Burrow Global Acquires/Merges Industrial Engineering Management

Burrow Global, LLC, a Multi-services Provider to Industrial Clients Worldwide, Acquires/Merges Industrial Engineering Management, Inc. hereafter referred to as (IEM)

Burrow strengthens upstream and midstream engineering services and adds full service Baton Rouge and Nassau Bay offices 

HOUSTON, TEXAS (January 3, 2013) Burrow Global, LLC (Burrow) has successfully concluded the friendly acquisition/merger of Baton Rouge, Louisiana and Nassau Bay, Texas based engineering firm, “Industrial Engineering Management, Inc. (IEM)”. A highly respected, multi-discipline firm that started operations in mid-2009, IEM specializes in process/conceptual design and FEL package preparation, plant automation, detailed engineering/design, and construction management. IEM, which currently employs over 90 full time technical employees, services primarily the upstream and midstream oil and gas markets and secondarily the refining and petrochemical industries.
This marriage adds depth of expertise and resources in a resource limited market to the upstream/midstream segments while expanding Burrow Global geographically through IEM's full services offices in Baton Rouge, Louisiana and Nassau Bay, Texas.

Under the terms, Burrow acquired assets and stock of IEM and IEM shareholders became shareholders of Burrow. The transaction recently finalized was effective December 31, 2012 with IEM which has been rebranded as “Industrial Engineering Management, LLC a Burrow Global Company” becoming a wholly owned subsidiary of Burrow Global, LLC. Burrow is a rapidly growing engineering, construction and industrial services company employing 960 people and servicing customers across the globe. With this acquisition, the company now operates from twelve domestic offices Beaumont, Houston, Deer Park, Pasadena, Nassau Bay, Port Arthur, Mont Belvieu, Crystal City, Henderson, and Yoakum Texas, Tulsa, Oklahoma, and Baton Rouge, Louisiana plus two fabrication facilities in Crystal City and Henderson, Texas. Burrow is a global player in the provision of engineering and construction services for industrial clients and specializes in process automation, industrial buildings, plant commissioning, start-up, operations and turnaround management.

“IEM has complementary strengths in process engineering and plant automation, two areas that are synergistic with Burrow and will substantially benefit our customers”, said Mike Burrow, P.E., CEO and Board Chairman of Burrow Global, LLC. “With this acquisition, we can now offer all our industrial clients substantially improved capabilities in front end engineering and plant automation covering most industrial process facilities; especially in the development and design of upstream and midstream facilities. The Baton Rouge office will provide the manpower and home office infrastructure needed to facilitate re-establishing Burrow’s presence in that familiar locale. We will use IEM’s strong, established, local foundation to grow our downstream service offering in Louisiana,” said Burrow.

“The depth of expertise in engineering, procurement, and construction already established by the Burrow companies is well known and I believe we will complement their capabilities, especially in the areas of upstream and midstream industrial facilities,” said Craig Borel, P. E., president and CEO of IEM. “Mike Burrow and I worked together for many years in a Baton Rouge engineering company that was acquired by a former Burrow Managed Company in the 1990’s. Our companies have also recently worked together on several midstream projects to the benefit of our clients. We share common values and goals and we know each other well, so it is a good fit. With Burrow’s size, we will be able to offer considerably more resources to our established clients as well as expand our global opportunities in the future.”

About Industrial Engineering Management, LLC a Burrow Global Company:
Industrial Engineering Management, LLC, is a diversified multi-disciplined, consulting engineering firm, established in 2009. IEM was owned, by Craig Borel, P. E, Samantha Wilds, Jennifer Crawford and Barry Boudreaux and operated as a Louisiana Corporation with offices in Baton Rouge, Louisiana and Nassau Bay, Texas. Industrial Engineering Management, LLC, has worked across the United States and abroad. IEM’s services include the full range of engineering, design, and procurement and construction management. IEM designs are appreciated by clients because of their simplistic approach and ease of maintenance. IEM, LLC started in 2009 with only 8 employees and through hard work, quality services and repeat business has grown to over 90 employees as of 2012 year end.

