In 1900, Colin Charles Patrick left Amherst College in Massachusetts and followed New York Tribune editor Horace Greeley’s advice to “go West, young man.” Patrick eventually made his way to Portland, OR. While Portland was no longer the major west coast seaport — losing out to Seattle once the railroad connected the nation — it was still a bustling town and host to the 1905 Lewis and Clark Centennial Exposition. It was the sort of place that would draw a young person seeking his fortune.
The lumber industry was king in the Pacific Northwest as the U.S. expanded into new territories and demand for wood products soared. In 1915, Colin Patrick, his father Jack Patrick and their partner William Brusoff founded Patrick Lumber Company. The company celebrated its 100th anniversary last year having weathered two World Wars, the Great Depression and the Great Recession. Patrick buys the rough lumber, sends it to a re-manufacturer to kiln-dry it, resurface it and cut it up. The company ships west coast softwood, including pine, hemlock, cedar and Douglass fir around the country and across the globe to meet the needs of the construction industry.
It is a close-knit company where sons join their fathers and nephews join their uncles in the business. And once they join the business, they stay until retirement.
CFO Mark Auxier has been with Patrick Lumber for 10 years. He can provide a laundry list of employees who have been there for 30, 35 and 40 years — an unusual situation in our current era of job hopping. Auxier points out that Board Chair Pat Burns is the grandson of the founder. At Patrick, the company executives are also partners. When new members join the board, they buy out the shares of retiring members, keeping ownership private.
Difficulty Attracting Young Talent
“We’re all in this business. Everything we have, our livelihood and the majority of our net equity is tied up in the business,” Auxier says of Patrick Lumber and its management team.
But convincing new talent to come on board was becoming more difficult because of the personal guarantees that were part of the covenants supporting Patrick’s line of credit with Umpqua Bank.
“It’s very hard to attract ownership into the business with personal guarantees attached to the credit facility. We were thinking it was going to be really hard to try to sell them to a millennial today,” says Auxier, adding that it must be difficult to explain to a significant other that your home could be turned over to a bank in the event of company financial trouble.
The personal guarantees and other traditional covenants disappeared in March when the company signed a $20 million ABL facility with U.S. Bank, which had been courting Patrick Lumber for about eight years.
According to Bob Alexander, senior vice president for U.S. Bank’s Asset Based Finance Division in Portland, U.S. Bank works with other companies in the trade and lumber industries. “It is a space we know and understand. Patrick Lumber is a distributor that fits in with our clients.
“We did a lot to highlight the fact that U.S. Bank fit with Patrick Lumber,” he adds.
Building a Relationship
Over the years, Alexander, his predecessors and his team members called upon Auxier regularly to see if he was ready to make a switch.
“We are relationship focused, and we worked with senior management to get comfortable. They really wanted to know the bank. They went through a long decision process, and they had a lot of people who got on board with that process. Eventually, we made a compelling case.”
Auxier notes that many bank executives maintain regular contact with him because “you never know what could happen.” He acknowledges that U.S. Bank has “serviced the lumber business for a long time. They always wanted our business. And when we turned them down three years ago, they came back to me and asked what they’d have to do [to get our business] because we were on their must-have list.”
At the same time, Patrick Lumber was looking for a way to finally get rid of the personal guarantees that were hampering its growth. Before the company could make a move, Auxier had some work to do.
“We spent a year buying out our senior shareholders and cleaning up some balance sheet stuff. We did the sale/leaseback on the building and our property and got some term debt off our books. Then we were right for an ABL deal. It’s a little more reporting, but we can handle that,” Auxier says.
During the interim, other banks also tried to woo Patrick Lumber.
Considering Other Suitors
“We did talk to Wells Fargo,” Auxier recalls. “And obviously Umpqua wanted to keep our business. But it was the right time to make a move. Wells put in a very competitive deal pricewise, and the covenant structure was easy for us to meet. But they still wanted personal guarantees attached.”
That was the deal breaker. Alexander at U.S. Bank was sensitive to this issue.
“One of the reasons that Patrick has survived over 100 years is that they nurture new leadership and allow them to participate in ownership. As they retire they need to buy back their stock. We listened closely and structured a facility to meet their needs,” he says.
Auxier admits that he had avoided ABL deals in the past because of the oversight involved.
“I think with the ABL deal there is a lot of scrutiny. They do inventory appraisals, they come in and audit you. They do a net orderly liquidation valuation. They ask a lot of questions, and it just makes you dive deeper into your business and understand your business a little more. I’ve always stayed away from the whole ABL thing because of the extra reporting and the work that goes with it, but at this point it’s what makes sense for us.”
Neal Johnson, vice president of U.S. Bank, Portland, admits that “an ABL is a little bit more work, but once you get it set up, it becomes easier, and I think we demonstrated that the benefits outweigh the upfront time investment. A lot of people find that management benefits from the upfront process.
“During the long courtship, we got to know what was important to Patrick. Because it was so long, we got to know them very well, and it was very helpful that we knew what their bottom line was and what they needed.”
In the end, Auxier says that the change to the new bank went more smoothly than he had anticipated.
“I was pleased with that. I was pretty hard on them in the negotiation phase, but we just kept chugging along, and they wanted the deal.”
Auxier also has found other benefits to using a large bank like U.S. Bank. About 17% of Patrick’s business is export, especially with neighboring Canada, and the bank is giving him a better rate on foreign exchange than his previous vendor.
While Auxier reports he is very pleased with the outcome, he adds wistfully, “I’m hopeful that it’s the last bank deal I ever do in my career. Because they take a lot of time, and they’re really hard.”