Volume 45 Number 1
Aldex Chemical’s Al Preuss Speaks Up
In ion exchange, there are tradeoffs. That's what the whole business is about. You can work for some of the largest corporations in the world, such as Dow Chemical, Rohm & Haas or Bayer A.G. Or you can set your own course.
Al Preuss chose the latter -- twice.
The rural Midwest native worked at Rohm & Haas in Philadelphia after earning his doctorate in chemistry at the University of Wisconsin in 1953. His thesis was on separation of rhenium from molybdenum for use in automobile catalytic converters. Under Dr. Robert Kunin, author and editor of Amber Hi-Lites (considered the bible of ion exchange), he specialized in extracting uranium from low-grade ores and developing multi-grade oils.
Of course, Rohm & Haas is best known to WC&P readers as a softening resin manufacturer: "One thing, when I was at Rohm & Haas, their surveys showed that 6 percent of the people that needed water softeners had 'em. Now, almost 50 years later… just 7 percent of the people have 'em. So, the end use is there. It's a matter of selling."
Fifteen years later, Preuss decided to go it alone. It was 1968. But in four months, he was asked to be vice president of research at Sybron Chemical, then known as Permutit and now a Bayer subsidiary. He held the post for four years, working on development of a number of ion exchange resins Sybron sells today.
Then it was out on his own again.
After earning just $42 in six months, work began rolling in. A couple of years later, he and Ideal Horizon founder Mike Kurtz borrowed $500,000 and won a grant from the Canadian government to start Aldex Chemical Co. in Granby, Quebec, near Montreal. They built a plant, equipped it and, by May 1976, shipped the first order.
As for the company name, Preuss said: "I asked my wife to select one with five letters because that's what DuPont was doing with its trade names. I asked her to end it with 'ex' because of Dowex and Ionex. She came up with Aldex, for Al and Donna's Exchange Company."
A smaller niche player, 90 percent of its resins are exported. Aldex's biggest market is domestic water softening. Next is ultrapure water for nuclear reactors. Fluctuating are specialty markets such as microelectronics, semiconductors, pharmaceuticals and other commercial/industrial applications.
For the past 15 years, the company's revenues have been steady at roughly $5 million. Preuss is as proud of that as he is of the environmental record the company has had as one of the first to eliminate use of chlorinated solvents in its resin production.
"We didn't plan to be any bigger," he says. "I think if you continue to improve your product, you can stay in business… Growth, that was one of the causes of our economic problems now. Everybody was basing their financial outlook on growth and not profitability."
Below, Preuss expresses his views on consolidation and commoditization of the water treatment industry as well as Quebec's emerging role as a driver for product certification in Canada. Before getting to the interview itself, though, here are a few details on Aldex Chemical:
Aldex Chemical Co. Ltd.
President & co-founder: Dr. Albert F. Preuss
Revenue: Just under $5 million
Products: Manufacturer and distributor of ion exchange resins and related chemicals for domestic, commercial and industrial water treatment
And now for the interview:
WC&P: How long have you been in the business and how did you get started?
Preuss: In the business of ion exchange?
WC&P: Yes, and water treatment in particular.
Preuss: Well, I actually did my college Ph.D. thesis on ion exchange.
WC&P: That was where and when?
Preuss: At the University of Wisconsin. I did the separation of rhenium, which is an element, from molybdenum, which is another element. It's still a plant process in recovery of rhenium from low-grade ores.
WC&P: What's rhenium used for?
Preuss: It has been used as a catalyst in the converters in cars. It converts CO to CO2 and so on. That's what it's used for. It's very valuable. It's actually more valuable than platinum.
Preuss: After I graduated, I went to work for Rohm and Haas.
WC&P: When did you graduate?
Preuss: If I told you, then Duane Nowlin (former president of Spectrum Labs) would know how old I am.
WC&P: Of course.
Preuss: All of this is going to be published? Well, I graduated in 1953.
WC&P: A couple years before my dad.
Preuss: Were you at the Science Advisory Committee meeting in Sedona?
Preuss: Duane Nowlin gave me a present.
WC&P: I didn't see what it was.
Preuss: He gave me a pound and a half Viagra pill. And he kept asking everybody how old I was.
WC&P: That's horrible, heh, heh. I'm sure it's up on a shelf with a few chips out of it, correct?
Preuss: Well, my doctor says use it with a lot of water. Anyway, don't put that in there. So, I graduated and went to work at Rohm and Haas in ion exchange with Dr. Robert Kunin, who was really the father of industrial ion exchange.
