerly known as Oxea), a German company that it acquired eight years ago from private-equity owner Advent International for slightly over USD 2 billion. At the time of purchase, Oman sought to tap into increasing demand for oxo-based chemicals.
OQ is now looking to use its energy assets to raise money and reduce a budget deficit that skyrocketed during the COVID-19 pandemic, which severely impacted oil prices and tourism within Oman. To help offset the negative effects of the economic downturn, the company initiated a number of OpEx (operating expenditure) and CapEx (capital expenditure) optimization projects. In divesting OQ Chemicals, OQ, like Saudi Aramco and other Gulf oil producers, seeks to capitalize on a rebound in crude prices to attract foreign investors. Discussions about the potential divestiture of OQ Chemicals are ongoing, although there is no certainty that they will result in a sale.
Positioning and Performance
OQ Chemicals, a leading manufacturer of oxo-intermediates and oxo derivatives, is recognized for its integrated production platform of oxo aldehydes and oxo aldehyde derivatives such as oxo-alcohols, polyols, acids, esters, and amines. These products are used in the manufacturing of a wide range of products, including paints, coatings, adhesives, lubricant additives, cosmetics, pharmaceuticals, flavorings and fragrances, printing inks, plastics, and animal-feed products. Among OQ Chemicals’ downstream oxo derivative products, its amines and esters have the highest rolled margin.
OQ Chemicals’ business achieved net revenue of 1.056 billion euros in 2020. Earnings before interest, taxes, depreciation, and amortization (EBITDA) were in excess of 10% in each of the company’s segments, with an overall average of 12%.
Why We Consider OQ Chemicals an Attractive Purchase
“OQ Chemicals has a growing international footprint, with strategically positioned production sites in which it has made significant investments,” says Hardeep Parmar, Vice President of the firm’s global M&A and Corporate Development practice. The company serves attractive growth markets in attractive regions, making it quite nimble.” OQ Chemicals is also very technically astute, observes Parmar.
“Another factor very much working to OQ Chemicals’ advantage is that the field in which it competes is not very crowded,” says Dilip Chandwani, Head of Kline Management Consulting’s Process Industries and Manufacturing Competitiveness practices. The company is one of the four leading producers of oxo intermediates and oxo derivatives globally among top players like BASF, Eastman, and Grupa Azoty.
It’s not yet clear what effect the Ukraine/Russia war will have on the industry. "Germany,” says Parmar, “where OQ Chemicals has two manufacturing plants, is vulnerable to Russia disrupting — or even completely halting — the country’s supply of natural gas due to Germany’s refusal to pay for its supply in rubles.” Germany currently obtains more than 50% of its natural gas from Russia and has stated that it will not achieve full independence from Russian supplies before mid-2024. As such, Parmar believes that oxo-alcohol prices will likely continue to rise, particularly in Europe.
Parmar also sees potential challenges stemming from the cyclical markets OQ Chemicals serves, in addition to the availability of raw materials, price sensitivities, and increasing competition in Asia.
Because it already has a presence and strong brand awareness in Asia, OQ Chemicals may appeal to a major feedstock producer looking to go downstream. Private-equity firms may also be interested in supporting OQ Chemicals’ growth into a global stand-alone player.
How We Can Help Potential Acquirers Vet This Opportunity
Kline has a strong appreciation of oxo-aldehyde and derivatives including alcohols, polyols, acids, esters, and amines through end-use application markets. We may be the only specialty chemicals consultancy worldwide that has access to experts across the entire value chain, from raw materials and products to end-consumer markets. Our technical and commercial capabilities across the value chain enable us to support clients in assessing opportunities for growth within this space, identifying risks, and mitigating against risks.
Our analysis capability includes assessing:
- Competitive technical and market landscapes
- End application markets and customers
- Technology and operational benchmarking
- Growth opportunities
- R&D activities
- Business models
About our M&A practice
Kline’s M&A practice provides advisory services for buy- and sell-side mandates, in addition to project finance support. Services are built around integrated competency platforms that include acquisition-led growth strategies, commercial and technical due diligence, manufacturing competitiveness, deal origination, and capital-raising support.
