Crane has provided the paper for U.S. money for centuries; now it’s going global

Correction: An earlier version of the article incorrectly said that current chief executive Stephen DeFalco is the first person outside the Crane family to lead the company. He is the third non-family member at the helm. This version has been corrected.

December 13, 2013

The story of how a family-run company became the linchpin of currency in America — and increasingly the world — is steeped in the lore of the midnight ride of Paul Revere.

The legendary patriot stabled his horses at the Massachusetts paper mill run by Thomas Crane, a staunch supporter of independence from Britain. So it was only fitting that Revere turned to him for a way to assure colonists taking up arms in the American Revolution that they would be paid.

Crane accepted the challenge and crafted bills of credit for the soldiers that bore the motto “Issued in defence of American Liberty” — giving birth to what is now a multibillion-dollar global industry.

For seven generations, the Crane family and its eponymous company have been the sole supplier of the special blend of linen-and-cotton paper that gives U.S. money its distinct feel. Repeated attempts by competitors to dethrone Crane have failed. It has survived attacks by counterfeiters, coins and credit cards.

Now, this all-American company is undergoing a revolution of its own, fighting to make its name in the multibillion-dollar market for manufacturing currency. It has 1,400 employees and has made its international headquarters in Sweden. It supplies paper to Mexico and Thailand, prints bank notes for Tanzania and sells high-tech 3-D security features to South Korea and Lebanon — making it one of the fastest-growing players in the insular and intensely competitive business of making money by making money.

“In order to survive, we had to become global, and we had to become a technology leader,” said Lanse Crane, former chief executive and sixth-generation family member. “That’s where there was opportunity, and that’s where at the end of the day we really staked our future.”

A rise and fall

Crane enjoyed its golden era in the decades after World War II.

The company’s heavy-weight cotton paper dominated markets that demanded high-quality material. Architects used its drafting paper to draw blueprints. Wall Street turned to Crane for stock certificates. Businesses bought carbon copy paper and official letterhead. Even Queen Elizabeth II used it to send dispatches.

At that time, Crane employed roughly 1,000 people and operated six mills along the banks of the Housatonic River, whose headwaters lay in the Berkshire Mountains, not far from Crane’s headquarters. Currency paper was a small but stable part of the company’s business. It didn’t make much money, but it was a tremendous source of pride for the family.

Though Thomas Crane made history by printing the first colonial currency in Massachusetts, the enterprise did not blossom until a century later when the United States moved to a single system of paper money and put out a call for suppliers. Twenty-six-year-old Murray Crane traveled to Washington with a mission to win that business — and unknowingly laid the foundation for the company’s future.

“It had to be huge,” said Peter Hopkins, a consultant to Crane and its de facto historian. “It was a big, big deal.”

Crane never let go of its early lead in the currency business and vigorously defended its monopoly. As the process grew increasingly specialized, it became harder for other companies to enter the market. U.S. money is now printed on a blend of 75 percent cotton and 25 percent linen that once relied on scraps from the denim industry. The paper is crafted to ensure the surface stays smooth and the material is durable. A normal sheet of paper can be folded about 400 times before it breaks; a dollar bill must withstand at least 8,000 folds.

International powerhouses such as De La Rue in England and Giesecke & Devrient in Germany began eyeing the United States in the 1980s. Improved technology was enabling counterfeiters, and the foreign companies promised enhanced security features that threatened to outpace Crane’s capabilities. Lawmakers questioned the company’s long-standing monopoly, leading to congressional hearings and federal investigations.

A 1987 law sponsored by longtime U.S. Rep. Silvio Conte protected Crane. Its headquarters lay within his Massachusetts district, and he counted the family among his close friends. The legislation prevented companies with foreign ownership from supplying paper for U.S. currency and also limited any contracts to four years, making the bids less attractive to domestic competitors.

“We don’t take that relationship ever for granted,” said Stephen DeFalco, Crane’s current chief executive. “We’re every day trying to rewin that business.”

The contract was a lifeline for Crane by the 1990s. Technology was eroding its other businesses: Copy machines made carbon paper obsolete. Computer design software replaced blueprint paper. Company letterhead and stock certificates were going electronic.

By the time Lanse Crane took over in 1995, revenues were down as much as 50 percent, and profit margins were shrinking. Currency was Crane’s last hope — but it would still require reinvention.

Expanding their market

To do a better job at home, Crane looked abroad.

Currency production is a niche industry, partly because of the inherent security issues and partly because it’s essentially a zero-sum market. There are a limited number of countries and currencies, so winning new business almost always means displacing someone else.

Rick Haycock, president of Currency Research, which develops industry conferences, estimated between 130 billion and 160 billion bank notes are printed across the world each year.