About Burrow Global, LLC:
Burrow Global, LLC is a full service engineering, procurement, construction and facility services firm with specialties in process design and plant automation, turnaround management, and plant commissioning and start-ups. Founded in November of 2009 by CEO and Board Chairman Michael L. Burrow, P.E., Burrow Global is a privately held firm that has exhibited substantial organic growth since 2010 by using strategic acquisitions to position the company to address the needs of its valued clients. With a clear vision for continuous performance improvement and a global priority for safety in execution, Burrow Global Companies have grown to include twelve domestic offices, two shops and almost 1000 employees. The group of companies expects to exceed $150 million in revenues for 2012 and with this acquisition has a revenue run rate exceeding $200 million annually.

http://www.burrowglobal.com

ENGlobal Corporation - Last Two Years, 4Q and Year-End 2011

Rev 1.3 (see Spring 2012 Updates)

It has been a while since my last posting. You may notice I have changed the name of this blog to basic Engineering, that I may comment toward other engineering companies.

I have been watching ENGlobal to see what was going to develop with the new CEO, Edd Pagano. It has been about two years now and I am sad to say Mr. Pagano has been a disappointment by most any measure. First, lets cover some old business. ENGlobal made a big mistake when they pushed out Mike Burrow years ago. Yes, the announcement said he would retire, but did he? No. He waited a year or so, presumably to clear a non compete agreement and started Burrow Global LLC. My point is made that he obviously didn’t retire. Not only did he start an engineering firm in the recession but grew it to over 730 personnel and made money during a period in which ENGlobal produced continued losses. ENGlobal cut a person who could best guide ENG during this protracted recession, they put him in a position to be a primary competitor and the potential for ENG to lose contracts. The proof is in the results for both companies.

What has Mr. Pagano done? I watched and read all the announcements. I think I lost count of the upper management shuffle, especially the Business Development position. For a while the CEO was shuffling the same deck of cards moving management, adding no new people, and came up with no real results. Then he added more management, again with no results other than increasing overhead. In his two years he managed to black ink one quarter with a fraction of a penny that was lucky enough to round up to a 1-cent profit. All the rest of the quarters were like the previous quarters prior to his hiring – losses. Most of these quarterly losses were exaggerated by adding additional losses to the unimproved continued operations due to “Special or One-Time Charges”. This begs the investor with a memory to ask. “How many Special Charges can you have before they are NOT Special anymore?”

The Exodus

I have watched so many quality people leave ENGlobal that I have doubts of its viability in a recession. I am not talking tens; I am talking many dozens of primary experienced middle and upper management people that have left. They generally seem to be going to four competing companies that I am told have plenty of other resumes in their inboxes.

ENGlobal lost the head of Engineering. I’m not even going to address the earlier hire and resend fiasco that made the CEO look plain stupid. They lost the head of the Construction Division (and restructured so it wasn’t noticeable). They lost head of Field Solutions (Land) Division. Watch for a drop in this segment. And, they lost the head of the Automation Division – more on that later.

They also lost their excellent CFO, Bob Raiford. He did not retire - he flat resigned. Subsequent to his departure ENGlobal started Non-GAAP reporting of financial results. I also learned ENGlobal’s competent long-time Controller, Meredith Barnes, quit and took six of the top accountants with her to a new company. A total of eight top people left accounting, Non-GAAP reporting started and there was a sudden decrease in SG&A (?). Management has stated this method of reporting better reflects their financial position. I’m not buying any of it. When accountants roll it is a bad sign. When numbers start to change with no positive results I don’t believe that either.

The South Louisiana Ethanol Project

This failed project manifested in 2006. Mike Burrow was the CEO but the project was let out under a cost center that was not under Mr. Burrow’s control or supervision. The Chairman and the CEO had divided the company into cost centers under separate supervisions. Mr. Burrow took the blame anyway but still lead the company profitably under his “Back To Basics Plan”. This plan worked brilliantly, even after Mr. Burrow’s departure. But any plan has limitations especially without the designer present to steer and tweak it. And so as third quarter 2008 neared and while the markets were crashing ENGlobal announced a surprise miss in a special release. The stock tanked. I say surprise because the second quarter 2008 was ENG’s top record of 24 cents profit. Then CEO Mr. Coskey stated in the conference call that the third quarter would meet or exceed the second quarter. I have this recording. You can hear for yourself in archived recordings and in transcripts. That statement, folks, was guidance no matter what the company says that they do not give guidance. It may have been that once, but they gave guidance and got caught not minding the ship.