About this article
Parmar, Vice President of the firm’s global M&A and Corporate Development practice, has worked with Kline for approximately seven years and holds specific expertise in commercial engagements across the chemicals value chain. Her experience includes delivering buy- and sell-side due diligence support, in addition to independent market consulting services through to strategic growth assignments. Prior to Kline, Parmar spent more than 15 years in chemicals consulting, working with clients in Europe, the Middle East, and Asia.
Chandwani heads Kline Management Consulting’s Process Industries and Manufacturing Competitiveness practices. He has more than 40 years of experience in a variety of process and manufacturing industries and has assisted numerous clients with market analysis, technology and manufacturing competitiveness, performance improvement, and identifying/evaluating new business opportunities. During his 30 years with Kline, Chandwani has helped clients grow their business and improve profitability.
Content Marketing Manager
Kline & Company
Breaking barriers, challenging tradition, and exceeding expectations – Kline Consultant Liya Zeng talked about all that, and much more, as a panelist at the ICBS Asia Business Club's discussion on "Women in Business" last week.
The group, which provides resources and networking opportunities for students interested in business topics and career opportunities in Asia, exists under the umbrella of Imperial College Business School (ICBS) in London, from which Zeng received an M.S. in Management. And, as she detailed during the panel discussion, her road to higher education – and the life she wanted to lead – wasn’t exactly a smooth one.
“I'm from a very small town – like a Tier-6 town – in Guangdong Province in Mainland China, and my family is quite traditional,” recounted Zeng, who now lives in London. “In traditional Asian families, girls are told what they can do and what they cannot do.” The “can’t do’s” included things as benign as whistling in public (it wasn’t “ladylike”), while the “can do’s” included learning to cook (after all, a girl would someday have to take care of a husband and children).
With such limited plans for Zeng’s future, it may come as a surprise that her family had little issue with her desire to attend college (but just wait – there’s a catch). At first, Zeng enrolled at a pharmaceutical university as a nursing major before swiftly realizing her interests lay in business. But in China, a change in studies isn’t easy.
“I couldn’t transfer to any other program except one – it was an exchange program focusing on international marketing,” she recalled. Her first three years of college would take place in China, and the last would occur in the United Kingdom – a prospect that brought its own set of challenges.
A WHOLE NEW WORLD
“I had been in a small town for the first 20 years of my life,” Zeng said. “I hadn’t been to any other country – I hadn’t even been to any other province. I’d never traveled anywhere. And, of course, my parents didn’t believe it was okay for a girl to travel alone.”
But travel alone she did. During her studies in Leicester, Zeng followed the path of management consulting after being inspired by a professor; after graduation, she stayed in the U.K. for an accounting internship, then went back to China for another internship at Deloitte Consulting. Along the way, she decided that a master’s degree would be imperative to obtaining work as a consultant, so she began “secretly” applying to programs.
Why the covertness? Zeng said she knew her parents would oppose her intentions because a master’s would be overkill; while they supported her endeavors to obtain an undergraduate degree – remember that catch? – they didn’t think she’d actually use it.
“My dad was fine with an education, but he said that a career isn’t important,” Zeng recalled. “He said, ‘You should just get a guy and get married – that's the most important thing.’ And I said, ‘Even if I get married, I still need my career, right?’ And he said, ‘You don’t have to. If you marry a man who is rich enough, you can just be a housewife.’ That’s the kind of environment a lot of Asian females grew up in.”
Before long, though, Zeng’s father came around and endorsed her pursuit of a master’s in the U.K.; her mother, not so much.
“She told me, ‘If you were a boy, I would support you – but you are a girl,” Zeng remembered.
Tough words, but they caused no acrimony. “In China – or maybe South China – parents are more willing to invest in boys rather than girls,” Zeng said. “It’s very hard to blame my parents for how they felt, because they grew up in that environment. I understand them, and I know where their beliefs come from.”
WOMEN SUPPORTING WOMEN
Despite her mother’s objections, Zeng headed for Imperial College. She got her master’s degree and, in July 2019, was hired as a consultant in the Energy practice of Kline & Company. Immediately, Zeng knew she was at the right place.
