With his boyish face and habitual bow-tie, Peter McCausland, 45, still looks like the young lawyer from Philadelphia‘s Main Line he once was. Only today, he’s the chairman and CEO of Airgas, the country’s largest distributor of industrial, medical, and specialty gases.
That wasn’t what McCausland had in mind in 1976 when he joined the U.S. subsidiary of a German industrial gas producer as in-house counsel. “I knew nothing about the industry,” he admits. But in a classic case of on-the-job training, he ended up running the company’s acquisitions program-and becoming enamored of the industrial gas business. In 1981, McCausland formed Radnor, PA-based Airgas, and the following year, he bought his first distributor.
As an outsider, McCausland had spotted an important trend: The owners of many distributors were retiring, and the rest faced mounting pressures from environmental requirements and spiralling insurance costs. The stage was set for consolidation. “We were in the right place at the right time,” he says.
Since then, Airgas has prospered by buying up 179 small companies in the fragmented industrial gas distribution industry. Its prime customers are small users who buy gas in cylinders-ranging from welders and medical clinics to food processors-and users of welding safety products. Sales, only $3.5 million in 1982, have soared to an estimated $680 million for the year ended March 31, 1995.
McCausland’s strategy is to eliminate overlap among his acquisitions, obtain economies of scale, and keep local management on board. “You need to be close to the customer, so we give a lot of autonomy to our 30 subsidiary presidents,” the CEO says. He also is giving them management training and benchmarks by which to run their businesses. Another incentive: shares in Airgas, which went public in 1986 (McCausland owns 16 percent) and recently were trading at $25 a share.
Boosted by continuing acquisitions, economic recovery, and 20 percent annual growth in the specialty gas business, McCausland’s game plan is paying off. Airgas posted a record $22 million in net earnings for the nine months ending December 31, up 59 percent from $13.8 million for the same period a year earlier.
Such numbers have attracted a crowd of admirers on Wall Street. Analyst James van Alen of Janney Montgomery Scott is predicting a leap of 35 percent in earnings per share for the fiscal year ending March 31, 1995. “It’s bringing on $30 million and $40 million companies now,” he says. “In the old days, it had to convince a guy doing $1.5 million a year that it was a viable company.” While there are other large independent distributors, no new competition is looming. The big industrial gas producers such as Air Products and Chemicals or BOC that might be serious contenders are focused on large bulk and pipeline users.
McCausland isn’t taking any chances though. With roughly 1,000 more small distributors still out there, and a considerable cash flow, his buying spree should continue for another five years. He’s also scouting for more hard products to distribute to Airgas customers.
Despite its phenomenal growth, McCausland emphasizes that Airgas is a “little bit here and a little bit there” business, whose average invoice is $114, compared with $2,500 for a large bulk customer. That clearly suits him, however. “There are no home runs,” he observes. “It’s a different mentality, and I’ve grown to like that.”