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August 12 , 2010 -

 

Logistics News: Other Material Handling Shoe Drops, as HK Systems Agrees to be Acquired by Dematic

Deal Shows Changes in Materials Handling Industry, as need for Scale, Global Presence become Increasingly Important


   
 


SCDigest Editorial Staff

 
SCDigest Says:
 

Developing and applying material handling technology beyond the manual picking and automatic sorting of products into fully automated case pricking [ACP] systems requires the technical and financial strength to assume the associated risk involved in dramatically changing the way material handling logistics is performed in a client’s operation.


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In the second major merger in the US material handling industry in the last 14 months, Wisconsin-based HK Systems, itself a product in part of acquisitions, agreed to be acquired by its larger European-based rival Dematic, bringing further consolidation to the US materials handling market amid continue soft spending by manufacturers and distributors and the growing need for large scale to succeed as a system provider.

 

In May of 2009, Intelligrated acquired the North American materials handling business of the much larger FKI Logistex. (See Holste on the Merger of Intelligrated and FKI Logistex.)

 

Now, the two other largest conveyor and materials handling system providers in the US are combining, illustrating several major trends in the materials handling automation market.

 

“There is a growing need for materials handling companies to become global players and to have the resources required to develop and support highly automated distribution systems,” says Cliff Holste, SCDigest and Distribution Digest’s materials handling editor. “This deal happened in part to enable HK Systems to participate in those trends.”

 

Holste says that as automated case picking (ACP) and other highly advanced areas of automation start to be adopted by materials handling customers, considerably more R&D and implementation resources are required from vendors versus the typical batch picking systems that have been the mainstay of DC automation for more than two decades.

 

“These very highly automated systems will provide big benefits but also come with high risk,” says Holste. “Once they are implemented, there really is no turning back. Failure would be a major disaster that could severely injure a company. So you need a automation partner that has substantially proven the technology through research and development and has the resources to throw at the project to make sure it is a success.”

 

Global MHA Thinking

 

Even as a $200 million company, HK Systems may not have been large enough to provide the level of R&D and system support increasingly required, Holste says. He adds that the other major factor in the deal from HK’s perspective is the need to go global

 

For really the first time, Holste says, US companies are now looking for automation suppliers that can support them across the world while they pursue their global market development and distribution strategies. HK Systems, while a leading US player, did relatively little business outside of North America.

 

This really provides a lot of opportunity for HK. They've got great technology, and this will give them reach," said Michael Howell, a partner at C.W. Downer & Co., a Boston investment banking firm, who leads the company’s material handling and logistics transaction group.

 

Adds Holste: “There can be no denying that the competitive landscape for MHA projects in the U.S. has changed dramatically in just the last few years with the infusion of international companies  HK is a $200 million range company trying to compete domestically and internationally with much larger companies like Schaefer ($2.36 billion), Daifuku ($1.76 billion), Dematic ($1 billion before this deal), and Vanderlande Industries, Swisslog AG, TGW-Ermanco and Intelligrated-FKI, all of which are in the $500 million to $750 million range. By joining forces with Dematic, HK will become a player in the global MHA market.”

 

Holste said users can expect to see still more mergers down the road.

  

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“Developing and applying material handling technology beyond the manual picking and automatic sorting of products into fully automated case pricking [ACP] systems requires the technical and financial strength to assume the associated risk involved in dramatically changing the way material handling logistics is performed in a client’s operation,” he said. “We can expect therefore to see this kind of consolidation to continue.”

 

With the market for materials handling equipment still soft, the deal also will give the combined companies some opportunity to reduce overhead costs – almost always a factor in these sorts of mergers – and also removes one more competitor from the market place.

 

The name HK Systems will go away, and the company will simply be known as Dematic. Dematic itself has recently been bringing back the familiar green Rapistan conveyor brand that largely disappeared after industrial giant Siemens acquired Mannesmann Dematic and its Rapistan subsidiary in 2001. Later, Siemens spun off the Dematic division to an investment group in 2006.

 

There are no details as yet as to how the many overlapping product areas between the two companies will be handled.

 

The HK Logistics unit, which provides 3PL services, will maintain its name and Wisconsin headquarters, according to the company.

 

Today’s HK Systems was once known as Harnischfeger Engineers, a subsidiary of Harnischfeger Industries. In 1993, Harnischfeger Engineers was spun out of the parent company, and then change its name to HK Systems after acquiring Eaton-Kenway in 1995. HK then acquired Litton Conveyor and Sortation a few years later.

 

 

What’s your reaction to the Dematic-HK merger? Do you agree with Holste’s view on the growing need for greater scale and global reach to be successful as a major MHA provider? Let us know your thoughts at the Feedback button below.

 

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