For years, European investors have been acquiring manufacturing companies in the material handling industry. A new facet was added to the European acquisition strategy in November 1999, when the U.S. division of Netherlands based Pon Holdings B.V. (sidebar) bought MHEDA member Material Handling Services, Inc. (Carol Stream, IL). In January 2000, LeveeLift, Inc. (Evansville, IN) was also acquired (sidebar). Pon North America has set out on an aggressive campaign to acquire material handling distributorships in middle market growth businesses with a focus on platform growth opportunities. Responsible for $425 million of debt and equity capital raised in 41 separate financings to fund the growth of its portfolio companies, Pon North America is investing $130 million of equity capital.
The desire to expand and consolidate— whether pushed by a capital-intensive product with small profit margins or by Wall Street analysts looking for a big boost in numbers— is never far from a business owner’s mind. If a deal brings the company to a larger scale, improves the business and brings value to the shareholders, then an owner will probably be open to it. The devil, however, is in the details.
The current climate in the material handling industry is one of merger and acquisition, perhaps fueled by activity in the equipment rental industry over the past two years. Rental houses published sky-high multiples, with valuations based on cash flow rather than just earnings. Now cash flow valuation has carried over to material handling companies. The window of opportunity has opened, and distributors are selling. With a variety of consolidation plans available— OEMs, investment bankers, private companies— one distributor laments, “Be prepared to buy, sell, or not know what hit you.”
So far, the basic structure of distribution has not changed. That structure is still: manufacturer/distributor/customer. What has changed is the ownership of the pieces, with the distributor having less ownership. Manufacturers will continue to protect their pathways to the marketplace via their distributor networks, so they are seeking some semblance of input into these deals to keep their territories intact.
Is every company meant to grow? Some say no. Rather than buying another firm outright, some small and mid-sized companies are considering strategic alliances that allow them to offer a combined product benefitting both players. Strategic thinking from companies not relying on Wall Street’s hunger for deals is occurring and growing the industry.
No one has the slightest idea where the push for global consolidation will end, but one thing is certain. For material handling distributors, it’s just beginning, and the companies that would appear to be takeover targets must see their worth and desirability increasing with every new deal.
Pon North America Inc.
Headquarters: New York, New York
Profile: Pon North America Inc. was established in 1998 as a sub-holding of Pon Holdings B.V. to pursue consolidation and growth opportunities in certain communications and industrial growth businesses. Pon North America is responsible for the expansion and management of Pon activities in North America. Expansion will emphasize valves for the petrochemical and oil industries, as well as the maritime sector; and sales, rental and leasing of material handling equipment. As of June 2000, the company has acquired two material handling distributorships in the United States since it was formed in 1998.
1. Develop North American operations in four main product groups— equipment rental and leasing, industrial valve distribution, telecom and information equipment, and automotive parts and aftermarket.
2. Produce $1 billion in revenues and $50 million in pre-tax earnings from the four main product groups by 2004 through:
- Platform acquisition in each segment
- 5-10% annual internal growth
- Add-on acquisitions for growth and consolidation
- Autonomous business units backing experienced business teams
- Equity pool incentives for management teams
- Access to Pon’s global network and resources
- Experienced quality management teams
- Growth-minded businesses
- Independent self starters
- People centered/team-oriented cultures
- Responsible business risk takers