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Material Handling M&A

Three realities in Today’s Industry
By Ben Rudman

ConsolidationDespite the maturity of the material handling industry, OEMs have continued to find ways to grow and improve margins and—increasingly—that’s been through mergers and acquisitions.

In today’s market, it can be tough for manufacturers to stand out. Game-changing technologies aren’t introduced on a regular basis, and differentiating features are often quickly copied by the competition. Additionally, markets are well defined, so expansion through increased marketing or awareness is inherently limited.

For many manufacturers, the most effective way to boost business  has come from improving distribution networks through expansion or consolidation.

The following three M&A strategies have proven successful for several companies recently:

Strategy #1: Distribution Expansion
Large, well-capitalized dealers can be hard to come by. Training for dealers in the material handling space, as opposed to automotive dealers, is more complex, as dealers have to learn about the products and develop an understanding of the industrial world. Additionally, dealers have to be well capitalized in order to purchase and retain large chunks of inventory.

The value of good dealers has many manufacturers making M&A moves focused on bolstering their distribution networks. Methods for doing this include:

Acquiring a competing manufacturer. Buying a competitor gives manufacturers instant access to the acquired company’s distribution channels. This way, manufacturers can strengthen their dealer network in regions where they have a limited presence or none at all, without requiring negotiations with existing dealerships or the establishment of new ones.

For example, Mitsubishi Heavy Industries (MHI) recently announced its acquisition of UniCarriers, a joint venture of Nissan and Hitachi, gaining access to its network of dealerships. UniCarriers’ dealer network improved MHI’s access to different geographic regions throughout the United States. The acquisition ensured that other manufacturers, particularly international competitors in expansion mode, could not gain meaningful access to the U.S. market through the UniCarriers dealer network.

Buying dealerships. Dealers tend to vary in strength and size, which can impact each outlet’s sales. Manufacturers can bring more uniformity to their distributors simply by acquiring them. Vertical integration gives manufacturers more control over the supply chain across the board. New equipment can be easily moved and coordinated across geographies, while parts can be centralized at large dealerships or in regional distribution centers. Vertical integration can also reduce competition—for talent as well as territory—among the manufacturer’s various affiliated dealers.

Manufacturer Crown is a good example of this trend. After several strategic acquisitions, the company is estimated to own 53 dealers, or 78 percent of its dealership channel, and it has also begun building new dealerships of its own.

A trend we see less often, however, is OEMs buying dealers that are part of competing OEM networks. There is difficulty around switching the focus of sales professionals and mechanics from one product to another, especially after decades of experience with the previous OEM.

Acquiring manufacturers of adjacent products. This can be an attractive way to boost dealer offerings and add more customers. Adjacent products, such as attachments or specialty lines, also tend to have niche markets and higher margins. If the acquired company has existing dealerships, the manufacturer can add those outlets to its own network, or the adjacent products can be used to lure more dealers into the manufacturer’s fold. Down the line, manufacturers can also alter their products and/or the acquired company’s attachments to be more compatible with each other.

Toyota, for example, acquired Cascade in 2012. Cascade makes forklift attachments, like reach forks and booms, that Toyota can now offer to its customers through its dealers. This creates a balancing act, however. Toyota is now able to boast this product offering as its own, but it also must navigate the threat of other OEMs building partnerships with Cascade’s competitors.

Strategy #2: Strategic Alliances
Some companies aren’t formally merging but are instead working together to give each other access to new channels or bring value-add solutions to market.

For example, MHI has partnered with Jungheinrich, a German firm specializing in unique forklifts and other products, to give the company access to American markets. In return, MHI is able to offer its dealership channel a greater variety of products, most of which possess higher margins.

There have been numerous joint ventures over the years, especially between OEMs with U.S. access bringing international players into the U.S. distribution network. Other joint ventures might include engine, parts, or attachment players that could provide unique solutions for specific OEMs. This, however, is unlikely to affect the M&A market significantly.

Strategy #3: Dealership Consolidation
Outside of OEMs, many dealers have started to acquire other dealers, a move that’s being encouraged by many manufacturers. There are multiple advantages gained from this type of expansion, including:
– Access to capital: The bigger a dealer gets, the easier it is to attract more and, usually, cheaper capital. Large-scale dealers bring in large-scale revenue, which makes lenders more willing to offer sizeable loans and better terms. If a dealer is thinking about selling eventually, a larger dealership is likely to attract a wider variety of buyers. Private equity groups and other strategic purchasers are rarely interested in acquiring small dealerships.
– Regional efficiencies: By buying another dealer within the region, the acquiring dealer removes a competitor, but that’s not the only benefit. The acquisition also gives the dealer access to specialized talent, including sales people, management teams and mechanics, all of whom can be hard to come by, especially in areas with smaller populations. Moreover, a regional acquisition usually results in overhead savings, thanks to economies of scale and other efficiencies.
– New customers: Acquiring a dealer in another state or region is an easy way for a dealership to expand into new territory without needing to start from scratch. The dealer gains existing infrastructure and employees as well as access to an entirely new customer base.
– Influence: Larger dealerships typically hold more sway with manufacturers, especially if the dealer can offer access to a desirable market. Larger dealers also reflect well on the manufacturer’s brand because these dealerships tend to have the budget necessary to invest in better marketing, better websites and better technologies. They’re also better able to attract and retain talented staff members, which allows for better lifetime service and maintenance for customers. For these dealers, manufacturers may be willing to offer more favorable pricing or terms, financing solutions, access to a wider variety of products and other perks.

As these strategies prove, material handling may be a mature industry, but there’s still plenty of room for additional consolidation. Strategic mergers and acquisitions, at both the OEM and dealer levels, can improve margins, reduce the competition and lead to firmer control over the business. For companies looking to achieve greater growth, M&A could be a viable solution.