USA: Greenwich company's ‘waterproof fabric’ sets a new standard

CALIFORNIA: One of Bill McCabe’s favourite demonstrations is standing over a Levi's denim jacket with an open bottle of spring water and slowly pouring. The water pools up like a raindrop that's freshly landed on a windowpane. McCabe then lifts the jacket and the water shimmies off as if the fabric were feathers on a duck's back.

Next he pulls out a book of matches, holds up a swatch of gray wool and attempts to light the fabric on fire. The flame doesn't catch, and as the match burns down, McCabe blows it out.

McCabe, the co-chief executive officer of Nextec Applications Inc., a producer of high-performance engineered fabrics, knows he's got a unique technology. And he doesn't have much of problem convincing other people. Nextec's customers read like a who's who of performance outerwear, from L.L. Bean to Timberland to the U.S. military's special operations forces.

McCabe and the company's other co-chief executive officer, Peter Santoro, have a task much larger than finding loyal customers. The pair, both from Greenwich, have been tapped to take Nextec, an ailing company, and turn it around. Their charge comes from a rather weighty boss -- General Electric, whose Stamford General Electric Pension Trust is a large Nextec shareholder.

GE declined to comment on its pension fund's investment, but said it holds less than 50 percent of Nextec's shares.

Nextec was founded 11 years ago in Vista, Calif., and is marketed under the brand name EPIC by Nextec and EPIC Amphibious Cotton. The company also is working on a new product called EPIC Amphibious Wool for a project funded by the International Wool Council and the U.S. Army.

With 51 patents, Nextec can do what no other textile company can, McCabe said. The company uses what's called encapsulation technology to produce high-performance fabrics for apparel and protective products.

Other performance fabrics rely on coatings, laminates or Durable Water Repellent to provide protection. McCabe says those methods limit breathability. The chemical coatings often wear off with washing and leaves the fabric with a stiff feel to it.

Nextec's technology is inside the fabric. The company's patented process places an ultra-thin protective barrier of silicone polymer around the fiber and between the fiber bundles. The micro holes between the encapsulated fibers allow water vapor to escape, yet still block out water and wind.

This type of technology makes the fabric water resistant, windproof, fast drying and lightweight. It's designed to breathe, while at the same time block rain, snow and wind.

"It gives us a product that allows us to stand right next to Gore-Tex," McCabe said. Gore-Tex is the market leader in waterproof fabrics.

<b>Breathability is key</b>

But what makes the technology truly stand out from competitors is its ability to breathe, he said. While other performance wear succeeds in keeping water out, perspiration is blocked from escaping. Nextec's technology enables perspiration to escape -- not only keeping a person dry from the outside, but underneath the garment as well.

"The more aerobic the person using our product is, the more appropriate our product is for them," McCabe said.

Well-known consumer brands such as K2, Black Diamond, Orvis, Land's End, Burton, Levis Strauss, Nike, O'Neill and Quiksilver are just some of the companies that use Nextec in their apparel lines.

Nextec technology is used in the U.S. military's Protective Combat Uniform program, which specialty designs apparel for the Special Operations Forces so soldiers can perform in cold weather climates, as in the mountains of Afghanistan.

"Right now, there is nothing like it," said Peter Metcalf of Nextec's technology.

Metcalf, chief executive officer and co-founder of Black Diamond Equipment, a producer and marketer of climbing and backpacking gear, teamed up with Nextec two years ago to design a tent for hard-core backpackers and climbers.

After several years of testing and designing, the tent, which retails at a high-end $369, hit the market last year.

"The response has been absolutely phenomenal," Metcalf said.

For outdoor athletes, bulk and weight is a big issue. Climbers who are tackling such peaks as Mount Everest will forgo carrying a tent and instead dig a snow cave to sleep. The tent is so low bulk and so low weight that they can afford to carry it with them, Metcalf said.

The two-man tent, excluding the poles, can be folded down so small that it can be squeezed into a one-quart water bottle. "It's not like it's 3 percent lower bulk and weight. Compared to the fabric we were using before this, it's about half the weight and half the bulk," he said.

It's a robust little tent that can take hard rain, high winds and heavy snow, he said.

"It's just huge. It is a major step forward," he said, adding that Black Diamond's Nextec-enabled product won the tent of the year award from Backpacker Magazine and the editor's choice award from Climbing Magazine.

