Environmental Business Journal Features Pace Analytical


The Environmental Business Journal International recently included a section on Pace Analytical in their 2019 Industry Overview edition. This article has been redistributed below with EBJ's consent. To view the original reprinted article in its entirety, click here.


PACE GROWS BUT SAYS ENVIRONMENTAL LAB INDUSTRY IS STILL OVERSUPPLIED

Pace Analytical Services LLC is a privately held national company in the analytical services industry, specifically in the areas of environmental testing, pharmaceutical and medical device testing, product testing, and field services. Pace employs over 2,600 people in over 80 locations around the United States and Puerto Rico. Within the last five years, Pace has acquired 26 laboratories to broaden its capabilities and locations to better reach its customers. They serve a broad range of public and private clients.

Steve Vanderboom founded Pace in 1978 and has served as its President and CEO since that time. Steve lives in the Minneapolis, Minnesota area and is an active participant in professional organizations including the American Council of Independent Laboratories and the Young President’s Organization.

EBJ: Pace Analytical is the largest American-owned environmental testing lab. Does this resonate with your customer base and give you a competitive advantage?

Steve Vanderboom: Some customers see this as an advantage and might view it as a tie breaker in making a choice of laboratory service providers.

EBJ: What is the split of Pace’s service revenues between industry, government, and the consulting engineering or environmental services community?

Vanderboom: They are approximately Industry Direct 30%; State and Local Government 20%; Federal Government less than 5%; and Consulting 45%.

EBJ: Have these shares changed notably over time?

Vanderboom: We were at one time, a significant provider to the federal government. We exited that market in the mid-90s to focus on services we were better aligned to provide. This moved us onto a different path and we increased the work we perform directly for the industry.

EBJ: ESC was a significant recent acquisition, and there have been several other deals. What are the biggest challenges of the integration process?

Vanderboom: It is important to understand the new team and its culture to integrate them in the right way. Cultural transition is one of the most important and challenging elements of an acquisition. The next largest challenge is the integration of technical systems, such as the LIMS system, accounting and procurement systems, quality, compliance and training systems, HR systems, sales and marketing systems, etc.

Pace has a strong, experienced team that supports integration of acquisitions. ESC’s team also put in a lot of effort, and it resulted in a successful integration.

EBJ: Do economies of scale in M&A mostly come from consolidating the business development function, operations or the information technology management system?

Vanderboom: There are scale opportunities in each of these areas. Each are important and need attention during integration to make them happen. We know from experience that mistakes made during integration can destroy scale economies. The primary focus must be on continuing or improving the customer experience. If that declines in integration, you lose customers and the benefits of an acquisition.

EBJ: What trends do you see in outsourcing the lab function? Are municipal clients willing to use a private provider?

Vanderboom: The industrial and consulting communities have, for the most part, already outsourced the lab function. Municipal and other levels of government are more reluctant to outsource their internal laboratories. We do not see any strong trend to change that, even though there are savings that can be achieved.

EBJ: Are market drivers in water/wastewater more noticeable these days than in remediation or air?

Vanderboom: Overall the environmental testing market in the United States is flat. Remediation markets appear to be declining, as you might expect. Emerging contaminants represent some growth in markets. The overall industry continues to be oversupplied, resulting in some pressure on pricing from laboratories that need more volume to survive a challenging market environment.

EBJ: What impact has the current administration in Washington DC had on the market for environmental services?

Vanderboom: There have not been significant changes in regulations that have driven changes in demand. We have felt an impact in all of our markets from the deregulatory environment. Many customers are waiting for more guidance, rather than being proactive. The current business-friendly environment seems to be slightly reducing demand.

EBJ: What role has technology advancement played in the environmental industry over the last three decades, and what disruption do you foresee?

Vanderboom: Technology impacts have been very significant. Our industry is charging around 25% of the price (inflation adjusted) per test that it was in 1993. Without application of technology, we would not have survived. Instrumentation, IT, operating systems, training systems, sales systems and other technology have been key to our success and will continue to be. We invest well over $1 million per year in R&D to develop more efficient ways to serve our customers.

PACE COMPLETES 40 YEARS OF BUSINESS; KEEPS UP ACQUISITIONS WITH ESC, REIC AND WOLFE

Pace Analytical Services LLC (Minneapolis, Minn.) celebrated four decades in business last year, having become largest American-owned lab company for environmental testing and sampling as well as testing for pharmaceutical, medical and drug devices. Of the top five environmental testing firms in America, Pace Analytical is the only one that is fully American owned and operated. The company projected revenue of $290 million for 2018 and had compound annual growth of 12% over the last four years. Since 1978 it has grown to 2,600 employees at 40 laboratories and other locations around the United States.

ESC MERGES TO BECOME PACE ANALYTICAL NATIONAL CENTER FOR TESTING & INNOVATION

Pace solidified its position in environmental services in 2017 with the acquisition of ESC Lab Sciences (Mt Juliet, Tenn.). Certified in 50 states, ESC increased Pace’s coverage throughout the country. More than 300 ESC professionals joined the Pace team, and Peter Schulert, former CEO of ESC, took an executive role at Pace.

“ESC chose to join Steve Vanderboom and the Pace organization because of our respect for their long-term vision and commitment to investing in their people, technology and facilities. Steve is the first person to fully understand ESC’s strategy in making long-term investments in new technology in order to provide superior service rather than competing as a commodity,” Schulert said.