“I’ve got two bosses who are female. Kline is very good on that end – or I’m just lucky with Yana and Annie,” Zeng said, referring to Vice President of Energy Yana Wilkinson and Vice President of Energy Management Consulting Annie Jarquin.
Probably a little of both: As we proudly touted on International Women’s Day earlier this month, 54% of Kline's top leadership is female, and a full 100% of Kline's industry verticals are led by women.
It was Wilkinson, in fact, who once helped Zeng over a major hurdle in her life – a story she recounted at the "Women in Business" discussion when asked how she balances her career with family.
“My mom was not well last year – she needed a major operation – so I was struggling a bit,” Zeng recalled. “I wanted to go back to China to take care of her. Yana supported me. She said, ‘Yes, you should go.’ So in the end, I managed to get to China for five months to stay with my mom, and I continued working, remotely, until she recuperated.”
With such strong female support, Zeng told the ICBS audience, she felt immediately welcomed as a female professional. And despite initial trepidations about being a newcomer in London, Zeng said the capital of the U.K. turned out to be “a very diverse city where there’s a lot of inclusion, and people respect each other.” Instead, perhaps surprisingly, she said her biggest challenges come from the person you might least expect: herself.
‘WE NEED TO CHANGE THAT MENTALITY’
“It was not easy for me to change my mindset, personally, to go from a girl to a businesswoman,” Zeng said. “In Asian culture, we were taught that you should not be too aggressive, and that influenced me. At first, I was relatively quiet – I thought that I had to observe what other people were saying, what other people were thinking, instead of talking myself. Even now, I sometimes have trouble when I want to speak up; I’m still learning to overcome this mental barrier. And I want to encourage everyone who has had similar experiences to be brave, to challenge traditions and challenge that mentality.”
“Women are never alone in this mental dilemma – a lot of us deal with it,” she continued, before noting that even her Kline contemporaries have had challenges working in the Energy sector, which is predominantly male. “Yana and Annie are my role models – they’ve shared their own stories with me. They had to make a lot of effort to achieve what they have today.”
Zeng has help other than that from Wilkinson and Jarquin.
“I'm reading a book called Nice Girls Don’t Get the Corner Office. In it, the writer gives a model,” she said, before laughing at her use of the word “model” and noting that it comes from her consultant’s mindset. “There are four main steps in the writer’s model, and the first step is being aware. The first step for change is always awareness. And now I’m aware of my own behavior and thinking, so I can gradually make more changes. I look forward to implementing all of them – making myself an experiment and seeing many more changes in me and my career.”
And with that evolution, the girl who was once forbidden to even whistle is singing a happy tune – all while ensuring that she shares everything she’s learned with other women. In fact, she’s on the executive committee for Chinese Women in the City (CWIC), a non-profit organization of 500+ members that empowers female professionals of Chinese heritage. She also established a club called Chinese Consultants in the U.K., which has 100+ members of Chinese consultants working in the management/strategy consulting area.
“Our events focus on the challenges women face in the business world, how to empower women, and how to fit in despite cultural differences and gender issues,” Zeng said. “And most of all, we talk about how, someday, we’ll finally break the glass ceiling.”
With 2021 squarely in the rearview mirror, we are identifying which trends will impact the new year, bringing heretofore unseen changes and curveballs. Among 2022’s most significant:
- Beauty giants finding power in sustainability transitions
- Brands making strides toward social and environmental justice
- Growing expectations of professional hair care consumers and stylists
- A rise in consumer spending on higher-priced products
- Beauty retailers adapting to new consumer behavior
So what else is on the horizon? In Beauty’s Brightest Trends: A Look Into 2022 and Beyond, we answer that question — and much more.
With What’s Next in the Chemicals Industry, we provide a “sneak preview” of where our experts believe some of the greatest changes — and opportunities — lie in 2022. They include:
- M&A to support consolidation and portfolio rationalization
- Sustainability performance improvement
- Waste utilization, with the industry currently witnessing an uptick in alliances between chemicals and alternative companies
- Electrification of the steam-cracking process
These are just a few of the exciting new frontiers. Look for other upcoming content to keep you up-to-the-moment on new developments and opportunities throughout the year.
