TAKE YOUR PARTNERS…

Scarcely a week goes by without rumour reaching the Cranes Today office of manufacturers in discussions to co-operate, merge, acquire or sell-out. Usually, of course, these reports cannot be satisfactorily verified unless a deal comes to fruition. But most of the time the rumours are not without foundation. After all, in business everything is for sale – for a price – even the company.

The forces for consolidation in the crane industry are much the same as in the automotive industry, where General Motors, Ford, Renault, BMW, Mercedes and Volkswagen have all been on the acquisition trail. In both industries, the market place has become international, and in a mature market the quickest way to gain market share – and so maintain growth – is to buy it.

The goal is global dominance, or at the very least a global presence. In the crane industry this means a presence in the three key regions: North America, Japan/Asia, and Europe.

Most of the leading mobile crane manufacturers have strong international presence, but none has yet achieved the holy grail of being in a leading position in all three key markets.

Four companies have two of the three legs in place: Grove and Terex, in North America and Europe; Tadano, in Asia and Europe; and Sumitomo, in Asia and North America.

Grove, Terex and Tadano got where they are through acquisitions in Europe: Grove bought firstly Coles of the UK in 1984 and then Krupp of Germany in 1995. Terex acquired PPM of France and Bendini of Italy in 1995, since when it has bought a range of other European companies. Tadano bought Faun of Germany in 1990. Sumitomo bought Link-Belt in 1986.

Liebherr and Mannesmann Dematic ship a certain number of units over to the Americas and into Asia; Kato sells into Europe. But a local manufacturing base is always likely to create a more significant presence than relying on local distributors.

A comparison of Tadano and Kato demonstrates this. The two Japanese companies have similar product offering with the same carrier, but Tadano has invested more overseas than Kato and is better placed to cope now the home market has shrunk, by increasing its exports.

Not only is there a desire for a strong presence in each geographic market; most manufacturers also seek to be strong in more than one product group. Grove, for example, is strong in truck and rough terrain cranes, and in all-terrain cranes since the Krupp acquisition. It would like to offer crawlers too. Manitowoc is dominant in crawlers, but would like to be equally strong in other segments.

Earlier this year talks between Sumitomo and Mannesmann Dematic about forming some kind of trans-Atlantic alliance between Link-Belt and Dematic fell apart “over the last 10%”, according to Mannesmann Dematic director Eberhard Kuhn. The two companies had been in talks, on and off, for about three years or more.

They know – still – that putting the two companies together makes sense, in terms of product range and geographic presence. Neither side is explaining what that “last 10%” involved, but from discussions with executives on both sides it seems that perhaps neither side wished to cede control.

The greatest obstacle to the coming together of any two corporate entities is usually ego. Many deals fall apart when discussions begin on who fills which chair at the top table. The truth is that true mergers are rare, largely because they are so politically tricky. One company has to effect a takeover and be in charge, though it may have the grace to window-dress the deal as a merger to soothe the ego of the junior partner.

It actually does not matter who takes over whom, or who is the senior partner; all that really matters is increasing shareholder value and profitability.

Some discussions between companies in the crane industry have centred on forms of marketing co-operation or licensing agreements. Clearly the executives involved have been studying their marketing text books and learning about entry strategies for new markets: joint ventures, branding licences, franchise agreements and own distribution networks. They all have their place and are successful up to a point.

Manufacturing under licence agreements invariably ends up with copyright disputes after expiry of the licence.

Branding agreements are much easier than full-blown acquisition, and offer a lower risk. There are several examples in the industry.

Terex has historic relationship with IHI of Japan, dating back to the 1950s when Koehring acquired its lattice boom technology from IHI, right through to the present day with Terex offering IHI-built crawlers in American Cranes’ colours. Some may hold the Terex/IHI agreement as proof that marketing agreements can work.

In the short term, perhaps, but it is hard to see this arrangement lasting. Terex will either want closer control of IHI or seek to build its own machines. IHI is not building market share in North America, it is simply acting as a subcontractor.

Excavator manufacturers went through all of this in the 1980s and early 1990s, before an eventual shakedown of acquisition activity. All these Komatsu-Fai, Case-JCB deals seem to end up the same way: they either break up or result in takeover. It is not necessary to be a cynic to believe that the same will happen with the Link-Belt/Case excavator joint venture, LBX.

