A Fall And Rise

The sale of Chemir Analytical Services to Evans Analytical Group in April for $23 million was a crowning moment for Chemir, a 52-year-old provider of problem-solving services to industry. After endeavoring on its own for a half-century, Chemir was becoming part of a much larger analytical services firm that had ambitious plans for growth.

But the press release announcing the deal only hinted at what Chemir employees had been through over the preceding year: financial turbulence, a takeover by creditors, and the demise of a sister company called Azopharma.

The saga of Chemir’s rise, stumble, and eventual new life with EAG is tied closely to the story of Shri Thanedar, a Ph.D. chemist with big aspirations. Over 20 years, Thanedar expanded Chemir from a three-person shop into a multi-million-dollar enterprise with three midwestern laboratories. He also created and grew Azopharma, only to see it get swept away in the wake of the 2008 financial crisis.

He hopes his story can be instructive—and, despite his setbacks, inspirational—to other scientists considering taking the entrepreneurial plunge. “A lot of people from scientific backgrounds hesitate to take risks,” he says.

Born poor in rural India, Thanedar arrived in the U.S. in 1979 to earn a Ph.D. in polymer chemistry at the University of Akron. After completing a postdoc at the University of Michigan in 1984, he got a research job in St. Louis with the additives firm Petrolite. The work was good, but Thanedar was frustrated to be stereotyped as a technician. He decided to enroll in an M.B.A. program and learn about business.

One day, Thanedar recalls, he started cold-calling chemistry-related labs listed in the local Yellow Pages. He soon found himself talking to Clara Craver, an expert in infrared spectroscopy who was looking to sell her small analytical chemistry company, Chemir Laboratories. He was intrigued. “She solved industrial problems,” Thanedar says. “People came to her to learn why a pharmaceutical ingredient has a bad odor, or why a competitor’s ballpoint ink dries faster.”

Realizing he had a lot to learn, Thanedar apprenticed himself to Craver. In October 1990, after six months under her exacting tutelage, he bought the company for $75,000. Sales in his first year were just $150,000. But Thanedar soon expanded Chemir’s services beyond IR spectroscopy to include other analytical techniques. He later started buying small testing labs.

The firm grew, and by 2003, its annual sales had reached $9 million. An increasing portion of revenues was coming from the pharmaceutical industry, so Thanedar carved out some of this business to create a separate company he later named Azopharma.

From 2003 to 2008, Thanedar built up Azopharma by acquiring numerous businesses that did methods validation, stability testing, animal research, and clinical R&D. His goal was to create a one-stop shop for customers requiring services in the early stages of drug discovery. “The company grew very rapidly and needed a lot of funding to support that growth,” he says. Thanedar eventually accumulated $26 million in loans.

Looking to step back from day-to-day business concerns, Thanedar hired seasoned managers to help run his two companies. In 2003, he brought in Phil Meeks, a former executive of health care supply company Cardinal Health, to head Azopharma. David W. Riggs, who had experience with Dow Chemical and Mitsui Chemicals’ Anderson Development unit, became president of Chemir in 2007.

By 2008, Thanedar says, he was thinking of selling Azopharma outright and devoting more of his time to philanthropy related to his native India. Although Chemir’s sales had leveled out at about $10 million a year, Azopharma had grown into a $55 million company with 300 employees and multiple locations throughout the U.S.

Thanedar hired William Blair & Co., a Chicago-based investment bank, to market Azopharma to prospective buyers. “My goal was to sell the business, pay off the bank loans, and continue to manage Chemir,” he recalls.

According to Thanedar, 21 offers came in for Azopharma. The highest, for $132 million, he says, landed on his desk early in September 2008, and he got ready to sell. Two weeks later, Lehman Brothers declared bankruptcy and the global financial crisis began. Not only did potential buyers get cold feet, Thanedar recounts, but funding for the biotech companies that were its main clients started to dry up. “Revenues dropped precipitously,” he says, “and I had difficulty repaying the bank loan.”

Thanedar returned to Azopharma as chief executive officer at the end of 2009. He tried to revive the firm by focusing on its core capabilities and bringing in more big pharma companies as clients. Thanedar says he was making progress but that his lender, Bank of America, ran out of patience.

