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Mr. Cool: Nalco CEO Erik Fyrwald

Erik Fyrwald gets Nalco fit for growth

Erik Fyrwald was comfortably ensconced as Dupont’s group vice president of agriculture and nutrition when Nalco, a relatively obscure provider of water treatment services and chemicals came calling. “My first inclination was to say, ‘Tell me why I should be interested?’” he recounts. “‘I’ve got a great job, a business that’s growing great guns, and I love what I’m doing.’”

But when Fyrwald poked into Naperville, Illinois-based Nalco a bit he grew intrigued. In the 81-year-old, $4 billion-plus company he saw a parallel to a Dupont archrival: Monsanto. “They went from about $5 billion in market cap to $45 billion in five years,” he says. “Nalco is not quite at the starting point of a Monsanto, but there are a lot of similarities—a leading market position, [a presence in] very important markets, some very good technology and strong service capabilities.” Fyrwald found the potential irresistible; he joined the firm as CEO in February 2008.

Nalco, which dubs itself a “green tech” company, provides water, energy, air and process technology and services that help companies squeeze more efficiency out of boilers, power plants, refineries, paper mills and other processes—reducing energy and water consumption and operating costs. A market leader with more than 70,000 customers in 130 countries, Nalco operates in two realms: water and process services (covering a range of industries) and energy services (targeting oil companies).

“Our biggest competitive advantages are our 7,000-plus service engineers and our automation technology,” says Fyrwald. “For example, our 3D TRASAR technology lets us trace exactly what impurities are in [a cooling tower’s] water and respond with the appropriate treatment on a 24/7 basis.” The process guards against the fluctuations in scaling and corrosion and microbial film buildup—which in turn can reduce heat transfer efficiency and waste energy.

At oil refineries, Nalco engineers work on-site monitoring crude oil. When the oil grows too acidic, they apply additives to neutralize levels that would otherwise corrode overhead condensers or tubes. If it becomes too viscous, they add flow enhancers that will prevent solids from clogging pipes. A relatively new area for the company is its BrightWater Enhanced Oil Recovery technology, a patented process to enhance oil recovery. “After you get about 25 percent of the oil out of an oil well, the pressure drops and it’s harder,” says Fyrwald, explaining that oil companies then drill pump water down into the oil field to push oil to the well opening, which boosts recovery but yields a mix of oil and water. “Eventually, you get so much water that you can’t produce oil anymore.”

Enter BrightWater. “Over the past 10 years, we’ve worked with oil companies to develop a polymer that plugs up the water channels so that you can increase production by 25 percent or more,” explains Fyrwald. “After six years of testing we commercialized it last year.”

But along with the upside potential of patented technologies like Bright-Water, Fyrwald inherited problems. The cash-out strategy of prior private equity owners—Blackstone Group, Apollo and Goldman Sachs—had saddled Nalco with debt. “Until a few months ago our biggest concern was $887 million in debt due next November, coupled with a declining economy and frozen debt market,” says Fyrwald, who was able to take the pressure off with a $1.25 billion refinancing in May of 2009. “We still have high debt, but we’re going to keep free cash flow growing and pay it down.”

It’s a formidable goal. Fifty-five percent of revenues come from markets outside of the U.S., and many of Nalco’s customers are struggling along with their home economies. Fyrwald admits that ongoing economic turbulence could hinder his goal of boosting Nalco’s annual real revenue growth from its current base of 3–4 percent to 6–8 percent by 2011.

“This recession is the worst many of us have ever been through,” he says. “We sell roughly the same amount whether a customer is running a plant at 100 percent capacity or 60 percent, but we’ve seen some customers shut their plants down completely.”

Nalco is looking to ride out the storm by trimming costs. “We call it the ‘Get Fit’ program,” says Fyrwald. “We set a cost-savings goal and got everybody on board by saying there will be no salary increases in 2009, but everyone can get 4 percent of their salaries—2 percent at midyear and 2 percent at yearend—if we’re on track.”

Fyrwald credits that incentive program, coupled with dire economic conditions for employee enthusiasm around the initiative. “People understand that we need to move faster than we otherwise might have moved to redeploy resources and get inefficiencies out of the system,” he says. “That’s the positive side of this miserable time we’re in.”

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