Loader crane manufacturer IMT in the USA offers Danish-made HMF knuckle-boom loaders. As with the aforementioned deals, the attractions are obvious to both parties – they both sell more cranes. But the day will surely come when either HMF wants to sell its own cranes in North America and become a global brand or IMT wants to be more than just an HMF retail outlet and thinks it will get better value from either owning HMF or making its own knuckle boom cranes, perhaps inspired by HMF designs.

Marketing agreements can take different forms. Grove UK has this year begun offering Kobelco crawlers and city-class mobiles. But again this is simple opportunism: Kobelco would rather not have to give Grove a cut on any sales; Grove would rather be able to offer a Grove crawler. This way they both win – but only for the time being.

If Potain in France manages to sell only three or four units of the Potain-branded version of the Lasco portable crane, and Lasco remains a minor player in the industry then maybe their arrangement will continue indefinitely. But if Potain suddenly finds there is a strong demand out there for this product – once it has gained CE certification – it may soon either be offering to buy out its inventor, Ron Laczko, or trying to avoid a patent dispute with its own French-built variation.

Tadano and Hitachi have had an agreement since 1978 to offer each other’s machines, effectively to extend their own product ranges, but the results have been very limited.

In the cold, hard world of business, co-operation is not enough. It is possible for the agendas of two organisations to partially coincide from time to time, but they will never be identical. The way forward has to be acquisitions, plain and simple.

The question is: what mergers or acquisitions could achieve the goals that so many manufacturers share? Finding companies to put together is a game that merchant bankers play all the time, finding pieces of the jigsaw that fit together. So what are the possibilities in the mobile crane sector? The most common name to crop up in discussions about possible acquisitions is, of course, Terex: who will Terex buy next? But we’ll come to that later.

The name Mannesmann Dematic also continues to figure strongly, either as a predator or a target. An increasingly non-core business in the Mannesmann AG empire, it is credible to imagine crane manufacturing divested, in spite of protestations from Eberhard Kuhn that such a step is unthinkable. Equally, given the financial muscle of the parent company, Dematic has ready access to the kind of cash needed to make a big acquisition that could make it a dominant player in North America overnight. An enlarged Mannesmann Dematic might then be demerged from its parent.

Perhaps the reason why so many rival manufacturers like to speculate on Mannesmann Dematic’s ownership is because they covet it so much. It would fit well alongside Manitowoc – its crawler range broadly starts where Manitowoc’s stops, and the mobile cranes would be a significant addition.

Manitowoc to buy Mannesmann Dematic then? It could just as easily be the other way round. The Manitowoc Company may decide that shareholder value is best achieved by focusing on its food service division, especially given that the phenomenal success of its crane business over the past few years will be hard to maintain organically. It may be time for Manitowoc to make a major acquisition or get out of cranes.

If the latter, Grove would doubtless also be keen to bid. Buying Manitowoc Cranes would not take Grove into Japan, but it would secure its other goal of getting into crawlers. It would also remove competition from National Crane, bringing in Manitex and USTC.

And Grove Crane president Jeff Bust knows all about Manitowoc, having been president of Manitowoc Cranes until last year. Perhaps coincidentally, Grove Worldwide’s former president Bob Stift joined the board of The Manitowoc Company last year as a non-executive director.

Grove is owned by venture capitalists, not in it for the long haul. Robert Bass and the Keystone Group of investors don’t want to make cranes, they just want a return on their money. One can expect them to effect some kind of disposal in the next 10 years, either by an initial public offering or a trade sale. If Manitowoc succeeds in its ambitious growth targets it may be placed to acquire Grove before too long.

Regardless of who buys whom, a case can be made for putting Manitowoc together with either Grove or Mannesmann Dematic. But beyond being the all-American couple, and a mutual hostility to Terex, non-specific doubts linger about the cultural compatibility of Manitowoc and Grove.

Manitowoc and Link-Belt are not the only Americans to fancy Mannesmann Dematic – Terex would be keen on the German company too. In fact, there are few major companies that Terex would not like to get its teeth into, right up to the world’s biggest manufacturer, Tadano of Japan.

Tadano president Sakae Tadano also has a dream, one day, to have a US manufacturing base, but he recognises the time is not right and for now will concentrate on organic growth. It is hard to conceive that Tadano would join Terex, but the notion of someone from the West acquiring a Japanese manufacturer has become less hard to countenance since European and US car manufacturers have taken stakes in Japanese rivals.