Initially ESC continued to operate under the ESC name, but in July 2018 Pace announced a name change to Pace Analytical National Center for Testing & Innovation. The change emphasizes Pace’s commitment to providing environmental testing services on a national scale, to research and development, and to identifying the most advanced, efficient and reliable testing methods in the industry, Pace said.

REIC EXPANDS PACE’S FOOTPRINT IN WEST VIRGINIA

Pace continued to make acquisitions in 2018, in March acquiring REIC Laboratories Inc. (REIC), a full-service environmental testing laboratory with locations throughout Virginia and West Virginia. REIC is a leading testing source for environmental programs in the state of West Virginia and the surrounding region.

REIC was created in 1984 by a group of senior research scientists and grew to a staff of nearly 100 professionals and support personnel working in state-of-the-art laboratory facilities in West Virginia, as well as a growing client service center network with locations in Roanoke and Staunton, Virginia, and in Morgantown, West Virginia.

Steve Vanderboom, the CEO of Pace Analytical, commented: “We have long admired the reputation for quality and service that REIC has built in the market place. We believe that their laboratory team will significantly enhance the service offerings of Pace in this region of the United States.”

WOLFE LABS STRENGTHENS PACES LIFE SCIENCE SERVICES

In a deal announced in December 2017, Pace Analytical Life Sciences and Wolfe Laboratories Inc. (Woburn, Mass.) joined forces to expand contract drug development services and analytics to the life science industry.

The combined capabilities of the two organizations meant Pace could offer the life science industry a one-stop-shop providing formulation, process development, and analytical and CMC testing for complex molecules, from discovery through Phase 3 development and post-approval. Financial terms were not disclosed.

“Wolfe Laboratories brings a whole new synergistic dimension to our life science analytics business, providing expertise in new, exciting and complex molecules in the pipelines today,” said Greg Kupp, Vice President and COO of Pace Analytical Life Sciences.”

“This partnership with Pace provides us with the resources to grow and meet the expanding needs of our amazing group of biopharmaceutical and pharmaceutical customers as we are now able to provide end-to-end support, from early-stage CMC development to post-commercialization GMP testing on oligonucleotides, biologics, and small molecules,” said Janet Wolfe, Founder of Wolfe Laboratories.

PACE’s STEVE VANDERBOOM: AN ENTREPRENEUR’S SUCCESS STORY

Adapted by EBJ from an article that first appeared in the Minneapolis Star Tribune in July 2018 by Neal St. Anthony

In the 1970s, following decades of industrial pollution highlighted by Cleveland’s Cuyahoga River catching fire and disease and death creeping from buried barrels of toxins under a New York housing development called Love Canal, Congress started writing environmental law. Steve Vanderboom, a 24-year-old graduate student studying for a master’s degree in environmental engineering at the University of Minnesota, saw a business opportunity in 1976. He told his bosses at a Minnesota chemical-testing lab they needed to move beyond municipal clients. “I was reading these regulations and I was getting excited,” recalled Vanderboom. “I told the owners that our good Minnesota companies are going to have to adapt. I said we should expand to industrial waste. The owners stayed focused. I was so upset that I told my wife we should start our own business.”

Two years later, his wife out of school and working as a nurse, Vanderboom and a partner secured a $43,000 Small Business Administration-backed loan and opened Pace Analytical Services in 1,600 square feet in a low-rent building. “We made money in the first year,” recalled Vanderboom. Forty years after launching the company with Bill O’Connor, a chemist, Pace is the largest American-owned lab company for environmental testing and sampling as well as testing for pharmaceutical, medical and drug devices.

The company, with 2018 revenue of $290 million, has grown at a compound annual rate of 12% over the last four years and employs 2,600 employees at 40 laboratories and other U.S. locations. Vanderboom has eschewed the limelight and most interview requests over the years. “I’m totally content if nobody knows our business, except our customers,” he said from his modest office in southeast Minneapolis. Pace serves a client list of blue-chip customers such as 3M, BP, Johnson & Johnson, Duke Power and dozens of other businesses and government agencies.

Business boomed in the 1980s as regulations blossomed. Vanderboom bought out O’Connor in 1986, after the company hit 50 employees, because O’Connor didn’t want to be part of a big operation. There was one complication. “I was in over my head,” recalled Vanderboom of running a multimillion-dollar business. He made a deal in the late 1980s for advisory services and investment from the venture-capital units of Piper Jaffray and Summit Partners in Boston. Things still boomed until well-backed competitors started to flood the market. Pace had to cut prices to keep share and the company was losing serious money in 1994-1995 and Summit and Piper were unwilling to invest more.

Vanderboom, the majority shareholder, turned to industrialist Rod Burwell that he met at a Young President’s Organization meeting and he stepped up with millions in patient capital. “Rod financed the purchase of seven more labs in 1995,” Vanderboom recalled. “We did really well together. He never had an office here. We’d have the board meetings over scotch at his house when we had something to talk about.” Burwell, an engineer by training, specialized in reviving underperforming companies in a variety of industries. His family, the majority owner of Pace, gave Vanderboom space and time to figure out the future, after Burwell’s death in 2015.

“Rod and the family were very happy with Pace,” Vanderboom recalled. “Over 20 years, Rod had a [double-digit] annual compound return.” Vanderboom wanted to continue running the business rather than selling to a competitor. In 2016, Pace sold to Aurora Capital Partners, a California-based private-equity firm. Aurora that also owned Twin Cities-based Restaurant Technologies that collects used cooking oil from thousands of commercial kitchens and sells it to biofuel producers before