Over the course of a long career in the heat treatment industry, "Mr. Dan McCurdy" has done it all; from developing some of the most advanced technologies in the industry, running one of the largest furnace controls firms in the world, President of "Bodycote North America" for a number of years and advising Private Equity (PE) firms on the commercial heat treatment industry.

We are extremely fortunate that "Gord Montgomery" of "The Monty Heat Treat News" was able to convince Dan to share some of his lifetime experience in this wide-ranging interview. Those who know Dan will not be surprised that his comments are blunt, honest and to the point-we have no doubt but that you will consider this a read well worth your while.

We are very excited to be speaking with Mr. Dan McCurdy, an individual who has had a long and varied career in the global heat treatment industry. Dan, I appreciate the time today. So where do we start off, Xtek? Cincinnati Steel Treating? Marathon Monitors? Bodycote? Let's start with your first position in the heat treatment industry and move on with a summary of the firms you have worked with over the years.

I remember as a Boy Scout getting the Metallurgy Merit Badge, which involved a trip to the Cincinnati Milling Machine (later Cincinnati Milacron) foundry, where they were pouring gray iron out of a ladle into molds for large machine tool frames. This experience made an impression, and I ended up majoring in Metallurgical Engineering at the University of Cincinnati. UC had (and still has) a 5-year program that included co-op intervals. Unfortunately, it does not offer a B.S. in Metallurgy anymore; it now offers just MS and PhD degrees in Materials via the Mechanical Engineering Dept.

I had two co-op jobs while at UC. The first was at International Nickel's massive Huntington Alloys plant in West Virginia, I did hardness and room-temperature and high-temperature tensile testing on nickel alloys. My next job was back home in Cincinnati, where I was a co-op in the large captive heat treating department at Xtek. I then ended up taking my first job as a metallurgist there after I graduated in 1977.

As far as I know, Xtek still has two of the deepest pit carburizers in the world, each 6' diameter X 20' deep. This shop can effortlessly suspend 35,000 lb. mill pinions in these furnaces on water-cooled eyebolts, something I've never seen anywhere else in the world. We used a combination of Alnor dewpointers and Infrared CO2 analysis to control the furnaces and endo generators. Carburized case depths extended to 3/8" on some components with cycles well over 100 hours at 1850F. In my time at Xtek, I helped to commission one of the first nitrogen-methanol systems (from Linde), and I installed my first oxygen probe (from Advanced Atmosphere Control Corp - AACC) in a batch IQ furnace.

My next job (1980) was as Quality Manager at Cincinnati Steel Treating (CST). This plant was both a commercial heat treat as well as a captive department for its sister company, Cincinnati Gear, who did a lot of high-precision gears for the US Navy, among others. This was a VERY different quality environment than I had experienced at Xtek. We did a lot of Gleason press quenching and the dimensional tolerances we were held to were difficult, to say the least.

During this period, I became Chairman of the local Cincinnati ASM Chapter, which was the only way to network with other local metallurgical professionals. CST was also a member of the Metal Treating Institute (MTI), so I had the privilege of attending a number of regional and national MTI meetings. I started to get to know other commercial heat treaters regionally and then nationwide. CST is also where I was introduced to how heat treatment was quoted to commercial customers. I hadn't thought of the money side of heat treating before.

When I joined CST, the plant was still using Alnor Dewpointers for furnace atmosphere control. By this time, however, several new oxygen probe suppliers had appeared on the market, and the local Marathon Monitors rep (John Hansen, R.I.P.) insisted that I try one. I decided at some point that millivolts from an oxygen probe, in combination with a paper chart showing the relationship of probe MV and temperature to %C, was not the best way to control furnace atmospheres in real time. I derived an equation that related it all on a theoretical basis and sought out a local electronics/software expert to put that equation to work using the latest invention in the world: the microprocessor. My search landed on a local electrical engineer, also a UC graduate, named Don Riemenschneider. I got permission from CST's owners to commit to the development of a protype instrument that would not only continuously calculate % carbon in the atmosphere at any temperature but also control it. The result was the first CST Multicarb, a prototype instrument which could control up to eight different furnaces, as long as each furnace had an oxygen probe and a natural gas control valve.

