Growing too fast to remain a secret -
Published Monday, September 27, 2010 at 8:00 am / Updated at 4:07 pm
Growing too fast to remain a secret
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As you head toward No. 11 ConAgra Drive, there's no clue that you're approaching the headquarters of a company with more than 300 high-salaried local employees, owned by some of the nation's biggest investment groups, with a global network that markets and shuttles billions of dollars worth of grain, fertilizer and fuel each year.

Nor can many people in Omaha tell you much about Gavilon Group.

But Gavilon has become a widely known name in the behind-the-scenes world of commodities, from grain elevators in the Farm Belt to shipping and trading of grain, fertilizer, natural gas and petroleum products on six continents. And some day, Gavilon might even appear on Wall Street. (Ticker symbol GVN is available.)

For now, Gavilon's 1,100 worldwide employees are concentrating their specialized skills on keeping those three basic commodities — grain, fertilizer, petroleum products — flowing smoothly around the globe.

“We're excited about the opportunities,” said Greg Heckman, Gavilon's president and CEO since ConAgra Foods sold it for $2.8 billion in 2008. “The world is going to demand more food and fuel, and we're going to be there to help that happen as efficiently as possible.”

Even if you haven't heard of Gavilon, you probably have products that the company has touched.

Eggs in the refrigerator? Gavilon traders carry out the sales between grain farmers and poultry producers.

A loaf of bread? Not only the grain but also the fertilizer used to boost yields likely passed through Gavilon's computerized systems as well as its grain storage network, which has a capacity of 150 million bushels.

Natural gas furnace? Gavilon trades energy commodities, ensuring natural gas is available when winter sets in.

Gavilon’s name is new, adapted from the Spanish gavilan, for “hawk.” (One of Gavilon’s owners is Ospraie Special Opportunities Fund, which conjures the fish-eating bird called osprey.)

The other owners are General Atlantic, a $15 billion investment fund based in Greenwich, Conn.; Soros Fund Management, which is affiliated with investor George Soros; and a Gavilon management group.

Despite having a new name, the company traces its roots to 1874, when Peavey Co. of Minneapolis built its first grain elevator.

ConAgra bought Peavey in 1982 and in 1998 moved Peavey's trading group — 100 people and a $5 million annual payroll — from Minneapolis to Omaha. ConAgra merged its and Peavey's traders on a specially built trading floor in the fifth and newest building on the ConAgra campus.

But changes in direction focused ConAgra's attention on brand-name packaged foods, and the ConAgra Trade Group, as it was known, became a “non-core” business. Still a viable business, its future was uncertain within ConAgra.

Heckman worked for ConAgra for 24 years, joining the company after graduating from the University of Illinois, and he helped shepherd the transition to the new owners.

The purchase by the investment group resolved the uncertainty, Heckman said, creating a company whose core business is exactly what its staff is equipped to carry out.

“This is a people business,” he said, with business relationships built among individuals over years of dealing with growers, shippers, commodity customers and others in the long chains between farm field and dinner plate, oil field and gas tank, fertilizer plant and corn row.

The new company signed a long-term lease with ConAgra for the second-floor trading room, which was built specifically for commodities trading and related functions.

Since 2008 Gavilon has added 160 employees, of which more than 100 are in Omaha, boosted its grain storage capacity by 24 percent and opened regional offices in Australia, Switzerland, Russia, France, Peru, Mexico, Spain and South Africa.

Gavilon's financial performance isn't reported publicly because the company is privately owned. In its last year under ConAgra, the trading operation generated $669 million in profit, before taxes.

Besides the $2.8 billion purchase price, the investment groups also put in a chunk of capital for operations and expansion, an amount also undisclosed.

“We've put a lot of capital to work,” Heckman said.

Those expenditures include purchases of grain elevators, construction of new and expanded grain and fertilizer storage, and new offices in Houston, Tulsa and soon Perth, Australia. Gavilon's existing Australian branch office is in Brisbane.

Plans include a new 800,000-bushel grain elevator near Benkelman in southwestern Nebraska and grain and marketing offices in Ukraine and Geneva, Switzerland, with operations reaching into the Middle East and North Africa.

The company's new owners “saw the value that Gavilon could create,” he said.

Gavilon recently settled an old issue with federal regulators.

In 2007, a ConAgra trader manipulated trading in crude oil to bump the price to $100 a barrel, according to allegations by the Commodities Futures Trading Commission, which brought administrative charges against ConAgra. Gavilon, without admitting or denying wrongdoing, agreed last month to a $12 million settlement.

ConAgra paid Gavilon $4.3 million, saying the payment would eliminate any dispute over the issue with Gavilon.

Last year, Gavilon named James E. Newsome, a former chairman of the trade commission, to its board of directors and as head of the board's new committee on compliance with trading regulations and other requirements.

Heckman said Newsome's presence gives board-level compliance oversight to the company's operations, in addition to its existing internal compliance officers.

He declined to elaborate on the commission settlement.

Today the focus is on the future of Gavilon, which Heckman said is bright. The company is at the nexus of essential goods that a world with a growing population and expanding economies brings a demand for better diets and more energy.

Gavilon essentially acts as the connection between production and consumption of those basic goods, smoothing out the time and distance that separate them.

For example, farmers harvest corn during a short time each year, but consumption takes place year-round. That means storage and shipping systems must even out the flow of grain.

Gavilon stores some grain itself and arranges shipping by barge, truck and train.

Natural gas comes out of the ground 24/7, yet U.S. consumption rises sharply during the winter months. Marketing, storage and transportation, arranged through Gavilon, make the large volumes available during peak demand.

“We understand the challenges,” Heckman said.

It's not an easy business, and the people who carry the day-to-day load have developed skills and relationships that Gavilon depends on.

That's why the company's long-term presence in Omaha is assured, even if Gavilon becomes a public company, he said. Losing key personnel because of a corporate relocation would disrupt operations.

Heckman said there are no current plans to sell stock to the public, although all options are open to the ownership group.

“But today we're enjoying being a private company.”

Gavilon's name is gaining some recognition around Omaha, but spokeswoman Kay Doyle said she frequently has to explain what the company does, even to people applying to work there. The company currently has 22 job openings.

One of the company's immediate goals is to place a “Gavilon” sign outside the building where it resides.

Contact the writer:


Contact the writer: Steve Jordon    |   402-444-1080    |  

Steve covers banking, insurance, the economy and other topics, including Berkshire Hathaway, Mutual of Omaha and other businesses.

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