“In April 2010 the bank put its foot down and said it wouldn’t work with me anymore,” he says. “They froze our accounts, and we lost access to cash. I had no option but to close the company.” The shutdown of labs and dismissal of employees were abrupt. Over the following months, assets and facilities were sold off. The closure became news when monkeys and beagles from a New Jersey animal testing subsidiary were shipped to shelters across the country.

Because Thanedar also owned Chemir, Bank of America had required him to pledge its assets as collateral for the Azopharma loan. When the bank took over Chemir it was a blow to Riggs, Chemir’s president, who says he and other staffers didn’t know until late in the game how indebted Thanedar was and what the debt’s implications were for Chemir.

But the bank’s executives were more optimistic about Chemir’s future than about Azopharma’s. Although companies taken over by creditors are typically liquidated, Bank of America decided to keep Chemir going and sell it. A U.S. District Court in Missouri, which oversaw the case, chose the turnaround consulting firm Morris­Anderson to be in charge of the sale.

Terry J. Bartz, a managing director at Morris­Anderson, says he could tell Chemir was special the minute he walked in the door. Although he was not involved with Azopharma, “you couldn’t spend a year at Chemir like I did without picking up the differences between the two companies.”

Bartz concluded that much of the analytical work Azopharma carried out for its drug industry customers was routine. “It used equipment to automate the process and do it faster and cheaper,” he says. “It competed on economies of scale.”

Chemir, though, runs a project-based business with a different pricing model. In his year at Chemir, Bartz grew to respect the creativity of its chemists and their ability to use standard lab equipment in ingenious ways. “They are creative and clever folks who can’t stand not solving a problem,” he says.

Working with Riggs, Bartz stabilized Chemir’s finances and got the word out to customers about what was happening. Interestingly, the outreach produced a spike in business. In fact, Riggs says Chemir managed to grow appreciably during its year under bank control.

Riggs, who is now senior vice president and general manager of EAG’s Chemir division, says business is thriving under the new owner. Since April, he reports, Chemir has spent $600,000 on nine capital projects, including the purchase of new spectroscopy, liquid chromatography/mass spectroscopy, and scanning electron microscope/energy-dispersive X-ray detector equipment.

At the time of the sale, Chemir had 77 employees across its three divisions—two in St. Louis and one in Ypsilanti, Mich. Today, Riggs says, it employs 84 people.

Chemir’s 2010 sales were about $13 million. With the backing of EAG and its owner, the private equity firm Odyssey Investment Partners, Riggs hopes to expand Chemir’s annual sales to $100 million within the next five years. Riggs says he has already evaluated five potential analytical chemistry lab acquisitions and that many others are under consideration.

Chemir continues to specialize in product failure analysis, including identification of contaminants, deformulation, and litigation support. Increasingly, though, it is assisting companies with new product development. For example, CAS-MI Laboratories, the Michigan division, helped develop the formula for IdeaPaint, a paint conceived by a Babson College student that can turn any surface into a dry erase board.

In addition, Riggs says, synergies are emerging with EAG, which specializes in surface analysis and materials characterization for the electronics industry. His staff is getting referrals from scientists in EAG’s 20 labs around the world. And although Chemir and EAG operate separately, they are working together to serve, for example, manufacturers of medical devices that incorporate both polymers and electronics.

As for Thanedar, he is now CEO of Avomeen Analytical Services, an analytical problem-solving firm that he cofounded last year in Ann Arbor, Mich., with his son Neil, a recent graduate of the University of Michigan.

With his son, Thanedar is creating a new company much like the one he built in St. Louis. “Avomeen’s business model is very similar,” he acknowledges. It has 10 employees, several of whom are Ph.D. chemists, Thanedar says, and annual sales of about $1 million. Within 10 years, he predicts, Avomeen will be as big as Chemir is today.

Thanedar doesn’t feel good about the demise of Azopharma and the loss of almost 300 jobs. Yet, other than sell the company earlier or diversify beyond its base of biotech industry customers, he says he doesn’t know what he could have done differently in the face of the economic crisis.

Thanedar insists he could have retired on the cash that remained after selling his businesses and paying the bank back. But the lure of starting a new enterprise was too much to resist. “It’s like mountain climbing,” he says. “It’s not the end that is fun as much as the process.” ◾