With 2021 in the rearview mirror, Kline is identifying which trends will impact the new year, bringing heretofore unseen changes and curveballs. Among the most significant: the end of the ICE (internal combustion engine) age for personal mobility in most parts of the world, triggered by the increasing popularity of EVs (electric vehicles) as consumers demand cleaner, greener options in their now-substantial interest in sustainability. But with progress comes challenges: a rapid expansion of charging infrastructure is essential, and oil companies now face several threats, including the inevitable contraction in their fuel and lubricants businesses.
So what, exactly, will comprise the charging infrastructure? And how will oil companies respond to their new dilemmas? Kline answers those questions in What’s Next in Personal Mobility: A Look Into 2022 and Beyond, in addition to providing an overview of digital technology — and more.
If there were an award for strongest trending topics in 2021, semiconductors would be among the top contenders.
Rightly so, considering their use in so many applications, such as automobiles, wireless communications, personal computers, servers, and electromedical and various other digital technologies. As the “smartness” quotient in end-use applications continues to climb, chip demand similarly continues to experience robust growth. The COVID-19 pandemic served to further bolster this momentum, as remote operations of manufacturing and service sectors placed even greater demands on connectivity and digital hardware — to the point where manufacturers began stockpiling chips for the integrated circuits (ICs). In contrast, the just-in-time (JIT) modelled supply chains of the automotive sector froze the procurement of chips during the initial lockdown phases of the pandemic.
As the automotive sector began recovering in the second half of 2020, the industry was forced to compete with other growing end users of semi-conductors, the supplies of which were impacted due to the pandemic-fueled factory shutdowns in countries like Malaysia. Even after chip manufacturing operations resumed in Q4 2020, supplies failed to keep up with the burgeoning demand — despite the maximization of utilization rates of global manufacturing assets. Unfortunately, industry pundits do not expect the situation to be resolved anytime soon.
Over the last two decades, original equipment manufacturers (OEMs) have been working relentlessly toward transforming their automobiles from primarily mechanical machines to electronic devices. Integration of electronics in the vehicle hardware, like the drivetrain, controllers, infotainment, ACES (autonomous, connected, electric, and shared) mobility, and safety systems — for expanding the vehicle functionality and optimizing performance and safety, while complying with emission norms — necessitated the increased use of semiconductor chips. This trend is apparent from the growing content of semiconductor chips in automotive electronics over the last five years.
HISTORICAL GROWTH OF SEMICONDUCTOR CONTENT PER VEHICLE
SOURCE: IC Insights
IC: integrated circuits; OSD: optical, sensors and discrete.
Further, growing penetration of battery electric vehicles (BEVs) and hybrids — which incorporate a greater number of integrated circuits and sensors and, consequently, higher semiconductor content — will further amplify the stress on the chip supply chains.
AVERAGE CAR SEMICONDUCTOR CONTENT BY POWERTRAIN ($)
Other include semiconductor content in body, chassis, safety and infotainment, opto, small-signal discretes, and memory
Despite the strong recovery in demand, automotive production has been severely impacted by the unavailability of chips, with many global and regional OEMs — like Toyota, Honda, Ford, GM, Tata, and Nio — announcing production cuts or complete shutdowns of select assembly plants. LMC Automotive forecasts a decline of 8% in light vehicle sales in 2021. Further, due to the expected longer recovery path, light vehicle sales for 2022 and 2023 have also been revised downward, by 8% and 3%, respectively. These developments will have a profound impact on the entire automotive value chain. According to AlixPartners, a consulting firm, the semiconductor chip shortage will lead to a loss of USD 210 billion for the global automotive industry in 2021.
FORECAST FOR LIGHT VEHICLE SALES
Impact on the Lubricant Industry
Looking forward, the lubricant industry will not be immune to changes in the automotive industry; both automotive and industrial lubricants will be adversely affected. This will have strong implications for the lubricant suppliers, against the backdrop of changes in customer ambitions, preferences, and buying considerations.