Many governments handle the process themselves. Some places, such as Australia, not only manufacture their own money but also print other countries’ currencies as well — turning them into yet another source of competition. Commercial production accounts for about 15 to 20 percent of currency production, Haycock estimated, but the share is growing as security demands increasingly high-tech products. He estimates the revenue of commercial printers and suppliers is between $5 billion and $7 billion.

“The technology of a bank note has actually changed quite dramatically and quite significantly over the past 20 years,” he said. “The cost of keeping up with that has also been quite significant.”

Lanse Crane spent more than a year traveling the world to find an opening for the beleaguered company. The opportunity emerged in 2001 when Sweden’s Riksbank decided it could no longer handle its own currency production. Officials arrived to scope out Crane’s suburban Massachusetts headquarters on Sept. 10 — and wound up staying for nearly a week after the terrorist attacks grounded air travel. But the time provided the Swedish central bankers and the Crane family a chance to bond, and the trip ended with an agreement that gave the company entry to the world stage.

The deal turned Crane from a family papermaker into a global printing press. In the States, Crane was responsible only for making currency paper. The contract with Sweden required Crane to both manufacture and print the kronos — and not just for Sweden, but also for a portfolio of other countries that used the printing facilities at Tumba Bruk.

“It’s a manufacturing business,” Lanse Crane said. “You want to be able to run that machine around the clock. That’s where you get your efficiencies.”

Currency has now grown to 80 percent of Crane’s business with 50 countries, though the company doesn’t release revenue figures. It remains the sole supplier of currency paper domestically but is still a small player internationally. Since Crane is privately held, it does not disclose revenue figures, but Haycock estimated its market share at about 2 or 3 percent.

“What we could provide up to that point was trust, reliability, consistent quality. . . . But the demands were changing,” said Lanse Crane, who began wearing both the American and Swedish flags on his lapel after the acquisition. “We had to raise our game to be a world-class supplier.”

Necessary changes

Taking Crane international transformed not only the company’s business model, but its culture as well.

There were complicated tax implications, at home and abroad. The Swedish printing plant was unionized, presenting a new labor challenge. Working within the European Union required new governance and operational strategies.

And after generations in the business, some members of the Crane family were ready to cash out. The pipeline to lead the company was dwindling as the Cranes perused other fields, such as wildlife conservation and cross-country ski racing, instead of paper-making.

Lanse Crane realized that the final step in the company’s revolution was to hand over the reins.

“For me, sitting in the CEO’s chair, I could see that the business needed it,” he said.

Lanse began scouting for outside investors, and his successor, Charlie Kittredge, finished the process. In 2008, after a quarter-century of family ownership, private-equity firm Lindsey Goldberg acquired a 49 percent stake in the company for an undisclosed sum. Kittredge remained on the board of directors, which now consists of family members, representatives from Lindsey Goldberg and outsiders.

Since then, the company has had to defend itself from both old-school and high-tech threats. It successfully fought several efforts to replace the dollar bill with a $1 coin, including a lobbying effort dubbed “Americans for George.” Recently, the Federal Reserve issued a report that deemed the dollar bill “currently the more efficient payment instrument compared with the $1 coin.

Meanwhile, the company used cash from the buyout to invest in cutting-edge technology that it hopes will spark another revolution in currency: three-dimensional money.

Crane acquired two Georgia laboratories that create microscopic lenses. When combined, the lenses create the illusion of 3-D movement on static surfaces that is tough for counterfeiters to replicate. The company debuted the technology in Sweden with a strip in the center of the bill embedded with images of a crown and the denomination that appear to move when the bank note is tilted. After several delays, the motion strips appeared stateside on the newly designed $100 bill this fall.

“You don’t stay in business for over 200 years by ignoring trends,” DeFalco said. “This was like Star Wars versus the stuff they had been doing.”

DeFalco took the helm of Crane in 2011, the third person outside the family to hold that position. Though he had little experience in currency production, DeFalco had been an executive at several medical technology firms and experienced firsthand the rapid pace of innovation.

Since his arrival, the company has moved into manufacturing technical materials from products other than cotton that are used in energy, water and environmental filtration. This year, it doubled the size of its “nonwoven” production facility and the number of employees. Though the division is still just a sliver of Crane’s overall business, it is growing fast — much like the currency did back in the 1800s.

“There’s this kind of picture of Crane: It’s an old family-owned company, always gets the contract,” DeFalco said. “There’s another part of Crane, which is probably a more modern version, that says a company that came from family values and believes in customer service, has reinvented itself.”

Ylan Q. Mui is a financial reporter at The Washington Post covering the Federal Reserve and the economy.
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