WC&P: The guy who put out the Amber Hi-Lites newsletters, the collective volume of which is the ion exchange bible?
Preuss: Yes. He's a very prolific writer and writes at a level that most people can understand. He just had a seminar at Rutgers in honor of his late wife and I gave a paper on some of the work I did back then -- on boron-selective resin. But, when I went to work for Rohm and Haas, they had a project on recovery of uranium from low-grade ores, which was very nice because it took me to a lot of places. I spent some time in South Africa and a lot of time in Canada and the Western U.S. in the mountains, Colorado.
WC&P: Where are you from originally?
Preuss: I was born on a farm in northern Wisconsin.
WC&P: And now you're up in…
Preuss: Granby, Quebec.
WC&P: Which is near Montreal, yes?
Preuss: Yes. I was in ion exchange for about seven years there, in Philadelphia. Then I spent about nine years in the "oil patch" developing polymers for making multi-graded oil, which was another Rohm and Haas project. It was a big thing. And then, I decided that I would go out on my own.
WC&P: When was this?
Preuss: 1968. After Rohm and Haas, then Sybron enticed me to come work for them. I spent four years at Sybron.
WC&P: Had you been on your own or did you go straight to Sybron?
Preuss: No, I'd been on my own.
WC&P: How long?
Preuss: I was on my own for, oh, about three or four months. Actually, after four years at Sybron, I still wanted to be on my own. So I went off again and, for six months, I made $42. My wife went off to work. She had to go to work. We had to let the canary go because it was eating too much… Well, you asked me.
WC&P: It used to be a turkey, right?
Preuss: Yes. Anyway, I started a business. This was when there was a shortage of resin and I was able to clean up some resin that had been used for industrial water treatment.
WC&P: What kind of companies were you working with when you were on your own.
Preuss: My own -- Aldex.
WC&P: What did you do for Sybron?
Preuss: I was director of research, vice president of research. I introduced some of the products they have today.
WC&P: Now, this is back in the heyday when everybody talks about today that they knew each other, met or worked together way back at that point, correct?
Preuss: That's right, you'll find that at the time, worldwide -- all the people in ion exchange knew each other. We have meetings every three years in Cambridge, England. An ion exchange conference, which I didn't go to last year for the first time in a long time. But, it'll be there in 2004. Just about everybody that can physically make it, goes there.
WC&P: I believe Mike Gottlieb sent us a photo of a small group of older gentleman at the last conference that we used in the WC&P "People" section.
Preuss: Yes, he did. And he didn't crop my picture out. I just wasn't there. I believe he mentioned the group encompassing a couple hundred years of ion exchange, which is true. And then I tried very hard to start my own company manufacturing ion exchange resins. I was looking upon it as being a partner, where I would add something to a company that had the capabilities of manufacturing ion exchange resins. I'd supply the technology. Then, I ran into a person, Mark Kurtz, who happens to be -- at the time -- with Master Water Co. He's the one who started Ideal Horizons. He was able to borrow money and we were able to come to Canada and get a grant because Canada did not have any kind of ion exchange manufacturing. They gave us a grant provided we would get into production. And we put up money ourselves. You know, as long as we signed everything away, our house, our wife, our cars…
WC&P: Great grandchildren's names…
Preuss: You get the picture. But, you know, it was good, because at that time, I didn’t have any money.
WC&P: Was this in the early '70s?
Preuss: This was in 1975. And so that was now 27 years ago that we started Aldex Chemical Co.
WC&P: So, you'd been on your own a couple of years before you did that.
Preuss: Yes, I actually made a living. Not a good one, but a living.
WC&P: Now, tell me about your company, how it got to where it is and what's new, if you could.
Preuss: At the time, the only manufacturers in the United States were Dow, Diamond Shamrock, Rohm and Haas, and Sybron. They were the four big manufacturers. And the reason I went to Canada is, if I tried to borrow a half a million dollars from a U.S. bank to compete with Dow and Rohm and Haas, I wouldn't get very far. In Canada, I wrote up a business plan and showed that whatever I made was either eliminating an import or creating an export. When I came to Canada, we started out from scratch. We built the plant. We had the building built. We put in all the equipment. We broke ground in November 1975 and made our first shipment in May 1976. And we made it an environmentally clean plant, in that we were one of the first ones to come under their EPS -- Environmental Protection Service, which is similar to the EPA. We passed all the inspections on that. We have to take care of everything in the water. We're very proud of that. We have no chlorinated solvents in our material. For a while, we were the only one making it that way. We gradually increased our sales each year and, eventually, we made a profit. Whenever we had a recession, we kept in mind that we never planned to be a big company. We always kept our total employment below 20.