<b>Profits disappeared</b>

Despite developing a unique technology, a loyal following and a client list of global brands, Nextec's former management made some costly mistakes, Santoro said.

The company had opened a 57,000 square foot manufacturing plant in California and a second plant in Singapore, but the in-house manufacturing model wasn't working. Instead, it was eating the company's profits and causing delivery delays to its global customer base.

When McCabe came aboard last spring, Nextec was a shell of a company, and its major shareholders were debating whether to change the business model, license the technology or find a joint-venture partner.

McCabe, who has 33 years experience in the textile and apparel industries, was, at the time, working as a consultant for Unifi, one of the world's largest textile businesses.

Unifi was interested in possibly acquiring Nextec and asked McCabe to investigate whether the company was appropriate for Unifi's portfolio.

It wasn't, McCabe said. But Nextec's technology intrigued him so much that he brought in Santoro, a long-time friend who had extensive Wall Street investment banking experience.

The pair, looking for a new challenge, were hired in April as consultants to Nextec's board to evaluate the business and see whether there was a commercial component that was salvageable.

"We felt there was a strong commercial opportunity here, and if executed right there could be some pretty strong profits," Santoro said.

If Nextec had delivered on every single order, it would have been a $35 million business, McCabe said.

"We saw there was a very good technology, but a flawed business plan. It seemed a shame to throw it away," Santoro said.

<b>New leaders</b>

In July, after Santoro and McCabe reported their findings to the board, they were appointed co-chief executive officers. They also became principals and shareholders in the new entity.

GE and a group of private investors pumped a new round of funding into Nextec. The investors gave McCabe and Santoro a tight timeline to make Nextec cash-flow positive.

The pair shuttered the manufacturing operations in California and Singapore and moved the company's headquarters to a modest Greenwich office on West Putnam Avenue.

"Our major sponsor is 10 minute away," McCabe said of GE. "It makes sense to have the company's major holding company down the street."

Santoro and McCabe streamlined the business. They cut the company from about 140 employees down to a dozen and outsourced what they could, including research and development and manufacturing.

They formed a manufacturing joint-venture agreement with a textile mill in Georgia, which handles the work for all its U.S. customers. The decision to keep manufacturing in the United States stems from the Berry Amendment of 1988, which requires military supplies to be made in the United States.

For Nextec's global operations, McCabe and Santoro formed a licensing agreement with Argo Pantes, a large Indonesian textile manufacturer.

The joint venture gives Argo Pantes the rights to produce and market Nextec product in Southeast Asia and Europe, with the exception of military markets, McCabe said.

<b>Turning around</b>

Santoro predicts the company will be making a profit by the second quarter of this year.

"It's our intent to grow the business aggressively," Santoro said, adding that he expects Nextec to have annual sales of $25 to $30 million in North America.

It's worldwide sales could be quiet large relative to the market, Santoro said.

"We can be about 10 percent of Gore's business," McCabe said. Newark, Del.-based W.L. Gore & Associates, the maker of Gore-Tex fabric, does $800 million in business annually, McCabe said.

"It is definitely a competitive market, the people who use these fabrics really want innovation," said Emily Walzer, fabric editor for Sporting Goods Business and Outdoor Business, two trade publications.

There is a lot of really good fabric out there, she said. It used to be that performance clothing and gear manufacturers would have only a few choices. Now they have many more options and many more price points, which makes it a more competitive market for Nextec.

Further, she said, some of the big manufacturers, such as Columbia and North Face, are now producing their own proprietary fabrics.

To survive in this competitive landscape, such companies as Nextec must come into the market with something that works well, she said.

"If Nextec didn't have something innovative, these guys wouldn't be interested," she said.

Performance gear manufacturers are outfitting consumers who are testing their goods in extreme conditions. These consumers are not just wearing their performance clothes on a trip to Starbucks, they are wearing them to the top of Mount Everest, Walzer said.

But Nextec has an advantage, because its technology is not limited to hard-core performance wear, she said. A manufacturer who makes khakis and denim jackets might be just as interested in the technology, she said.

McCabe and Santoro said they believe Nextec's possibilities are limitless. And they believe they have made it up their personal mountain.

"I think we are comfortable that we've turned the corner," Santoro said. "What we need to do going forward is to execute properly."

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Added: January 24, 2005 Source: Agencies
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