The Ethanol Project went through the courts. ENGlobal stated they may receive millions in the end - I remember a figure of 9 million. This was not so. The final outcome was released not long ago and I will provide a link at the end of this section. The final document was fairly complex and convoluted. I was requested to write an abstract interpretation of the final document for another company. This is what I found and represents my opinion: One, ENG started the work in Louisiana without being licensed there – this caused major problems. Two, apparently from the way the document was worded ENG’s case angered the court as proceeded. ENG management should have been supervising their lawyers. That management action should never potentially compromise any case. Three, the final recovery was only $242,746.44. This may not even cover the "in-house" multi-year attorney's costs. Since the judge left it open for other claimants to proceed against ENG on this recovery, they may get nothing or even lose money. Watch the year-end report. ENGlobal lost over 6 million on this project.

http://www.leagle.com/xmlResult.aspx?xmldoc=In%20BCO%2020120215611.xml&docbase=CSLWAR3-2007-CURR

Automation Division

Olan Weeks, originally ran this division and it was day-to-day managed by James Dorsey. Both of these talented managers have left ENGlobal. As I reflect on the past glory of this division I can see both these men have the key characteristics of being visionaries and ritual daily diligence. Automation was not only profitable but had the potential to make huge money when run properly. Conversely, it could be a huge loss if run poorly and not managed consistently. Later Shelly Leedy came from Honeywell to run this division and did so very well under Mike Burrow’s supervision. After that and under two other CEO’s she was moved around and given other duties while expected to still run the division from afar. We just saw the immediate resignation of Shelly Leedy. Someone on the ENGlobal message Board posted a letter from Edd Pagano announcing her immediate resignation. I assume this was an intra-company letter that filtered out via email from an employee that does not care of its release or posting. Ms. Leedy's "resignation" coincides as the fourth quarter and year-end results were being tabulated with, by my guess, more Non-GAAP and GAAP methods. I can tell you from experience her immediate departure was probably due to a surprise loss from a contract or discovered loss from discontinued operations in the division revealed by the 4Q/Year-End calculations. As I mentioned before, this division has the potential for huge losses as well as gains. Watch for a loss, probably a big one, from this division. As a post script, the conference called revealed a 4.3 million dollar loss from the Electrical Division.

4Q/Year-End and the Board of Directors

For the third time this earnings date has been moved or postponed. Considering what I have noted earlier and ENGlobal's earnings history, this is not good news. Moreover, considering ENG's statement citing their credit facility I think the news is worse. The credit facility is a big indicator of ENGlobal's future and the bank's confidence in management. For some time I have been mystified why the Board Of Directors have let Edd Pagano fly this company into the ground. Clearly he has used this opportunity as OJT (On the Job Training). It has been painful to watch this decline of ENGlobal and erosion of experience personnel. I believe the Board Of Directors have abandoned their fiduciary responsibility to shareholders by continuing with this CEO.

The only explanation I can think of why this condition would be allowed to continue would be due to a plan, unbeknownst to shareholders, to sell the company. There have been rumors and discussions for years about this but it is the only situation to me that makes feasible sense given the obvious deterioration. Otherwise, we have a very slow Board Of Directors and I would expect soon to see the departure of Mr. Pagano. That would have a positive effect on the company and the stock. It is time for someone else that is pragmatic and sensible to run this company. For sure there are negotiations with the bank or new banks concerning the credit facility as they stated in the postponement announcement. They may be looking for an equity partner as well, pure speculation. As for earnings I unfortunately expect ENGlobal to announce one of it’s biggest yearly losses ever. The debilitation is a shame and I have long admired this company from the first day I invested in IDS. However, I have always told you the truth about what I saw potentially. It just isn’t very good now. Can it be saved? This is debatable for sure, I have a vision how to do it but if the Board Of Directors continues to operate this way the future looks dim or bankrupt. Good luck to everyone.

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