I see a mini-trend developing in the consolidation of companies in distribution and Hydromat machining companies. A major automotive supplier whose core business process is rotary transfer turning of steel bars is close to closing a deal with a fastener supply firm with CNC machining capability. I’ve already seen two other acquisitions of this type and I can anticipate more as the supply chain becomes more taut.
Three years ago Tribal Corporation, a plumbing supply company, bought Marshall Brass to add screw machine and rotary transfer capability to their successful distribution firm.
MultiTech, a primarily cold heading company near Chicago, bought its rotary transfer vendor a couple years ago in a distress sale.
The distributor buying the manufacturer can be a marriage made in hell because the cultures usually are quite different. The theory of distributor and vendor under the same tent sounds so simple in the business plan or annual report, but the reality is usually fraught with suspicion.
Tribal shrewdly cleaned house at Marshall, culled the workforce, and rehired at a lower pay scale. They managed to turn a chaotic manufacturing company around, from what I’ve heard.
From my observation, companies that develop distribution or manufacturing by growing it themselves get bigger more slowly, but probably with less company upheaval.
What prompted me to write this blog was reading the Web site of the fastener company which is acquiring the rotary transfer machining machining firm. The copy on the Web site described how they acquire “human capital.” When I see PR drivel about “human capital” I immediately suspect the company is run by Wall Street MBAs who think threaded nuts are cashews.
The stats I’ve seen say most acquisitions end up as failures for the buyers in the long run. But for many CEOs the “long run” is the next guy’s problem.
Vendors and distributors. Mars and Venus. Two different planets. Take the money and run.
Question: Do you think distribution and manufacturing firms can easily combine?
1 Comment
Part of the problem with manufacturing is you can’t seem to get young people involved. The reason is obvious. I understand cleaning out the dead weight is a necessary thing to do in any organization. However, if distributors and such decide that buying a manufacturing company and “lowering the pay scale” is what they need to do they are making a mistake. We work in this field as skilled labor and we don’t do this to break even or fall behind.
How could anyone try to convince young people, that have the right stuff, getting into this field is worth it if they will constantly have to worry about these type of mentalities and practices?