The teething pains were significant, but we got through them and started to control all the atmosphere furnaces at CST with the second version of the instrument. Lurking in the background was still John Hansen, who kept the principals in Marathon (Bill Thompson and Ted Berry) advised, and soon they were visiting the plant to have a look at the new instrument prototype.

One thing led to another, and Marathon Monitors acquired the newly-formed instrument division of CST including my services as well as those of several others including Don Riemenschneider. Marathon Monitors Inc. then proceeded to pick itself up and move from Connecticut to Cincinnati. Oxygen probe and instrument operations were combined and sales and production of complete furnace control systems commenced in earnest. It was 1984.

Marathon grew rapidly over the next few years, even adding a sales and service branch in the UK. Then, in 1989, a British Holding Company named Halma plc, listed on the London Stock Exchange, came calling on Marathon's shareholders. Halma owned a whole portfolio of small technical manufacturing business in many industries in both Europe and America, and Marathon looked to be a desirable acquisition target. The deal happened and life continued, now under the Halma umbrella.

Marathon continued to grow and several events occurred in the years after the acquisition. Most notable were the eventual exits of the two founders, Ted and then Bill, and then the acquisition of Advanced Atmosphere Control Corp from Corning, who had previously acquired AACC and merged it into their own oxygen probe business, part of which was aimed at combustion applications. This acquisition put Marathon into several new oxygen probe markets including coal-fired power plants and glass manufacturing furnaces.

Fast-forward to 1998, I had reached a point where the business's ever-increasing sales and profit pressures were no fun anymore and I felt I needed to make a change. I left Halma with the intent of taking a few months off to decompress and pursue other possibilities. As luck would have it, John Hubbard, former owner of Hinderliter Heat Treating whose seven (7) plants had recently been acquired by Bodycote (1996, Bodycote's first foray into the US), heard about what I had done, tracked me down, and asked me to join him at Bodycote for a "few months" while I figured out what I wanted to be when I grew up. Bodycote had been a good customer of Marathon UK, and Hinderliter had been a good customer in the US, and I knew a number of people in both. So, I joined John and ended up staying for 25 years until I retired in 2019. During that time John himself became CEO of Bodycote before retiring some years later.

Interesting tidbit: The name "Bodycote" has nothing to do with metallurgical coatings; it was the surname of Arthur Bodycote, the founder, a fine example of a person's surname matching a corresponding trade. He established the textile and knitwear business in Hinckley, Leicestershire, UK in 1923. At some point the textile business started to leave the UK for greener pastures (i.e. Asia), and the company needed to find new ways to survive. So, it bought its first heat treating shop. In 1972, it was officially listed on the London Stock Exchange. (ref: Wikipedia)

At Bodycote I started out doing a mixture of customer visits, technical troubleshooting in the plants, acquisition scouting, and other odd jobs, traveling around North America and the UK. Bodycote made a number of small acquisitions during this period building the US network bit by bit. Eventually, the Bodycote board decided to take the plunge and made a public offer to buy Lindberg Corp, then the largest heat treater in North America. The deal was completed and Bodycote now stood at 164 plants globally. Of course, many of the people at Lindberg already knew many of the people at Bodycote via ASM, and many at Bodycote had worked at Lindberg at some point and vice-versa. It took several years to work through the integration of two separate and distinct business cultures.

In 2006, Mario Ciampini, past President of Ipsen International in the US, decided to accept John Hubbard's offer to join Bodycote to help with further acquisitions. Mario energized the US team on several fronts: North American acquisitions and further greenfield expansion in Asia, where we had just one plant up going in China at that point.

When John Hubbard announced his retirement as Bodycote CEO in 2008, The board brought in Stephen Harris to replace him. Stephen was not a heat treater, but he was an engineer and he clearly understood the needs and opportunities for heat treatment in the modern manufacturing world. He reorganized the plants into divisions according to what markets they mainly served: Aerospace, Defense, and Energy (ADE) on one hand; and Automotive and General Industrial (AGI) on the other. Hot Isostatic Pressing (HIP) was kept separate, as was Specialty Stainless Steel Processes (S3P). Only The AGI division was further subdivided by geography. I was given the role of President, AGI North America and Asia with 19 plants.

