From the 8-PAC Editor: This is an inspirational story of what small bidniz’ “CAN DO”!
Written by MBN USA
“It’s very difficult to do business with large companies if you don’t have scale.” – Willie Johnson, Chairman
Companies buy other companies all the time, so it appeared to be business as usual on the day PRWT Services, Inc. completed its acquisition of Cherokee Pharmaceuticals from Merck & Co. Inc. True, it was a long and arduous process, from due diligence to signing on the dotted line. Even Pennsylvania Governor Ed Rendell personally recognized the deal as a good one.
It represented a giant leap for supplier diversity in an industry few minority entrepreneurs have entered. With the purchase of Cherokee, PRWT became the first minority-owned manufacturer to venture into the arena of custom chemical manufacturing. The company also became a friendly neighbor to the towns of Danville and Riverside, Penn. where the sprawling Cherokee campus is located. PRWT offered jobs to all of Cherokee’s 400 employees on the payroll, will invest $15 million to upgrade the facilities and will bring in an executive staff experienced in pharmaceutical manufacturing.
Merck, maker of Zocor©, Singulair© and Gardisil©, came out on top, too. The company had identified Cherokee in 2005 as one of five sites to be closed or sold as part of a global restructuring to better align its manufacturing operations with anticipated product demand. It found a buyer capable of maintaining and even improving the Cherokee facilities and, in the process, completed another step in the realignment. Merck also boosted diversity in its supply chain by signing a multi-year contract, worth up to $200 million annually, to buy active pharmaceutical ingredients (APIs) from Cherokee.
This was also a turning point in a business that PRWT company chairman Willie Johnson, who considers himself less a mogul than a social worker, started 20 years ago. PRWT Services provides business process outsourcing (BPO) and facilities management services, primarily to government agencies.
“The acquisition of Cherokee gives us three things,” Johnson said. “It gives us scale. We are now a $197 million-a-year company. It’s very difficult to do business with large companies if you don’t have scale.
“It also makes us a Tier I contractor. We can deal directly with our clients,” he continued.
“And it opens new doors for our business process outsourcing and facilities management services. We’ve done quite well with government contracts, but this gets us into the private sector.” And that means, most likely, more growth.
“We were looking for a growth industry,” said Skip Lee, PRWT’s executive vice president of business development of life sciences. “Life science is one of those industries, so Cherokee was a very attractive opportunity for us.”
Cherokee, a state-of-the-art manufacturer of APIs, stands to make gains as well. PRWT brought in John Elliot, a chemical engineer who has 25 years of experience in pharmaceutical manufacturing with GlaxoSmithKline and will lead the upgrading of the site, 86 buildings on 330 acres, as it becomes what is envisioned as a life sciences campus that will include research and testing facilities, warehouses and distribution operations.
The process was a two-way street, with Merck and PRWT fully vetting each other. Richard Spoor, senior vice president, global procurement for Merck, said finding the right buyer was paramount.
“We were faced with the challenge of removing the Cherokee site from our core manufacturing network, while maintaining our supply chain, remaining competitive, and keeping our good standing in the community by finding a suitable company to take over operations at the site,” he said. “We took other prospective buyers through the facility, then we discovered PRWT and thought it was a good alignment.”
Still Spoor and other Merck officials had a few concerns, particularly since PRWT had no experience in the highly complex pharmaceutical industry.
Rookies at the gate
PRWT’s Lee, who spearheaded the due diligence and acquisition efforts, had similar feelings. “That’s why it took us two years to determine whether this was a good fit,” Lee explained. “We were vetting them and they were vetting us, and I don’t think either one of us ever thought failure was an option. Merck’s vision was to stay in the community and maintain the staff of experienced workers.” “Could they do API? Did they have scale? Did they have technical capability? How would the deal be financed? Those were just a few of the questions,” Merck’s Spoor added. “We spent two years, as did PRWT, going through these issues.”
Once the wrinkles were ironed out, PRWT saw the need to position itself for growth and greater demands. In addition to hiring John Elliot to lead Cherokee Pharmaceuticals, PRWT enhanced its own executive leadership team by appointing Harold Epps as president.
Epps had significant experience in various manufacturing-based sectors. He was formerly vice president, supply chain, for Quadrant Engineering Plastics Products, a global manufacturer of plastics specialties in the form of semi-finished products and finished components.
Additionally, PRWT and Cherokee are developing plans to further utilize the site by developing a life sciences campus, including a strategy to acquire, warehouse and distribute materials.
“Although our relationship with this plant and the community has changed, we felt a responsibility to the area to ensure the new owners would carry on Merck’s history of manufacturing quality products and corporate commitment,” said Willie Deese, president of Merck Manufacturing. “We look forward to continuing our relationship with the Riverside and Danville communities through our partnership with Cherokee Pharmaceuticals.”
Deese said Merck was careful to find buyers with similar values and noted that PRWT’s plans for the facility will give it an even greater presence.
“In PRWT, we have found a buyer who is committed to the Cherokee site and the Danville/Riverside community, and committed to being an important part of Merck’s external manufacturing network,” Deese said. “I’m also pleased that PRWT understands and is compatible with Merck’s culture, our respect for people, our belief in diversity, our commitment to safety and the environment – and our focus on maintaining the quality standards for which Merck is known.”
The Cherokee site has been a fixture in the Riverside/Danville area for almost 70 years. It was built during World War II to provide chemicals to the United States government for use in explosives.
After the war, the site lay dormant until 1950 when Merck leased it from the government. In 1965, Merck bought the property and made extensive improvements. Since 1995, Merck has modernized the property many times, erecting new structures, including a new power house, technical operations building, emergency services building, administration building, warehouse and cafeteria. Under its new ownership, the property will continue to change. According to Elliot, Cherokee’s plans for further expansion into life sciences include fine chemical distribution. “We have the warehouse space and a great location on the I-80 corridor,” he explained, where several pharmaceutical firms, chemical companies and universities are located. “We can test, store and ship.”
High-fives all around
The acquisition and the supply contract are victories for both PRWT and Merck. PRWT has pushed its own envelope by branching into new territory while Merck has found a minority-owned API manufacturer with the scale to meet its needs.
“It’s very difficult to find an MBE large enough and with appropriate capability,” Spoor said. “We’re satisfied that Cherokee is a capable supplier and can help us boost our purchases from MWBEs to 14 percent of total spend in 2008.”
Epps said, “In addition to entering into the burgeoning life sciences industry, PRWT is now in a position to invest in and grow our core businesses. Our agreement with Merck quadruples our revenue base and gives us the national scale to leverage our BPO and facilities management businesses in industry sectors where we didn’t have access to before, including commercial sectors.”
Johnson added, “The acquisition of the Cherokee plant is consistent with PRWT’s vision of growing the company by expanding into new markets, services and lines of business. By establishing a presence in the life sciences market, PRWT can now participate in an industry with tremendous growth potential and establish a strategic supplier relationship with Merck, one of the premier pharmaceutical companies in the world,” he continued. “This is a winning situation for everyone involved.”