On the B2B front, the volumetric impact on factory fill volumes for engine oil, transmission fluids, grease, coolants, and other lubricants will be immediate and certain due to its direct correlation with automobile production. In addition, the demand for factory maintenance fluids and metalworking fluids (MWFs) in assembly plants and auto-component manufacturing facilities will be gradual and uneven — depending on the structure, operations and maintenance, and supply chains of OEMs and auto-component manufacturers.
Typically, the production line is comprised of a complex integration of many rotating pieces of equipment and machines, ranging from CNC machine tools to hydraulic and geared motor systems to compressors to robotics. Based on the operation, manufacturers use a combination of central lubrication reservoirs and isolated sumps for lubricating equipment. Low utilization or partial shutdown of the plant does not directly translate into a clear, measured decline in demand for factory maintenance fluids or MWFs. In the case of the latter, calculations for modelling the impact are more complex due to defined shelf life, which is governed by biological activity and individual company practices/processes for producing machined parts. Among MWFs, the impact on straight oils and premium water-miscible removal and forming fluids will be relatively easily to decipher due to higher application-specific end-use and independent reservoirs. The impact on conventional MWFs might vary depending on the auto-component supply chains and sourcing models of the OEMs. Preventive and treating fluids will be impacted to the extent of their exposure in the metal auto-components industry and mandates issued by automotive OEMs to the component suppliers for fluid use.
Trends in the automotive industry will have a cascading impact on the upstream raw material industries, like metals, rubber, and plastics, where the demand for general industrial oils and process oils will be affected. Further, the slowdown in the processing industries will have a direct impact on the extraction industries, like mining, refining, and petrochemicals, where the lower utilization rates will affect the consumption of the various lubricants used in both stationary and mobile rotating equipment.
On the B2C front, the implications will be broader. The longer wait times, along with rising input costs, including fuel, will have repercussions on the market for new automobiles and the aftermarkets. All these factors will play on the customer’s mind, resulting in contraction of the pool of new buyers, or buyers being forced to compromise on their original purchase aspirations, i.e., selecting either a pre-owned vehicle, or a low-tiered model of the OEM, or choosing a different OEM in the same vehicle category. These changes will all impact the demand for automotive lubricants — volumetrically and qualitatively. Sales of light-viscosity premium engine oils like 0Ws and 5Ws will be impacted as customers opt for heavier and economical grades of engine oils, while maximizing the life of their new vehicles or newly acquired used ones. Similarly, the use of premium greases utilized in fill-for-life components and in transmission fluids will be affected.
Channel volumetric flows will also not be immune to these changes. OEM dealerships will suffer losses in their service business or will experience a dispersion of the in-warranty vehicle footfalls as customers shift their OEM preferences for purchase of new vehicles, depending on the waiting period. The used-car market is also experiencing structural shifts in many regions, with the rapid expansion of the organized business, along with the ratio of new-vehicle sales versus preowned vehicles increasingly skewing toward the latter. The IWS channel will clearly benefit from the growth in average life of the vehicles due to this short-term trend. Further, as the business models of used-vehicle providers mature, they will expand their value-added services, including vehicle maintenance and services to customers, which will emerge as an important channel for lubricant sales.
The table that follows provides a simplified view of the impact the semiconductor shortage will have on lubricant consumption in various end-use sectors, along with the type of lubricants impacted. The scale and length of impact for lubricants will vary depending on the structure and profile of the customers that comprise the end-use sector, the operational and sourcing practices, and, ultimately, the business exposure to the automotive value chain.
RELATIVE IMPACT ON LUBRICANT CONSUMPTION
Through ongoing research, Kline’s Energy team continues to expand its understanding of the interplay between various end-use sectors and applications of lubricants for simulating the real-time impact of these industry developments on the lubricants industry and adjacencies in the short, medium, and long terms. We are continuing to track various developments linked to the evolution of the ecosystems, specific customer needs, technology advancements, digitalization, and sustainability for defining the existing and new opportunities, in order to support the growth ambitions of our industry and clients.