Further acquisitions and greenfield startups happened in Asia and North America, and my own portfolio of plants rose to around 35 (but still just 15% of Bodycote's total). With many management board meetings in the UK and Europe, I was literally flying around the world almost every month. It was crazy. I eventually retired in 2019 at age 66. Then COVID came. I consider myself lucky to have dodged that particular bullet!

Although you retired several years ago, I understand that you have never truly retired-care to share with us what you are doing these days?

I took a few years off, determined to focus on family, hobbies (boating, music, and electronics), and phone calls with friends from the good-old days. Private Equity had already started to target the commercial heat treating industry. What I know now is that it took just one PE firm to start this rush, but clearly it was perceived by more of them to be a great idea and it's still happening today. I got myself involved. My very first major project was looking at a failing multi-plant PE venture and attempting to explain to the owners what had happened to cause their problems.

I was able to surmise the primary cause quickly, which was poor hiring practices for key management positions. The people who had committed these sins were long out of the picture at this point, but the damage they had done left a substantial blast crater. Suffice it to say it was a target-rich environment in the plants.

I knew from experience that just about every heat treating plant had fallen into hard times at one time or another and was forced to dig itself out. At Bodycote, there was always a short list of plants with profit problems. The causes were often a mismatch between the plant's current capabilities and/or operating methods and what the local customers needed and expected.

In the process of doing this work, I realized that some variation of these same causes can be found in almost any heat treatment shop. They don't have to produce big losses; they usually just erode profit. I realized that hardly anyone teaches anything about how to diagnose and fix this stuff.

Of course we talked about these things all the time at Bodycote, and MTI does all sorts of things to promote fellowship and management training among member heat treaters. However, to protect members from antitrust violations, the MTI strictly enforces a policy that governs all discussions among members to prevent the exchange of sensitive commercial information that could lead to price-fixing or limit market competition.

The most authoritative written work about heat treating economics can be found in the ASM Handbook, Volume 4B (2014), written by Jon Dossett. In his section, Jon, who was a midwestern heat treater himself for many years, walks through appropriate cost calculation methods for different heat treatment processes, and it's very good. In the end, however, overall pricing levels depend on what the heat treater's ROC (Return on Capital) requirements are just to stay in business (on the lower end) and really prosper (on the higher end).

Back to the Controls business: When you look at control systems today what is your impression? Have we come as far in technology as you would have expected, or possibly further?

Yes and no. My years in furnace control and software were challenging and fun because we were operating on the cutting edge of several technologies: atmosphere sensors, digital control instrumentation, computer data acquisition and archiving, and computer process modelling. What we were doing back then was exciting, but it all looks so primitive when compared to what's happening today in the overall tech space.

Today's control and data acquisition systems are much more compact and powerful, and the interfaces are easy to navigate on nice bright color touchscreens. For example, the newest gas flowmeters from SuperSystems have no moving parts and are networked with their controllers, allowing affordable flow control for all process gases right in the process recipes. They are brilliant. I wish I could have had that sort of control at my fingertips back in the day.

Outside of LPC and nitriding, the furnaces themselves have not advanced much, which is disappointing. At one point I thought LPC with high-pressure gas quench was going to give conventional batch IQ's a run for their money. This has not happened. It's still not possible to do LPC in a commercial environment where what's in the load changes every cycle. It only seems to work reliably if the recipes have been carefully tailored for an exact-sized load of specific parts. This has limited it to only certain high-volume uses.

Gas nitriding has really matured with the newer low-temperature horizontal furnace designs from Europe and control systems that allow both precision nitriding and FNC, as well as protected atmosphere tempering in the same furnace, with no pits or overhead cranes required. The accompanying process modeling software has also advanced substantially. However, nitriding remains a tricky process that can be greatly affected by the surface characteristics of the incoming parts. Sometimes it's chemical films that are is difficult to remove, and other times it's the "smeared metal" effect on some of the parts' surfaces that results from dull tools used in machining. These sorts of things rarely stand in the way of successful atmosphere carburizing or carbonitriding where surface prep is less critical.