WC&P: Because you're in Quebec, does everyone speak French also?
Preuss: Well, our plant operates in French. Our office, though, is perfectly bilingual, except for me. Everybody speaks so well, you wouldn't know if they were of English or French mother tongue.
WC&P: So, if they want to keep a secret from you, they just speak in French?
Preuss: Ah, they think I don't understand. It is not the same, though. Quebeçois is very different from French in Paris. They don't pronounce certain words. They utter them.
WC&P: Well, I learned Spanish on the Caribbean coast of Colombia, where they have a tendency to speak faster and clip off the "s" most of the time.
Preuss: In other words, you have the Cuban type of Spanish.
WC&P: Pretty much.
Preuss: I understand that's quite different from Mexican Spanish. Well, I have trouble with what they call French here, but not with Parisian French. It's a funny thing. And yet when I've been to Australia or England, it's never bothered me (speaking in English). In the South, it's never bothered me. Anyway, getting back to what we do, we manufacture the sodium form of the resin and, eventually, we sold the hydrogen form as well. Then, we got involved with supplying the resins for the nuclear people. They wanted to have a very low sodium content.
WC&P: You mean for the nuclear power generation industry?
Preuss: Yes, they can't tolerate sodium in their reactor water.
WC&P: At all.
Preuss: No, so we've been very successful in producing a very low sodium contact resin. We still sell to the domestic water softening market as well. Domestic water softening is still an important part of our business. We also sell some intermediates for other purposes, for other people that buy them and use them. And that's what we do. We're very happy, except that the prices for the resin are pretty competitive right now. It has been pretty competitive for about eight years.
WC&P: Somewhat commoditized?
Preuss: Yes. People consider it a commodity and every dealer knows the price of a cubic foot of resin.
WC&P: What happened eight years ago?
Preuss: This is when there was a price war between Purolite, Rohm and Haas, and Dow. It hasn't recovered. The big problem is that, in every cubic foot, there are 15 pounds of styrene used to produce one cubic foot of resin. And the price of styrene has at times even doubled, which has forced people to operate at very little profit. In fact, some of them did not operate at a profit. And we're heading into one of those periods right now because of the prospects for a war. Styrene prices have gone up already.
WC&P: If you're referring to the debate over military action in Iraq, anything that's a petroleum by-product is going to get hit in the event of war?
Preuss: That's right. And styrene is truly a petroleum by-product. They make benzene from ethylene, then they make ethylbenzene, which they then convert to styrene.
WC&P: How much have prices gone up and over how long a period?
Preuss: Well, at one time a couple years ago, it doubled from 40 to 80 cents. And if you use 15 pounds and it's 40 cents, that's a big hit. I mean the profitability isn't there.
WC&P: What's new at your company? How do you keep things going?
Preuss: We do some research where I use my own interests and specialty in chemistry where we've developed processes for removing antimony from reactor water, boric acid water. And we also have done a number of other things of that nature.
WC&P: Now, what are your primary markets that you work in?
Preuss: We sell only to OEMs and this is in the domestic water softening business.
WC&P: So, if you were to split up your business in terms of how much is in nuclear vs. domestic water softening, what would you say?
Preuss: I would say No. 1 is water softening. No. 2 is nuclear. And the intermediate that we sell to other companies can be very high and it can be very low. That would be the rest.
WC&P: The intermediate sold to other companies would be for what other purposes? Industrial?
Preuss: Some of it goes into oil well drilling and stuff like that.
WC&P: You're in a lot of different market areas then?
WC&P: What about geographically? Where is your business spread?
Preuss: Amazingly enough, 90 percent of our ion exchange resins are exported from Canada.
WC&P: They go to…?
Preuss: The United States and Europe.
WC&P: What about on a percentage basis? How much comes here vs. Europe?
Preuss: The United States is the highest.
WC&P: Far and away.
WC&P: When you talk about selling only to OEMs, you mean selling only to OEMs that make water treatment equipment or OEMs as end-users?
Preuss: These would be people mainly that sell the equipment. They're not end-users.
WC&P: So, we'd be talking a lot of the traditional companies that are the big names in the industry… Culligan, Kinetico, Rainsoft and Ecowater, etc.?
Preuss: Yes, those are the types of companies I sell to, although I sell to the smaller ones because the larger ones have more buying power. And I can also give them competitive prices.
WC&P: How do you fit in the competitive environment of the ion exchange industry?
