Behind KION Group’s acquisition of Dematic

In case you didn't notice, there was a major financial announcement out of Europe this week, and I'm not referring to Brexit. Rather, it was the announcement that KION Group, one of the largest manufacturers of lift trucks in the world, is acquiring Dematic for $2.1 billion.

In some respects, the acquisition of a materials handling automation company by a lift truck manufacturer seems like a no brainer. After all, the major lift truck companies like Toyota and KION are so much larger by revenue and global reach than even the largest automation companies. What's more, they already call on and service the same customers. At the same time, prior to KION's acquisition of Egemin Automation and Retrotech, it hadn't been done.

When you combine Dematic's 2015 revenue of $1.8 billion with the $145 million reported last year by Egemin, you have a materials handling automation operating unit with nearly $2 billion in revenue, not counting any growth in 2016 or the impact of currency conversions. Those are my back-of-the envelope estimates; a spokesperson for KION Group declined to speculate on 2016 revenue. Combine the portfolios, and you have a company that can provide one-stop shopping for more or less everything used in the warehouse short of totes, containers and pallets.

The question in all of these deals is one of synergy, or whether the market will look to its lift truck provider for automation or its automation provider for lift trucks. Will 1 + 1 = 2, or can a new approach to the market add up to 3. A KION spokesperson responded to questions by email.

Q. Starting with the acquisition of Egemin Automation in May 2015, KION has acquired three materials handling automation suppliers in the past year or so. What is KION's strategy behind these acquisitions and what synergies or benefits to the customer do you think you'll now be able to bring to the table?

A. In the past year, the KION Group already started to build up a strong position as a provider of automated systems solutions by acquiring Egemin Automation and Retrotech, thereby making further inroads in this attractive and growing market. By adding Dematic to its portfolio of leading brands in the material handling industry, the KION Group will enhance its position as one-stop-supplier for intelligent supply chain solutions.

The customer will benefit because we will be able to seamlessly offer the full material handling product and service offering to customers of all sizes in a broad range of industries across the world. It is the most comprehensive material handling solutions offering in the market.

The strategic rationale is that the purchase of Dematic will establish the KION Group as a global leader in Intralogistics 4.0. The KION Group will thus enhance its position as a one-stop-supplier for intelligent supply chain and automation solutions. We are now perfectly positioned for attractive and profitable growth driven by megatrends like Industry 4.0, digitalization and e-commerce.

Q. Do you view this as a blending of what we think of as conventional materials handling (lift trucks, pallet jacks, floor and rack storage) and automated materials handling?

A. Both companies are indeed very complementary in their product offerings. The enlarged company will be able to seamlessly offer the full material handling product and service offering to customers of all sizes in a broad range of industries across the world. This most comprehensive material handling solutions offering in the market ranges from manually operated industrial trucks to complete fully automated warehouses.

Q. From the lift truck side of your business, KION hasn't had the same presence in the US market as some of your global competitors? As a lift truck supplier, will this raise your profile here?

A. It is true that the KION brands currently hold a small market share in the US. We expect that the KION Group will take advantage of Dematic's strong position in the US automation market in particular and therefore raise also its profile as a lift truck supplier.

Q. On the flip side, given your global presence as a lift truck provider, will Dematic and Egemin be able to get greater penetration into global markets outside of the US and Western Europe?

A. As stated before, we expect that Dematic will leverage the KION Group’s service network and brand reputation in key markets like Europe, China and Brazil. Egemin, for example, is now working closely with Linde China, a collaboration that didn't exist before.

Q. Given the financial strength of the parent company, do you anticipate more R&D from Dematic and Egemin?

A. With a shared vision and commitment to R&D, the combined company will continue to focus on superior customer solutions with significant investment in this area. Together, KION Group and Dematic will jointly define a new era in material handling solutions.

Q. Will Dematic, Egemin and RetroTech continue to operate as separate brands, or will they come together as one?

A. After closing of the transaction, Dematic will be integrated into the KION Group forming an additional fifth operating unit, which will also comprise the businesses of Egemin Automation and Retrotech. This future KION Group operating unit will be headed by Ulf Henriksson, Dematic's CEO, as its President. No decision has been made [on the location of the global headquarters for the new operating unit].

Q. When you look at the combined materials handling automation companies, do you anticipate that revenues will exceed $2 billion in 2016?

A. Without giving any concrete numbers or estimates, we can say that we believe in a strong growth trend in this particular market.

Q. How will you rationalize your portfolio of products where there is overlap? For instance, Egemin and Dematic are both in the AGV business? RetroTech and Dematic are both in the unit load handling AS/RS business.

A. Dematic, Egemin and Retrotech all have their strengths in certain areas and in certain regions. For example, Egemin is a prominent player in AGVs in the US and in Europe and in warehouse systems in Benelux and France. We believe that the companies will mutually benefit from these strengths.

Q. What's the one message you'd like to get across to the market of customers and potential customers?

A. With the purchase of Dematic, the KION Group is becoming a unique provider of products, services and solutions. Like no other company in our industry, we can accompany every customer seamlessly on its journey to Industry 4.0 and Intralogistics 4.0 now and everywhere.”

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