Small- and medium-sized GAWDA distributors weigh in on the effects of consolidation.
As consolidation heats up in the gases and welding industry, it seems that so too do the feelings of GAWDA members. Welding & Gases Today surveyed GAWDA members to find out how mergers and acquisitions are affecting their business, and distributors and suppliers responded to the call with passion, sharing their feelings about the changing landscape of the industry.
Small- and medium-sized businesses were particularly vocal about the effects of consolidation. For the purposes of this survey, Welding & Gases Today defines a small business as having sales of less than $10 million. Medium is defined as less than $25 million in sales.
GAWDA members were asked, “What are your feelings about industry consolidation?” Among small- and medium-sized businesses, one third of respondents say they don’t like it. Says one industry member, “We are starting to see the effects of consolidation, as it is getting harder to negotiate for pricing on certain products or gases as a smaller player.”
Meanwhile, 45% of small and medium respondents say that they like the current slew of industry consolidation. “Although it is a bit disconcerting to watch all of the independent distributors get eaten up by the giants, it also gives us hope and opportunity in our marketplace,” says one respondent. “No matter what the majors do, there will always be a need for the smaller distributor.”
22% are indifferent about the pickup in M&A activity.
However, when asked, “What impact do you expect industry consolidation to have on your business?” there was no sign of indifference. Across the board, every small- and medium-sized respondent expects their sales to be impacted by consolidation.
67% are optimistic that industry consolidation will provide a boost in sales. Still, at least one distributor says it’s a double-edged sword. “As the national chains purchase local distributors, customers accustomed to personalized service gravitate to our company. Our issue is that the buying power of the national companies makes it difficult for us to compete on non-gas products.”
“Having to deal with national contracts doesn’t help the local distributor,” says one distributor among the 33% who expect consolidation to hurt their sales.
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Another respondent says buying power is a problem. “Consolidation is creating a limited market for us to buy some of our core gas products at competitive prices. Certain packaged gases are only available from the majors, which exposes your cost for those products to those companies that are our biggest competitors. Helium and acetylene are two examples that come to mind.”
When it comes to M&A activity, large distributors ($25+ million) are not immune to the effects of consolidation. In Part II of our series on industry consolidation, Welding & Gases Today looks at how large distributors are being impacted by consolidation and find out why one large distributor says, “In the marketplace, bigger does not always equate to better.”
I have not seen the New York Stock Exchange decline any acquisitions. They continue to allow Corporate America Big Business to grow by leaps and bounds, eliminating the local competition. I believe this is bad for business! When there are not anymore welding supply houses to acquire that are worth their financial gain, they will simply use their buying power to outbid the competition that has been left out of their acquistion portfolio. At some point, it is the customers, the chemical plants, refineries, shipyards, hospitals, patients, tax payers, fabrication, machine shops, paper mills, etc. who will then be paying top dollar for their consumables as they will not have a choice in the matter. This eliminates healthy competition, local customer service, and the personal touch you receive when you order from a small business vs large corporate America. The employees may gain better low-cost benefits and vacation packages, yet they are then treated like a number, which is how most big businesses in corporate America treat their customers. In the end, the consumer will be paying the ultimate price for their wealthy growth by acquisition.
(Name withheld from this post at author’s request)
GOOD COMMENT AND I TOTALLY AGREE WITH YOU,
IF WE LOSE INDEPENDENTS WE ALL LOSE
Consolidation is inevitable. Independents often only consider majors when selling their business. Many independents are capable of making viable offers for other independents but there is a perception that they will not be competitive or don’t’ have the capacity. Majors do a better job of courting independent business owners for a number of reasons. As Independent business we need to develop a better network of M&A opportunities among us. I know our company would certainly entertain the right aquisition(s). Although an acquisition in your market place often provides a short term boon in your sales, the long term implications of a reduction in independent purchasing power should be concerning. Many independents now rely on coops and other organization that require partners. As those current and possible future coop members sell their business it reduces the the buying and marketing power of those groups. I
I sell mostly to small to medium distributors and they tell me often that the “big boys” wreak havoc with pricing across the board.
Right now, the Houston market is seeing a large regional distributor trying to enter this market and is offering “free” piping. Not free, of course, but the end-user never sees the bill. Gas prices are already lower than they were in 1974 when I came here, and are being driven lower. Hard goods? I have seen sales made at 5% over cost!
I think consolidation has hurt, both at the distributor and manufacturer level. The choices get narrower, the innovation is less, the competition is lessened. I could cite specific examples, but everyone knows who and what I am talking about.
We ARE a free market, and we should remain that way. But we could use something to restrain the big corporations buying the market. 30+ years ago, I worked for Airco – gone, victim of an ill-timed buyout – and we were not allowed to expand beyond the 28 retail operations we already had. To buy another, we had to dispose of one. Now Airgas has bought 1100 distributors?
Talk about the 800 pound gorilla!
We find the consolidation as an opportunity to get the medium to smaller customers due to the “Corporate” mentallity of the national suppliers. Larger ships mean slower customer response and
large company management which tends to tied up in red tape versus getting the customer taken care of right away. Pricing can be an issue but in some cases can be overcome through relationships and willingness to stock for the customers needs.
Mergers and acquisitions are a natural cycle not exclusive to any industry. As an independent, I would not prefer a large competitor chasing after my business, assets and customers. One the other hand, the thought “opportunity” comes to mind seeing national distributors buy my competition . As the economy goes through its motions, large players will acquire the small players but eventually these additions have potential to be sold off later as the parent company does not see profit or efficiency in the acquisition. As the large players become bigger and bite of more of the market pie there will be opportunity for smaller companies to fill the gap left by the giant corporations of the industry. The industry will prevail even if it gets tough for many. Staying strong as a business and keeping the customer happy (no matter the size of the customer) is one advantage the small to medium size companies will always have over the corporate giants.
As a small, family-owned business, I would just echo what others above have said. Small businesses have the ability to adjust faster, to offer a more personal touch and to excel at customer service.