San Antonio-area industrial-vehicle maker gets new life, lands $62M Marine Corps contract

A couple of years ago, Cibolo’s Kalmar RT Center LLC was part of a European conglomerate that no longer wanted to own it.

Kalmar had been producing each month a dozen 118,000-pound rough terrain vehicles that can move shipping containers on unpaved surfaces. But that business had virtually disappeared.

The U.S. military no longer needed to add to its fleet of roughly 1,000 vehicles, and a move to expand into the commercial market had limited success. Kalmar axed 130 from its 200-person workforce.

Cargotec, Kalmar’s Helsinki, Finland-based owner and the maker of cargo-handling machinery, hung a for-sale sign on the business in 2016. And while many defense firms kicked the tires, none wanted to own it.

“For two years, we were the poor little bride trying to get somebody to take us,” said Stephen Speakes, a former Army lieutenant general who joined Kalmar as CEO in 2013. The company has a 13.3-acre facility on Guadalupe Drive.

Speakes acknowledged the manufacturing of what’s a “fairly industrial product” didn’t present a “huge growth opportunity,” likely a turnoff for prospective buyers.

“It’s not as if you’re going to put one of these in every person’s garage,” he said.

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Kalmar teetered on the brink of shutting down before it struck a deal with two Dallas-based private-equity firms that partnered with company management in 2018. The buyers renamed the company Independent Rough Terrain Center LLC, or IRTC.

The new owners saw a company that had produced some 1,300 rough terrain container handlers over its 20-year history. Providing parts and service for those machines alone creates cash flow that gives the business some stability, said Travis Baldwin, a principal of Congruent Investment Partners LLC. The firm teamed with Independent Bankers Capital Funds to buy the business.

The real upside, though, is in obtaining contracts to rebuild the machines and equip them with the latest technology and functions, Baldwin said.

That came to fruition last month when IRTC won a $62 million contract to perform a “service life extension program” or “SLEP,” on the Marine Corps’ 117-vehicle fleet.

Company officials hope that contract will serve as a springboard for performing similar work on the Army’s much larger fleet of 900 rough terrain container handlers, or RTCH. (Company officials pronounce it as “Retch,” while those in the military say “Ratch.”)

Good times end

The Marine Corps contract was welcomed news at a company that had been mired in a distressed state leading up to its sale.

Speakes joined the business just as the good times were ending. Manufacturing of the vehicles had slowed to a trickle in part because war-time spending had diminished, he said.

While serving in Operation Iraqi Freedom, Speakes learned first-hand the difficulties combat troops have getting supplies delivered intact. Half the water bottles and other supplies transported in shipping containers suffered breakage, he said.

“We needed a vehicle that took this container to the point of use,” he said.

Speakes later went to work at the Pentagon where he served as the “financial strategist” for the Army. He testified before Congress about the Army’s funding.

In 2009, Speakes entered civilian life and joined USAA as its enterprise executive vice president for transformation and strategy. He reported directly to then-CEO Joe Robles Jr.

“It was essentially to realign the company in ways that were thought to be in keeping with their changing corporate model and their vision of an integrated approach to the member,” Speakes said of his USAA role.

Robles eventually sacked Speakes. It led Speakes to write a book, titled “From Hero to Zero, and Back!” a primer for veterans on the lessons he learned transitioning into civilian life.

“In the book, like the second page, I said Joe called me and said, ‘Steve, we no longer need your services.’”

Speakes didn’t remain unemployed for long. Kalmar’s U.S. board of directors hired him to take the helm of the company in October 2013. (Foreign companies with Defense Department contracts must have a board comprised of U.S. citizens to make operational decisions.)

Commercial market

With military contracts going away, Kalmar had entered the commercial market by building red rough terrain container handlers. It built vehicles for the oil-fracking industry, allowing companies to haul sand in huge boxes. But it faced stiff competition.

When Speakes came on board, commercial vehicles were still rolling off the assembly line even though Kalmar had no buyers lined up. He pulled the plug on that within a few months on the job.

The company’s strategy: “We’ll make them and the commercial world will flock to buy them,” Speakes said. “It doesn’t work that way. A dream is not a strategy.”

Kalmar hung on by offering parts and services, but it didn’t have an extensive parts inventory. Its owner treated it as a cost center when the military contracts dried up, Congruent’s Baldwin said.

“The focus wasn’t as much on profitability as it was on controlling costs,” he said of Kalmar. “It was kind of in a tough state. In a lot of ways, the ambition of the personnel had been constrained by the structure in which they operated for years.”

Cargotec put Kalmar on the block, saying it didn’t fit with its core operations. Speakes contacted Broadway Bank CEO David Bohne, a former colleague at USAA, and asked if he knew of any private-equity firms that might want to buy Kalmar.

Bohne referred him to Congruent and Independent Bankers Capital Funds, which is an investment vehicle for community banks.

The firms looked over Kalmar not long after Cargotec put it up for sale. Baldwin believes Cargotec negotiated with other buyers.

“We hung around the hoop, and we built a really good relationship with Steve and the management team,” Baldwin said. “Ultimately it came our way.”

Cargotec publicly reported it sold Kalmar RT Center for about $9.3 million while booking a nearly $4.8 million loss on the deal.

On its website, Congruent disclosed it invested $13.5 million of debt and equity to acquire the company. That includes money to bolster the company’s balance sheet and parts inventory.

“And the reason is, the government says, ‘I want my stuff and I want it now,’” said William “Bif” Mott, IRTC’s director of customer solutions, explaining the importance of increasing inventory. “You’ve got to have an inventory that supports the Army at the rate they want it.” Otherwise, it will take its business elsewhere.

Mott bought back at auction for $32,000 one RTCH that had been owned by the Marines. IRTC is overhauling it and will use it as a prototype for what the Marines will be getting.

Rebuilding the RTCH

The upgraded RTCH features a new computer system, including for the steering and transmission. It also will get a radar that detects nearby objects. Its fuel economy has been increased by 17 percent, reducing the time spent refueling. It’s also more “ergonomically friendly,” said technician Steve Stephens.

“It handles loads faster. It’s more productive, so you can get more out of it as far as moving the cans,” Mott added, referring to the 20- and 40-foot shipping containers. The vehicles can lift containers weighing as much as 53,000 pounds.

The Marines gave another company Speakes wouldn’t identify a RTCH so the Corps would have competition in the bidding for the $62 million SLEP contract. Speakes described the company as “ferocious because they’re really big.”

Still, IRTC won the contract. As a small business, IRTC is more attractive to the Defense Department, Speakes said.

The Marines looked at replacing its fleet with new vehicles but opted instead to rebuild its existing fleet — more than a decade old — and extend its usefulness until 2030, said Mike Farley, team lead for the Marine Corps System Command’s Material Handling and Construction Equipment Team in Virginia.

“It would cost us probably — this is just a guesstimate — between $1.2 million and $1.4 million per new machine,” he said. “We can do these roughly (for) $500,000 a SLEP. So we’re actually saving the government a significant amount of money.”

As for how long IRTC’s private-equity owners will hold on to the company before selling it, Congruent’s Baldwin said it has no time frame. It typically keeps an investment for five or six years.

“There’s a stigma out there that private-equity firms just buy companies, come in, slash head count to improve profitability, and then flip the businesses,” he said.

That’s really not the case with companies like IRTC in the “lower-middle market,” which he defines as those with less than $100 million in annual revenue.

“Businesses of that size, there’s really not that much waste,” Baldwin said. “It’s usually the opposite. Businesses have been under-invested and therefore haven’t reached their potential. So we come in and bring on personnel to help drive growth. That’s effectively what we’ve done here.”