About this article:
When the Chips are Down, Being Overly Smart Doesn’t Help features insights from Satyan Gupta, a director in Kline & Company’s Energy sector. Gupta, who is based in the firm’s Delhi office, has more than 13 years of management consulting experience in areas such as new market entry and feasibility, channel and customer acquisition strategy, market-opportunity mapping, and price and sustainability analysis. Prior to joining Kline, Gupta worked in the Natural Gas industry as a technical-commercial consultant.
Challenged by the pandemic, the professional beauty market made some of the boldest moves toward digitalization. Consumers turned to social media for education on products and at-home beauty routines. Most of the conversations centered around wellness and self-care while bringing the professional beauty experience home. Professionals increased the practice of virtual consultations to continue interacting with clients and selling throughout the shutdown. Marketers moved toward e-commerce and increased their presence online to continue selling while retail outlets were closed. While the industry was severely impacted, brands such as Olaplex, ZO Skin Health, and Revision Skincare continued to enjoy healthy growth. In this report, we discuss some of the biggest wins and losses in the professional beauty industry so far.
What’s inside the report?
- An overview of the industry’s performance with snapshots for salon hair care, professional skin care, and professional nail care
- Notable changes and key developments along with the fastest-growing brands
- Future view of the industry highlighting areas with a high impact
Over the last six years, we have seen an evolution and broadening of actions that consumers have adopted, in varying degrees, to take better care of themselves. In particular, the 2020 pandemic intensified the resolve of most all consumers to do something to care for themselves. In fact, 93% of those surveyed by IRI and Kline’s most recent consumer survey in late 2020 view health and wellness as a priority to a degree.
With more consumers across all demographic and psychographic characteristics engaging in a broad range of activities to take better care of themselves, what does this portend regarding future demand for consumer healthcare products in both wellness and treatment? This paper explores that very question.
Download The Consumer Self-Care Explosion: Implications and Opportunities for Wellness and Treatment Products to learn about:
- Emerging self-care themes that are contributing to a groundswell of consumers taking ownership and control of their health
- Self-care behaviors across a continuum, with wellness and maintaining good health on one end of the spectrum and needing doctor and hospital care on the other
- Preventive and natural products that are being placed alongside treatment-focused products within the category assortment on shelf
- The various actions marketers could take to help consumers simplify and foster daily health regimens aimed at wellness
That’s certainly one way to describe Kline & Company. Since its inception in 1959, the NJ-based firm has fought its way through many of the economic crises that muddled other enterprises, but it’s also squared off in a pair of bitter internal battles and faced a solid slice of adversity, all the while becoming a leader in market research and consulting. Now, looking back at their Kline careers, CEO Joe Tarantola and some of the most senior members of his staff are discussing the secrets of their resiliency, what challenged them the most, and how the company managed to attain the world’s latest technology – even back in the ’80s.
“When I got to Kline, there was a Wang computer – it was about six feet long, three feet wide, and three feet high, and it was sitting in the middle of one of the open spaces,” Tarantola says of the then-top-of-the-line machinery. “It was used as a typewriter, basically, with a screen.”
He also mentions a Telex (just Google it) and recalls the day that he, a consultant at the time, was called into a conference room with a slew of senior executives, including the company’s founder, the late Charles H. Kline. There, the suits were making a “monumental decision” on whether or not to buy a new piece of equipment: a fax machine. It gets better – Tarantola also vividly remembers the day he “almost got fired”…for buying a pen plotter.
“It’s a device that would grab a piece of paper and then physically grab different colored pens to draw pie charts and bar charts,” he says. “I went out and got one, and by the time I got back to Kline, Charlie was absolutely livid. But those were the kinds of things that we were trying in the very early stages. We just kept pushing the envelope.”
Eventually, Tarantola’s efforts to modernize the company paid off, as he successfully convinced Mr. Kline to invest in an IT department. His plans, however, were railroaded by unhappy circumstances, and the company soon faced its first major challenge.