Bodycote continues to be the world's largest commercial heat treater and they continue to be profitable - what is the secret to their longevity and "staying power"?

At any point in time, some Bodycote plants will naturally be much more profitable than others. Fast forward by 3-5 years, and the mix will have shifted: plants that were doing well now aren't, and others that were sucking wind start to look brilliant. Customers close, or move, or lose big jobs themselves. It's the combination of it all that makes it look like Bodycote is all working perfectly from year to year. In fact, Bodycote is essentially a global mutual fund of heat treatment plants. Management tweaks the portfolio constantly to keep the whole thing headed in the right direction. It sounds easier than it really is, because each plant represents a sizable chunk of capital as well as a valuable group of people. Unfortunately, no one has ever invented the portable heat treat shop to follow desirable customers around the globe.

Local markets around the plants themselves are also constantly shifting. There were more than 60 commercial heat treaters in the greater Cleveland area at one point: now there are fewer than 20. Bodycote's response has sometimes been to follow the work using plants in other locations, and a few times it has followed customers all the way into other countries. A local heat treater can't do that. There is a very good argument for being geographically diversified and Bodycote has taken this to the extreme with its global operations. Having said that, the company is not everywhere. It has sought to avoid countries where business corruption is tolerated; that's still a sizable chunk of the world as it turns out.

There is another secret that Bodycote uses: making sure each plant stays in its lane. The automotive-focused plants don't do aerospace work, for example, because the customers' behavior, the quality systems, and the employee skill sets required are completely different. If a local manager comes up with a hair-brained scheme to add an induction machine to a plant without demonstrated success with that process, it gets shut down quickly.

Finally, Bodycote runs on the knowledge that all a heat treater has to sell is FURNACE TIME. Time is limited to 168 hours per week for each primary furnace. An hour running empty is lost forever once it has passed. While many heat treaters determine their weekly operating schedules based on the convenience for the human staff, the best-run Bodycote plants run 24/7 and modulate the number of furnaces that must be hot during those hours to meet the forecast demand. The shifts are staffed accordingly. Saying the same thing from another perspective: a hot furnace should not be allowed to run idle if it can be avoided. Many people outside of Bodycote find this philosophy to be counter-intuitive since labor is the highest cost in the business, but the math has been shown to work if the scheme is carried out correctly.

It is obviously critical to understand what an hour of time in each furnace is worth at the retail level, in $/hr, all in. This is a key to pricing. Another important key to pricing is determining how much labor will be required to handle the individual parts in each load. It's obviously no good leaving a furnace idle while the shift workers are building the next load for it which requires 8 man-hours to accomplish. Adequate tooling (baskets and fixtures) are often an unexpected constraint that prevents optimum results.

The best-run Bodycote plants measure and control Yield ($/hr) and Utilization (% of a 168-hour week that the furnace had a load in it) to keep track of how efficiently the plant is running. Idling a furnace for an entire shift while there's work sitting in front of it is an indication of a problem.

None of the above has anything to do with how the work is priced. That's a whole other topic. But obviously, the pricing scheme must be derived from the concepts discussed above in combination with other factors including the overall return of capital expectations.

You and I had a very interesting conversation recently about the commercial heat treat industry and how it has been "discovered" by the venture capital (VC) industry. In your opinion has this been a benefit to industry?

Private Equity (PE) firms are working hard to find new industries to invest in that haven't already been consolidated by others. It was only a matter of time before the commercial heat treatment industry came onto their radar.

The first thing PE notices about the commercial heat treating business is that it's a service business, as opposed to a manufacturing business. The heat treater doesn't make anything, nor does it maintain raw material or finished goods inventory. The second thing they notice is that the cash flowing through the business has a high velocity. A heat treater receives the parts and does the service within a few days, issues an invoice, and gets paid within 30 days. That doesn't happen in classical manufacturing businesses with both raw material and finished goods inventories, where cash velocities are anywhere from 90 to 365+ days.

Then they notice that the highest costs are people, and then energy. Surely, they think, these two easy-to-understand costs can be managed better than ever under the lean financial control that PE firms specialize in.