Preuss: In terms of size, we're very small. We're so small we can hide under the table.
WC&P: You basically just target the niche specialty markets where you maybe have a better advantage in serving?
Preuss: Yes, and also we have very loyal customers.
WC&P: Are there any other things that are new at the company?
Preuss: We continually try to improve our products, especially in the specialty fields. In the nuclear field particularly, people buy on quality. They have very rigid requirements.
WC&P: Are there other ultrapure markets that you work in?
Preuss: Yes, there are ultrapure markets that we work in.
WC&P: Such as semiconductors, microelectronics, pharmaceuticals -- what?
Preuss: Some of our materials do go into that.
WC&P: Tell us an interesting anecdote or story about your experience in water treatment. Having heard some of your stories before, maybe I should say, "Where should we start?"
Preuss: They're all interesting. One thing, when I was at Rohm and Haas, their surveys showed that 6 percent of the people that needed water softeners had 'em. Now, almost 50 years later…
WC&P: Survey shows…?
Preuss: …just 7 percent of the people have 'em. So, the end use is there. It's a matter of selling. And I'm not one that can tell the dealers how to sell, but, uh… They're the ones that have to do the selling.
WC&P: There's plenty of opportunity there, though, for them?
Preuss: Right. I think it's gotten a big boost. People are more aware about water than they ever have been. It's just at one time water was a given. And now people realize that it costs money and Bob Kunin used to say if we could bottle it and put a stamp on it, we could sell it for a lot more money.
WC&P: I think he was proven right, according to the IBWA at least.
Preuss: That's right. And as far as bottled water is concerned, 30 years ago, there was nothing to speak of. Now, it's a billion dollar business. And a lot of them use ion exchange to treat the water before they bottle it. Of course, they use RO and other methods too.
WC&P: What's been a major challenge that you or your company faced and how did you overcome it?
Preuss: Our major challenge is to stay profitable. We always want to make a profit. Otherwise, we'd be out of business. And, I think the one thing is we've never gone overboard as far as borrowing a lot of money. We are solvent. And we make sure we are always able to control any debt we had. You saw what happened to all the other companies that went hugely in debt and didn't know that there was such a thing as a recession. They're retrenching or breaking up.
WC&P: So, it's always been a policy of yours to pay as you go?
Preuss: Yes. Making the most money or being the biggest guy on the block was never our goal. I just wanted to make a decent living.
WC&P: So, how do you handle a recession? What do you do?
Preuss: The first three or four we ran through, by being small, all we had to do was get another customer. We actually increased our sales. But when you have a big share of the market, you cannot do that.
WC&P: The customers are somewhat already taken.
Preuss: Yes, you go with the market. We didn't go with the market. We went our own way.
WC&P: That sort of insulated you?
Preuss: No. I talk to people all the time. I listen to people such as Mike Gottlieb all the time.
WC&P: Stan Ziarkowski when he was still with us until only recently.
Preuss: Yes. By having our meetings. There are meetings for the nuclear people, there are meetings for our Water Quality Association and we have the Canadian Water Quality Association.
WC&P: You're on the board too.
Preuss: Yes, I also am a former president from about 10 years ago. We've gotten smaller and smaller now because more Canadian companies are part of international conglomerates.
WC&P: And if crises are the thing that drive membership, it sounds as if the current certification issue going on in Quebec may prompt a reversal in that decline.
Preuss: Yes, more people are more aware of this than they ever have been. They just assumed they could do what they wanted.
WC&P: We're talking about the requirement of Quebec that equipment be ANSI/NSF certified and that an ANSI-accredited lab be the one that's doing the testing.
Preuss: That's right. And it turns out that there was no Canadian manufacturer that had a Standard 44 approval (for water softening devices).
WC&P: Not one?
WC&P: Wow. How many members are there in CWQA roughly speaking?
Preuss: Canada always considers itself one-tenth that of the United States.
WC&P: So about 250.
Preuss: Yes, we probably have a little bit more than that, but that's about what we have. And everything is generally like that, except the gallon is bigger in Canada.
WC&P: How does that work?
Preuss: It's the Imperial gallon. It weighs 10 pounds to the gallon vs. 8.337 pounds for a U.S. gallon.
WC&P: From your perspective in the market, where do you see the industry going?
Preuss: The thing is that it's being concentrated, but I remember that when I started there were three big companies. They were Culligan, Lindsay and ServiSoft. They controlled a huge percentage of the market. And then when other people started up, suddenly you could buy your tanks somewhere else, you could buy your resin and you could buy valves. That was one of Andy Fleckenstein's contributions.