While Kato has a strong need to internationalise, if any Japanese manufacturer is to be bought out, it is more likely to be the crane division of one of the big conglomerates, such as Komatsu, Hitachi or Kobelco. The parlous state of the Japanese economy has prompted many industrial concerns to re-evaluate their business strategies. Perhaps the appeal of cranes in the new economic climate will weaken. Certainly the Japanese market suggests that some kind of consolidation is essential, and therefore perhaps inevitable.

Of the Japanese, Komatsu may be the one to watch. A major player in construction plant, it merely dabbles in cranes, making only small RTs, and not in huge numbers. Its entire crane department runs to no more than a dozen staff. But its strength is that it uses its own axles, own engines, own transmissions, and own electronics, enhancing retained profit but inhibiting the attractiveness of its crane division to potential suitors.

Komatsu, was one of the excavator manufacturers, along with Caterpillar and Case, whose name was bandied around when Grove was put up for sale by its previous owner, Hanson, in 1997. Case’s board reportedly took a strategic decision that it did not want to be in cranes. But the issue of synergy between cranes and excavators remains live.

On the one hand having different products can offer a diversified income stream. It works for Liebherr, and Terex has its mining equipment business as well as its lifting equipment side. There are certain common components that can help reduce development costs and enhance purchasing power. Link-Belt was one of the first manufacturers to put hydraulics on lattice boom cranes as a direct result of its excavator experience. But now Sumitomo has separated its crane and excavator business, both in Japan and the USA, the theory being that cranes and excavators are completely different businesses, especially when it comes to sales and marketing. Liebherr makes excavators as well as mobile and tower cranes, but it also makes container handling cranes in Ireland and each operation is a separate entity.

Caterpillar has entered the fringes of the lifting industry, as has JCB, with the production of telescopic material handlers. It does not take a huge leap of imagination to envisage more crane-like machinery coming out of either company in the years ahead, even though neither company has declared any desire to come down our path.

There are several crane manufacturers that operate in niches that would be an attractive bolt-on for any crane company with a bit of spare cash, if they could persuade the owners to sell. Broderson, for example, is dominant in its range,claiming 75% of the 5,000lb to 30,000lb yard crane market in USA.

And Sennebogen of Germany is quietly building itself into an interesting proposition, though a tell-tale sign of a company unlikely to listen to takeover offers is the presence of a second generation of family ownership beginning to make its mark. Family pride is a powerful force.

One name which virtually never crops up in merger and acquisition conversations is Liebherr. Like Sennebogen, Liebherr is privately owned by the family of the founder. In spite of taking quite a gamble (which paid off handsomely) when it switched mobile crane production entirely over to LTM all-terrain models, it is a conservative company, seemingly happy with the organic growth it has achieved to date. The size of the company and the quality of the product have given it an aura of impregnability to many of the forces that afflict its competitors.

The structure of the company, with different operations in different locations acting as self-contained operating units, enable it to either support or jettison under-performing divisions. To date it has chosen to support them. However, at some future date a change of strategy may be forced upon it.

Liebherr sells its mobile cranes in North America through an exclusive distributorship agreement with Schiller International. Schiller has served Liebherr well to date and, as the population of Liebherr cranes in North America increases, Schiller is stepping up its service operation. Crawler cranes are sold through a company-owned operation set up in Houston last year.

While such an arrangement is adequate today, if Mannesmann Dematic finds itself a US partner Liebherr may have to respond, perhaps by manufacturing cranes in Newport News, Virginia, where it has an excavator plant.

Takeover activity is not just restricted to the mobile crane manufacturers. Electric overhead travelling (EOT) crane manufacturers KCI Konecranes, Columbus McKinnnon and Morris Material Handling have been very acquisitive in recent years in what is still a highly fragmented industry, and KCI in particular promises further acquisitions to maintain growth.

Almost as fragmented is the loader crane sector, where consolidation activity has largely been limited to marketing agreements. The relatively low entry barriers to loader manufacture mitigates against oligopolistic tendencies.

The tower crane manufacturers have consolidated comparatively thoroughly already. Potain bought BKT last year shortly after a proposed deal with Wolff fell through. Potain has other takeovers in its history, including BPR-Cadillon. Terex has brought Peiner and Gru Comedil under its wing, and Muhibbah has brought Krøll and Favelle Favco under common ownership. Pekazett is part of Wolff, and Linden and Comansa have tied up.

There may be scope for one or two further strategic amalgamations, but not much more – unless mobile and tower manufacturers seek to join forces. But that leads to a whole new speculation game.