A spreadsheet gets created that is used to convince the investors and lenders that a group of commercial heat treating shops can be put together and turned into an asset that is worth much more than the sum of the parts. The plan is to 'optimize' sales and costs in each acquired business for a few years and then sell the whole collection together at a profit to another, bigger investor, who is very likely to be another PE firm.

A PE project will be working toward an exit date in just a few years and is not interested in the longer term. There will also be little interest in using precious capital to acquire real estate along the way unless it's absolutely necessary. Rather, it will very much want to lease any required real estate. This may play into a current owner's hands, as it allows putting off his capital gain on real estate and it while providing ongoing rental cash flow over time during the owners' retirement which may be partially offset by the continued depreciation of the buildings.

During operation, the PE firm will also not be interested in further CapEx in the business unless the projected payback is likely to be extremely rapid (< 1-2 years). Cash is reserved for more acquisitions or to pay down any debt.

The first deal gets made with a heat treater who is ready to sell and it's off to the races.

With the former owner/operator of the business gone, the PE firm must appoint a new general manager for the shop. In the absence of any existing candidates from within, the PE firm will likely turn to someone who they already know who has managed in an PE environment before. They rely on the rest of the existing staff to tend to the technical details of heat treating, while the new manager focuses mainly on cash flow and "right-sizing" the business.

The original owner of the shop, who knew exactly how to run it profitably, has cashed the check and gone to his retirement villa leaving the operation to his former staff whom he has trained well, with a new boss who may or may not be suitable for the job at hand.

This whole cycle repeats itself with the second acquisition, and so on.

Many scenarios are possible at each shop during the PE holding period. On one hand, things could go really well, with the whole venture coming to the eventual planned exit for the investors. I have personally not seen any of these.

On the other hand, there could be trouble in any or all of the acquired shops. Many issues are possible, but high on the list are things like accurate pricing of work, quality problems, and maintenance of the equipment.

As any experienced heat treater knows, there are two ways to maintain furnace equipment: the quick way, and the right way.

The quick way involves emergency patches done in the process of taking a furnace down and bringing it right back up. If the needed parts are not on hand or in stock at a local supplier, an expedited order must be placed. This method is a bad habit: the furnaces become less and less reliable over time and start to go down even more often, sometimes with important loads in them. Maintenance overtime is given, and no one can guess what will go wrong next, or when.

The right way is to schedule every piece of equipment for quarterly shutdown and inspection, with subsequent replacement of any worn components at that time. This method requires advance ordering of critical parts (a.k.a. inventory) that may be needed based on actual records which someone has to keep.

In a developing cash crisis, the PE manager may start to take exception to the practice of structured preventative maintenance, arguing that it frequently reveals only minor problems. If this happens, it's unfortunate because it may signal the end of preventative maintenance in the plant. Multiple key pieces of equipment can begin going down for breakdown maintenance. Unbelievably, up to 50% of the equipment in the shop may be down at any one time, with green work piling up all around. In an environment where every equipment maintenance event is an emergency, maintenance costs are as high as they can possibly be, and the customers are losing patience. The maintenance personnel aren't very happy either, even though they are making a lot of money in overtime.

At this point, the plant is in serious trouble, and it will be difficult to climb out. The thought of preventative maintenance is totally lost in the scramble to keep equipment up and running. Nothing seems to be getting better.

The financial consequences of all this are obvious. The lost furnace hours are gone forever, and customers are starting to move on to greener pastures, and the best people in the business start to consider their options.

The ending to all of this may not be pretty. A PE firm with a portfolio of breakeven and loss-making plants is a disaster for everyone involved except the competitors. There may still be some good businesses somewhere in there, if anyone can manage to gain access to them again.

Once the crisis is roaring, the current PE personnel themselves still get vilified. This is a bit unfair because the ones who are trying to fix the problems are not the ones who caused them; those guys have moved on, now spoiling someone else's day.

None of the above is exaggerated. I've seen it and worked on it. It's incredibly difficult once the consequences of mismanagement drive a business into a cash crunch, allowing a once-thriving business to fall into disrepair and chaos. It's certainly a target-rich environment for a retired heat treat business consultant!