Growth Spurred by eCommerce Key to Deals, as Sector Consolidation Continues On

Consolidation and acquisitions are impacting virtually every business sector, and the automated materials handling industry is no exception, with two of the largest US players just acquired within a week of each other.

First, a German fork truck maker named Kion announced it was acquiring Dematic for about $2.1 billion. Dematic, recently an independent company, in part traces its roots back to the once dominant Rapistan brand of conveyors, which was acquired by Dematic when that company was part of German industrial giant Siemens before later being spun back out as a private company.

Supply Chain Digest Says... In the end we can expect the automated materials handling market to track like most others, with fewer, larger players operating on a global scale What do you say? Click here to send us your comments Click here to see reader feedback

Dematic, owned by buyout firm AEA Investors and the Ontario Teachers' Pension Plan, had sales of about $1.8 billion last year. Kion's largest shareholder is Weichai Power Co., a Chinese maker of heavy duty trucks.

Kion is actually the second largest seller of lift trucks, behind Toyota Industries Group. It obviously has been looking to expand beyond that lift truck base, acquiring the materials handling division of Egemin Automation in 2015, a maker of automated guides vehicles and other materials handling systems. Earlier this year, Egemin in turn acquired Retrotech, which makes a variety of materials handling systems.

So, this can be seen as a two-part strategy by Kion. First, it seeks to move beyond the large but slow growth lift truck market by getting more into the systems business through the acquisition of Dematic. Second, Kion may be able to gets some additional growth in its lift truck business through leveraging the customer relationships that Dematic has developed, especially in the US..

"We can leverage that position to sell more forklifts, because the customers are the same," Kion Chief Executive Gordon Riske.

The deal is expected to close in the fourth quarter.

Perhaps more surprising was the news just a few days later than Mason, OH-based Intelligrated, really Dematic's chief competitor in the US, was being acquired by industrial conglomerate Honeywell.

Honeywell's offer of $1.5 billion is reported to have bested another offer from the aforementioned Toyota Industries, as Toyota obviously felt the need to adopt the same type of systems strategy being played out by rival Kion.

Intelligrated is expecting sales of about $900 million in 2016. It was owned by private equity company Permira Advisers. The deal is expected to close by the end of the third quarter.

Honeywell is a true conglomerate, having far flung business but with a special focus on the automotive and aerospace sectors.

It entered the supply chain business in 2007 with the acquisition of Hand Held Products, a maker of data collection equipment. It expanded that line when it acquired the parent company of wireless terminal maker LXE in 2011, and then continued with strategy with the 2013 acquisition of auto ID equipment provider Intermec, which was also the parent of Voice system company Vocollect. But Honeywell has really upped its supply chain ante now with the move on intelligrated.

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So what is going on here? There are several factors.

First, the materials handling industry is simply following the path of most other sectors, where consolidation is the rule. "Bigger is better" is simply the strategy of the day.

Two Materials Handling Giants Acquired within a Week

Second, the Kion acquisition of Dematic, and the attempted Toyota Industries acquisition of Intelligrated, are simply examples of a common strategy of product-focused companies trying to expand into the "systems" business, where they hope growth and especially margins will be better than the more commoditized equipment markets.

For example, in 2014 regional fork truck distributor Associated acquired materials handling systems integrator Peach State Technologies in just such a strategy.

Overall, the track record of product companies attempting to buy their way into the systems business has a mixed record at best, so time will tell here.

Third, acquiring companies are betting that the relatively fast growth rates for automated materials handling systems - driven by investments to support ecommerce order fulfillment - will continue. While the materials handling industry is notably cyclical based on the state of the economy, the efulfillment wave has led to strong sales even in the face of an overall lukewarm economy.

"Ecommerce continues to grow at an unprecedented rate and customer demands for faster delivery times have created a need for warehouse, logistics and fulfillment solutions that can increase productivity and lower costs for our customers," said Alex Ismail, chief executive of Honeywell Automation and Control Solutions, relative to the Intelligrated acquisition.

Fourth, it appears the materials handling industry, long largely a regional business across North America, Europe and Asia market, is going global.

Kion, with its major shareholder being a Chinese company, noted the opportunity to expand into China as being one of the keys to its deal strategy. Honeywell, already a major global company in its other businesses, will certainly look to expand the solution set it acquired with Intelligrated to more global markets.

Earlier this year, Chinese company Midea announced its plans to acquire German robotics company Kuka, in a deal that is still being looked at by German regulators.

So, while still a relatively diverse industry, in the end we can expect the automated materials handling market to track like most others, with fewer, larger players operating on a global scale. The real test will be how these acquiring companies.

What is your take on these two deals, and/or what is happening in the materials handling sector? Let us know your thoughts at the Feedback section below.

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