Chris Johnston
An interview with:
Being the Director of Business Development at Graham Corporaon, I am responsible
for corporate development and new market expansion. Having worked for the federal
government in the past, as well as in nonprot and private sectors, I gained a wide
range of experience that is able to be put into pracce in my current role
Fordham University is where I received an MS in Internaonal Economics. In 2010 and
most recently reappointed for another four years in 2019, I am honored to serve the
US Secretary of Commerce represenng Western New York’s regional interest in
promong the benets of internaonal trade on the US Department of Commerce
District Export Council (New York). Bualo, NY is where I call home and enjoy spending
me with my family, performing community service, and in my spare me, cooking.
At its core, it begins with our top priories to grow our business and improve nancial results. We start with what we
are strategically trying to solve and then test it, or verify, that creang and improving shareholder value can be
realized. Creang and maximizing shareholder value is of the utmost importance to Graham, and using our strong
balance sheet to grow organically and through acquision is a key element in fullling our strategy of realizing this
We are targeng acquisions that will provide growth and dampen the cyclicality that impacts us in the energy
markets. We are looking to diversify our customer mix, but remain true to our values. For example, expanding
revenue opportunies within our growing naval nuclear propulsion segment is of compelling interest to us. Simply
stated, that is addional products within exisng markets.
Another one of our priories is increasing the level of predictable revenue in our historic energy markets, where we
appear to face increasing uncertainty. Therefore, in addion to naval work that is fairly predictable, our strategy is
around aermarket and the installed base, or in entering a new market uncorrelated to energy.
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Graham uses mulple methods to explore assessment opportunies of potenal companies. We are
engaged with a number of bouque investment banking rms that have met with Graham management,
understand what we are seeking and create deal ow. Secondly, we parcipate in a number of industry
conferences where suppliers, like Graham, aend. We network, develop connecons and begin nurturing
relaonships. An outreach program is also in place that targets companies in key sectors or that have ideal product
lines. Graham also oers markeng material that condently promotes the company as a strategic buyer with
parcular capabilies. In addion, we may be contacted by bankers who have a seller that views Graham to be an
appropriate buyer for their business.
We believe the culvaon of relaonships with owners, perhaps not immediately thinking of selling, will garner the
best deals.
Chris Johnston interviewcont’d.
Interesngly, we rst consider what we can do for the business we are targeng. For instance, can we help them grow?
Can our operaonal excellence complement theirs to unlock uncaptured margin? Is it possible to create greater
nancial returns through opportunity and pricing management? We believe this opens a potenal seller’s mind to the
possibilies with Graham as a partner. We then turn and look at how that reshapes our nancial results and earnings
From a revenue perspecve, Graham is looking at companies generally within the $20$60 million range, with our
primary focus on Defense, US Navy or aermarket in the energy markets.
It is important to us the prospecve companies have a strong management team that wants to remain aer the
acquision. Graham does not have the management bandwidth to insert resources into the daily operaons of a
business. We are not interested in a turnaround or a company where the management team is looking to cashout of
the business and leave.
Our nancial criterion for a deal involves more than just accre
ve to earnings. Given the low returns on cash and low
cost of debt, we think accreon is too low a bar for return on capital. Our focus is to get acquision nancial results
similar to a capital project a cash return that is similar to an equitytype return; something in the low to midteens from
an IRR standpoint. If they can do that, and manage their balance sheet, as we believe we can manage our balance
sheet, then the accreon happens. Many companies do the opposite. They look for immediate accreon alone, and
then they look at the deal four or ve years later and ask, “What happened to the cash ow? What happened to the
balance sheet?” They may have goen accreve earnings from a book standpoint, but from a cash standpoint, it is not
Graham looks for the stronger nancial return, and that is hard to do if you overpay for an acquision. Oen, if involved
in an aucon situaon, you can get into a bidding war and overpay. Our strategy does not include doing either of those
– parcipang in an aucon or overpaying.
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Our approach is to look at the markets and product areas Graham is interested in. We then idenfy
companies that t our mold. These are generally private companies who we reach out to directly and then
begin establishing relaonships. This is a crical component of our idencaon and culvaon strategy.
Our process is to build and nurture that relaonship, to build the trust needed to make a deal possible. This takes
me months, quarters, even years, but we believe the outcome has a higher probability of creang deal value.
The process involves paence. While not every opportunity works out in terms of an acquision, we do nd somemes
there are shared business opportunies between Graham and our targets which translate into alliances, or business
opportunies for both companies, and ulmately build trust and stronger working relaonships. There may not be a
current interest in selling, however, down the road their situaon may change and Graham may benet because of the
business relaonship we culvated.
The relaonship is the important part of our process. It may elongate the meline, but we believe it makes for a
smarter, beer, more successful acquision. Graham has been implemenng this process for some me and has built
many mature relaonships with companies in our target markets. If we can nd the right business to ulmately
acquire, and at a price we think is fair, and meets the other criteria discussed, then it would be expected to be a good
acquision. Graham is not looking for mulple acquisions; on the contrary, we are looking for one really good one.
Historically, rening and petrochemical energy markets make up threequarters of Graham’s business, which can be
quite cyclical in nature. These are great markets when you are in the up part of the cycle, however, when the down
cycle occurs the ride can be rough. Graham has lived through a couple of down cycles in the past decade. We are
looking for other, more predictable revenue to balance the cyclicality, which can also add customers and soluon
Graham is focusing on expanding our US Navy business, which we have organically grown from 5% to now 25% of our
revenue over the past decade. Our eorts are directed at growing this segment even further. Navy work presents
larger, longlived projects that are not in sync with energy markets, and while these orders are typically large and
somemes slower to develop, once the project is inhouse, they provide an annuitylike revenue and prot stream. This
allows us to beer plan the operaons and fabricaon side of our business, and ulmately the revenue. This also
enables Graham to control the prot side more e
ciently than typically can be accomplished with the capitaldriven
rening and petrochem business.
Chris Johnston interviewcont’d.
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Graham Corporation
Chris Johnston interviewcont’d.
We have closely looked at other markets where Graham products t well. These markets are typically
where customers are looking for precision and/or customizaon, and are willing to pay for it. They are
not buyers who believe that “good, is good enough.” Nuclear submarines and aircra carriers are precision
engineered kind of customers. Consequently, the Graham focus is currently on the US Navy projects, along with the
aermarket in rening and petrochemicals. These markets are not as volale as the capital side of rening and
The Graham funnel is deeper than it has been in a while. Over that past few years, our team has been focused on
idenfying potenal targets, nurturing relaonships and taking companies through our process. We have a healthy mix
of mature relaonship companies (34 years) and newer ones that we have established as a result of our direct
targeng, involvement in trade associaons and working with key leaders in the industry. Graham has a prey good
array of companies, primarily in the US Navy space, and also in the aermarket of the rening and petrochemical
We have a nice funnel of opportunies, and are looking to nd a company that makes sense, one that we want to buy,
and they want to sell, one that benets both of us.
We have progressed quite far down the path with a couple of companies; in fact, a majority of the way.
Graham chose to peel o these opportunies because, as we completed our due diligence, we found that
either the companies did not have the means to execute to their forecast, or the business we thought was there
inially, was not as robust as Graham had been led to believe.
It is possible that Graham could commit to a deal in the next 1218 months, as at any point in me we do have a number
of companies in our opportunity funnel. This is how our process and funnel works. My answer would have been similar
two to three years ago. The fact that nothing has happened in M&A for us is not a funcon of lack of acvity or lack of
volume in the funnel. It is just a maer of nding the right t at the right me for our company and business.
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