“Charlie got sick and sold us to a venture capital firm, and that was a disaster,” Tarantola remembers. “That’s when I was just getting up in the ranks, and I kind of led the revolt to buy ourselves back and pay them off.”
But the internal clashes over ownership, direction, and “control” – a word Tarantola says he, in general, is loathe to use – weren’t over. As the mid-’90s approached, there was, as now-Senior Vice President Eric Vogelsberg puts it diplomatically, “senior leadership whose personal interests were ahead of what was best for the firm.”
Tarantola is more blunt, saying that Kline’s management committed a “high-power betrayal.”
THE SECOND ‘REVOLT’
“They decided that they wanted to sell us to whoever would give them the right amount of money,” Tarantola says, adding that he and three of his fellow board members – Vogelsberg, now-Senior Vice President Susan Babinsky, and former SVP Ian Butcher – “didn’t even know” of the plans. “What became apparent to us was, they couldn’t care less who they sold us to and what they left us with in terms of our jobs and our futures. They were just trying to cash out. And look, I get it – I really do. But I was looking to my left and my right down the hall, and these were all my friends. If they came to us and said, ‘Here’s what’s going to happen to you guys. You’re going to plug into this bigger thing – your jobs will be enriched; you’ll have more opportunities. Here’s the plan; here are the strategies...’ But no one came to us with that. It was a money play. And I don’t know where it came from, but I just said no. I led another revolt to say, ‘You can sell the company, but we’re not going with them.’”
His coworkers quickly galvanized around him – “more quietly than me, probably,” he says – with Vogelsberg, Babinsky, and Butcher agreeing that they would “take care of our people.” Eventually, the four – who, like Tarantola, had started as consultants – won their war and gained control of Kline. But there were battle scars.
“That took a lot out of our growth trajectory,” Tarantola admits. “When companies were expanding quickly in the ’90s, we were dealing with these internal battles. And for me, that was an opportunity lost during a great economic cycle – we lost what I think was a very important growth stage.”
Still, Tarantola says, the future seemed bright. “We finally got ourselves owned by our people and were going in a direction that was not about someone getting rich. We finished buying those guys out and gave them a party in July of 2001. Then two months later, I was looking out the window, and it was 9/11…”
‘THE WORLD JUST STOPPED’
Now, looking back 20 years after the terrorist attacks that nearly devastated America, Tarantola realizes that September 11, 2001, was, in fact, Kline’s first “real battle.”
“What happened to us as a company was insignificant compared to the tragedy as a whole, but that was really the first economic crisis we had to deal with,” he says. “Before that, our biggest struggles were internal ones. But after 9/11, we didn’t get a consulting project for six months. The world just stopped because nobody knew what the hell was going on. I’m not sure I was ready for that. I’m not sure anybody was ready for that.
“We just hunkered down. Yes, we had to make some cuts. But to me, one thing about this group is, we’re battle hardened. You learn certain things, and the biggest thing I think people need to recognize is that it’s all about cash flow – your money. We got through it, and we got through it as a team. We were all in this little rowboat together.”
Indeed, that rowboat continued to sail – and soon set its compass overseas as a new trend began sweeping the industry: globalization.
“Many companies were contemplating whether they should expand internationally,” recalls Li Wang, who now serves as Senior Vice President of Kline Asia. “The risks were obvious, but we had foresight and courage. We decided to, one by one, set up offices around the world; today, our geographical footprint is an invaluable asset.”
The global expansion began with China in 2004.
“I pounded at the senior team and said, ‘Let’s do this. I can promise you – we’ll break even the first year in China if you let me do it,’” Tarantola recalls. “They said, ‘Oh, okay – if we’re not going to lose money, then go ahead.’ But you have to understand, I didn’t know what the hell I was doing. We just got on a plane; we met little companies and government businesses and tried to figure out what we were going to do. And we made some right decisions, but honestly, we just got lucky.”
A key cog in the machine: Wang, who was willing to head up offices in China.
