Over the past few years, the economic climate has been one of the toughest that we’ve ever had to deal with. As with any industry, the material handling industry saw many companies close down due to economic hardship. Other dealers merged or allowed themselves to be bought out by other companies. According to The MHEDA Journal, there have been 45 reported mergers or acquisitions involving MHEDA members since the 4th Quarter of 2008. This rash of transactions coincides with one of the worst downturns since the Great Depression. As the economy slowly but surely moves into recovery mode, the question becomes, was the increase in M&A a function of a bad economy or an indicator of the direction the industry is heading?
According to an article titled “A Boost for M&A?” in the December 2010 issue of Industry Week, the newly Republican-controlled Congress may lead to an increase in activity for mergers and acquisitions. The article cites several lawyers who lay out the case for an uptick in M&A activity. Morton A. Pierce, vice chair of Dewey & LeBoeuf and co-chair of its mergers and acquisitions practice, opines that M&A is a function of a good economy. With economists predicting a sustained recovery, rather than a double-dip recession, companies who have a build-up of cash and increasing access to cheap financing will be well-positioned to participate in M&A activity. William E. Sigler, a lawyer with Maddin Hauser Wartell Roth & Heller, agrees with Pierce. “M&A activity ultimately depends upon such traditional factors as valuation, perceived synergies and the availability of capital,” he says.
Pierce also claims that people’s perception of the new Congress could lend itself to increased activity. “If people believe a Republican-controlled House will provide added focus on improving the economy—versus a social agenda, for example—that can contribute to additional activity. And for the business community, Republicans taking over the House is a psychological plus.”
MHEDA Members Speak Out
Many MHEDA distributors agreed with the premise that heightened activity in M&A is the trend of the future. “Ten years ago, there were several major players in the conveyor business. Now it has shrunk considerably down to 4 or 5 players. It’s an evolution of how things are happening and how companies go to market,” says Gary Ashley, CEO of Conveyors & Drives (Atlanta, GA).
Richard Sinclair, president and CEO of Jefferds Corporation (St. Albans, WV), agrees with Ashley. “I think it’s a trend that will continue, regardless of the economy,” Sinclair says. “You’re going to see bigger dealers. It takes such a capital investment to be in this business that you just can’t be very effective if you’re a small dealer always up against the nut in terms of bank financing and everything else.”
Modern Group (Bristol, PA) has done 33 acquisitions in its history and has plans for several more in the coming year. President David Griffith sums up the rationale behind the increase in M&A, “I think there’s always opportunity to buy good businesses. I can go get it in the marketplace or I can buy it. I can spend $3 million for 10 salespeople or I can go spend $3 million and buy $30 million of revenue. You have to do both, but it’s a function of a couple things.”
Counterpoint: M&A To Settle Down
Other distributors disagree with that premise, however. Several dealers indicated that the rash of M&A was a direct function of the bad economy and should plateau as the economy moves towards recovery. “It’s a critical impact factor that’s taken on a life of its own. It’s a direct function of the economy,” says Ken MacDonald, president of M & G Materials Handling Company (East Providence, RI).
Russ Wilkins, president of Frontier Forklifts and Service (Pearland, TX), agrees that most of the activity is behind us. “I think that whatever us going to happen has already happened, and what we see right now is the way it’s going to stay.”
John Croce, president of Abel Womack (Lawrence, MA), indicates that the economy accelerated the trend but that activity will continue. “I think the trend towards consolidation will remain but it will clearly be at a slower pace. The consolidation that’s happening now is really out of necessity. The consolidation that’s going to be happening going forward is out of opportunity.”
What do other MHEDA members think? Is the increase in M&A activity a function of a bad economy, or is it a trend going forward? What does the increase in activity mean for the industry? Weigh in using the comments section and let us know.