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Domtar Acquires EAM: A Perfect Match?

By Phillip Mango, President of Phillip Mango Consulting | June 5, 2012

Company looks to expand adult incontinence business with new airlaid producer.

EAM is a small, hydrogen bonded airlaid producer, initially founded as part of Rayonier in 2001 for the main purpose of selling fluff pulp. Rayonier developed the hydrogen bonding technology, and created a business plan to commercialize airlaid core for baby diapers. This plan called for a larger airlaid plant to be built within three years using 100,000 metric tons of fluff pulp. Aside from selling pulp, this plan would have multiplied Rayonier’s profit margin by three to four times.

The baby diaper market for airlaid never materialized; Rayonier eventually decided it wanted to be a REIT (Real Estate Investment Trust); and a small, 10,000 metric ton airlaid line no longer fit its future plans. In 2005, Rayonier sold EAM to Kinderhook Industries, LLC, a private equity firm, for about $13 million. Seven years later, after having extracted millions in annual profits, Kinderhook sold EAM to Domtar for an announced $61 million.

“The acquisition of EAM Corporation will give us long term research capabilities to further differentiate our full line of adult incontinence products while integrating the best available technology to grow our existing businesses,” says John D. Williams, Domtar president and CEO. “EAM’s patented airlaid manufacturing process provides the performance, quality, and cost competitiveness that we believe to be keys to success in the personal care market.”

As a $5.6 billion integrated pulp and paper company, Domtar is the largest integrated marketer of uncoated freesheet paper in North America. Within the last year, the company acquired a large, multinational adult incontinence business, Attends, and an airlaid nonwovens business in EAM.

Domtar is not the first pulp and paper company with single digit profit margins to look with envy at its nonwoven and consumer products customers that have much higher profit margin.   But a good idea alone is never enough; it’s the implementation of that good idea that leads to success. Domtar’s plan seems to be a good one, both for obvious reasons and for reasons less obvious.

The company is in a good position to sell more fluff, and increase margins. Domtar produces fluff that it can “sell” directly to Attends and EAM. EAM can convert some of that pulp to adult incontinence core, which it can then “sell” to Attends. Attends and EAM are both higher margin businesses than Domtar’s market fluff pulp business. Competitive and technological advantages also accrue when key parts of the supply chain are owned.

Domtar has said it wants to grow its hygiene businesses aggressively, saying when it bought Attends that it hoped to double this business in five years. The EAM acquisition expands its options and ability to follow through with that goal.

First, the company must grow its airlaid business. The Attends plant in Greenville, NC, is large and two thirds empty (when Procter & Gamble sold the Attends business, it removed its other businesses located there). This is an ideal location for a second airlaid line, to supply both Attends and other customers.

Second, either through further acquisitions or organic growth, Domtar will grow its adult incontinence business. A secure raw material base and added research and development assets will help.

Third, the company will use EAM’s business and technical expertise in other hygiene markets, notably feminine hygiene, to increase fluff sales as well as position itself for future opportunities. This balance requires Domtar not alienate large current customers as it becomes a producer in new, large hygiene markets. Perhaps one of the large hygiene producers would prefer to get out of the manufacturing business and only market the product. Or perhaps one of the large hygiene producers eventually decides to exit the business completely. Domtar is now better positioned to evaluate such a move.

Finally, Domtar refers to itself as “The Sustainable Paper Company.” With EAM, the company has acquired one of the most sustainable nonwoven technologies in the world.

Phil Mango is president of Phillip Mango Consulting. He has more than 30 years of experience in nonwovens, including positions with Air Products & Chemicals, Walkisoft USA and Concert Industries. In 1997, he co-founded Airformed Composites and designed, built and ran an airlaid line near Charleston, SC. Shortly after the sale of Airformed Composites to Concert Industries, Phil left to start his own consulting business with special emphasis on hygiene, wipes and packaging markets.