“Brother Li volunteered to go,” Tarantola says, before swiftly explaining of Wang, “I call him Brother Li, and he calls me Brother Joe. When he said he would go back to China and run the business group there, that was it. How could I have hired a stranger in China? But Brother Li said, ‘I’ll go and do this little adventure with you’ – I still remember the email he sent saying he would – and that was a big deal. Once we did that and were successful, it emboldened us to really expand.”
And expand they did: Kline then spread its reach to India when, along the lines of Wang, Ali Khan volunteered to head up offices in Delhi/Gurgaon in 2006; he now serves as Managing Director of Kline India.
“That territory is a big piece of the engine now,” says Tarantola, noting that a Hyderabad office opened in 2012. “Then we wheedled our way into Eastern Europe. That became Prague. We got into Oxford next and then moved into London, getting all these great people we have there. Strategically, the center of gravity for companies is moving East, and I think, pretty soon, you could argue that London is a very important place for us.”
THE GREAT RECESSION’S ‘SHARED PAIN’
There were more bumps along the way; one of the biggest was the Great Recession that began in 2007.
“We did pay cuts,” Tarantola says. “The highest cuts were among the most senior people, down to a pretty nominal number for admins. But it was shared pain instead of firing people.”
And throughout it all, team members were kept apprised of any – and all – happenings.
“One of the most important things to do in such situations is to communicate frequently and very transparently,” says Babinsky. “We made sure to foster esprit de corps and explain all that we were doing to keep Kline viable. That hadn’t been done in the past, and the rank and file were often left in the dark. When Joe took over, we agreed we would never be that way again.”
Indeed, Tarantola says, “We all talked a lot. I learned to be a better communicator during the recession, and it did make a difference. When people don’t hear anything, they assume the worst – that’s human nature.”
Other challenges tested the stability of Kline’s core. Among them: the departures of key staff members.
“We lost some critical leaders about 10 years ago,” Babinsky recalls. “It was not expected and was a setback. It took a while for us to rebound and determine a path forward – it was challenging.”
“It left a massive hole that we had to backfill,” he says. “That one totally blindsided us. We moved some people around and, mostly, moved people up – maybe a little before they were ready. Because, for the most part, we don’t bring in senior people very often. We’ve always kind of developed them. It’s a homegrown mentality here. If we can push somebody into a job before they’re ready for it rather than hire somebody above them, I’m going to make that choice almost every time.”
And in 2020, along with the rest of the world, Kline began dealing with the COVID-19 pandemic. Once again, the company faced the crisis with as much aplomb as possible.
COVID-19 – AND HOW IT STRENGTHENED KLINE
“I think we have navigated the pandemic as successfully as we could have to this point, as earlier crises provided learning experiences,” says Vogelsberg. “We focused on maximizing employee retention and minimizing cash outlays by taking judicious management of expenses such as travel, entertainment, rent, and leases. At the same time, we took advantage of any incentives offered by various governmental agencies.”
It helped that the nature of Kline’s business allowed its employees to work from home, which Vogelsberg believes only improved the company’s offerings. “I would go so far as to say that the pandemic helped strengthen our relationships with colleagues and clients, as we’re able to often provide very personal insights and perspectives via technology like Microsoft Teams and Zoom video conferences,” he adds.
Speaking of technology, the Wang computer is long gone. Today, the list of Kline’s high-tech accomplishments is extensive. Perhaps the most impressive: All its servers and systems are Cloud-based, putting Kline in the first 5% of companies to be entirely on the Cloud – ever. And despite the pandemic still unfolding – plus a past that left more than a few war wounds – the team at Kline remains ready for whatever may come next, with little fear of failure.
“If you’re not failing, you’re not trying,” says Tarantola, who – this month – marked his 40th year at Kline. “I’ve made so many mistakes, but I have one rule: Never make the same mistake twice. Yes, we’ve tried things that were failures – but none of those mistakes was so big that it really set us back. And one of the things I’ve learned, to be quite honest, is that I don’t have any fear.”
That, surely, comes with the decades of ups and downs tucked under his belt – plus a crew that’s sailing in Kline’s now-bigger rowboat with a well-deserved sense of ease. After all, Tarantola says, “You just have to stay calm and stick to the mission.”