WC&P: Through Fleck Controls, which is now owned by Pentair.
Preuss: Eventually, companies like Kinetico came in and other companies came in, smaller ones. And so it's changed over a long time. It's not good for suppliers or manufacturers. That's for sure, because it's now a Wal-Mart mentality. Push the supplier and push the manufacturer.
WC&P: The retailers force the manufacturer's prices down.
Preuss: That's right. So, that you'll see products that aren't quite as good now.
WC&P: It struck me that earlier last year -- in this very column -- we learned that Morton Salt was marketing a low-cost softener that it's having built for it through Wal-Mart. Interesting.
Preuss: That's right. The dealers I think are able to cope better than the manufacturers there. Manufacturing is not the greatest thing in the world as far as profitability these days. We have to continually improve our products and, as far as water softening is concerned, it's pretty hard to improve upon it. It's a product that's now 50 years old.
WC&P: That's part of the issue in California where this month -- January, when this interview comes out -- the brine efficiency guideline goes up to 4,000 grains of hardness removed per pound of salt used for regeneration. And so the envelope's getting pushed. We'll see how companies respond.
Preuss: As far as making anything more efficient, no matter what you do -- there is a limit to what you can do. And with the concentration in the industry, that puts additional pressure on costs and ability to negotiate price…
WC&P: I assume you mean the consolidations and mergers and acquisitions, for which the most recent were GE buying Osmonics and, before that, U.S. Filter divesting itself of Plymouth Products, which was bought by Pentair. How does that tie in?
Preuss: The thing is there's going to be fewer purchasers of product and it'll be concentrated among a number of large companies, larger than exist now.
WC&P: And what does that mean for ion exchange?
Preuss: They'll want to buy at a lower price.
WC&P: What's the one hot button issue facing water treatment dealers or the industry that will have the most impact over the next few years from your vantage point?
Preuss: I think one of them is going to be the regulations that the dealers will be forced to cope with. In other words, they're going to have to use certified materials. And it costs a lot of money to certify the materials and equipment. That'll be the one of the biggest things.
WC&P: And the Quebec certification issue ties into that as well.
Preuss: Yes, oh, yeah, it's big. In fact, I just got another email today.
WC&P: It's kind of like Quebec has become Canada's California, a point I made in my November "Viewpoint" column. Both seem to be pushing the industry regulatory wise.
Preuss: How they got involved, I do not know. It is an issue and the people are just beginning to become aware of it. It could hurt them equally.
WC&P: Is there a solution -- a way out or a way up?
Preuss: The more competition we have with testing laboratories the better off we are. It was a monopoly at one time.
WC&P: Up until only a few years ago, really.
Preuss: That's right. They did a heck of a job of selling their product.
WC&P: I recall it looked as if Underwriter's Labs was going to come in and WQA got it's lab up and running first. Then you had Spectrum and National Testing pick things up a bit…
Preuss: We have a testing lab in Canada.
WC&P: Right, CSA International.
Preuss: They're expanding and beginning to handle more and more materials.
WC&P: As I understand it, they've also been forced to push their ANSI-accreditation and testing capabilities to a much higher degree because of the situation in Quebec over ANSI/NSF standards.
Preuss: I like the way you said ANSI/NSF standards, rather than just NSF standards. I cautioned our executive secretary to always use both words.
WC&P: Well, I think that about wraps it up. Is there a closing statement you'd like to make?
Preuss: Yes, save your money. No, anyway…
WC&P: What are your annual revenues?
Preuss: It's a little less than $5 million. <
WC&P: And what's your average growth?
Preuss: Well, see we reached this maybe 15 years ago and we didn’t plan to be any bigger. We're different.
WC&P: You better be careful. That runs contrary to Wall Street expectations.
Preuss: Oh, you're right. I don't have an MBA. No, this is the whole thing. I think if you continue to improve your product, you can stay in business.
WC&P: You don't always need to make 15 percent more than you did last year.
Preuss: No, the growth, that was one of the causes of our economic problems right now. Everybody was basing their financial outlook on growth and not profitability.
WC&P: You might start a trend there.
Preuss: I guess you wanted to have some instant that was memorable to close with. Well, when we first started, people would ask me about the origin of Aldex. And actually, I asked my wife to select a name that had five letters in it, because that's what DuPont was doing with every one of its trade names. She came up with Aldex, which stands for Al and Donna's Exchange Company. I told her to end it with an "ex" because of Dowex and Ionex and so on. That was very simple. It was probably five or six years before someone figured out what it meant.