Is Now The Time To Expand?

Is Now The Time To Expand?The last few weeks have been marked by major acquisitions in the welding and gases industry, involving several large manufacturers. First, GAWDA member MAXAL joined forces with Miller Electric as the newest member of Illinois Tool Works Welding North America. Then it was Thermadyne, parent company to such brands as Tweco, Stoody, Victor and Thermal Arc, who agreed to be acquired by a private equity firm. Meanwhile, distributors have quietly continued to expand in 2010.

Should we be surprised at the rate of acquisitions, given the current state of the economy? Maybe not. Jenny McCall, president of WESCO Gas & Welding Supply (Prichard, AL), was in tune with the industry when recently asked what was in store for gases and welding. “We must keep an eye on future consolidation of industry companies and we must continue to find ways of drawing people to the gases and welding industry.”

Craig Wood, weld division president at O.E. Meyer Company (Sandusky, OH), and newly elected first vice president of GAWDA, spoke to the current climate of the industry in an interview with Welding & Gases Today. “Consolidations alter the competitive makeup of the marketplace, which can be good and bad.” While on the surface, acquisitions seem to lessen the competition, it can have the opposite effect. “Typically, consolidation brings about new startups as well,” he says.

The gases and welding industry has always had its share of consolidation, so should we view all of this as normal activity? “It’s hard to call it business as usual, given the current state of the economy,” says Milton Lovell, CFO and general counsel at nexAir (Memphis, TN), who previously handled mergers and acquisitions at the law firm where he worked for ten years.

Lovell points to several reasons for the onset of consolidations. “Companies are seeing synergies that can be achieved through business combination. There’s increased competition for those customers who are out there, so large- and medium-sized players are using consolidation to increase their market shares.” Unfortunately, he says, the economy has weakened many businesses. “There are a lot of distressed companies out there, facing bankruptcy and creditors’ claims, who are forced into acquisition if they want to continue in business.” The economy has created opportunities for well-positioned companies to expand, and to do so at a fraction of the usual cost. “In many cases, a company is not being purchased for the price it would have gotten at another time.”

According to McCall and Wood, we can expect to continue to see consolidation in the future. What impact will it have on your business? Lovell says major transactions do not change the way he does business. “It makes us focus on our business,” he says. “Here at nexAir, we’re going to continue to focus on our customers and providing good customer service.”

If you’re currently gauging the market for expansion, read “Lessons Learned” from 2008, where Matheson CEO Bill Kroll writes about the company’s acquisitions of Linweld and Five Star Gas & Gear.

Gases and Welding Distributors Association