What a year it has been for the major US mobile crane manufacturers! Manitowoc finally makes its big acquisition, taking over French tower crane manufacturer Potain. Grove goes into Chapter 11 bankruptcy protection and, just 20 weeks later, comes out safely the other side. Terex shifts its Lifting division president Filipov sideways, slows down its acquisitions and ends the year by shutting its Conway facility. Link-Belt learns that it is tying up (through its Japanese parent) with Hitachi and Tadano, and also loses its biggest distributors. All of these are major events.
It was a year of note for other reasons too, for it has proved to be the worst mobile crane market that the USA has seen since the early 1990s. The market for telescopic cranes, all-terrains excluded, is down between 20% and 30% depending on category, with smaller sizes particularly badly hit. On this the manufacturers agree. Numbers are no longer reported for crawler cranes, but these appear to be down 20% too.
This has come after a 10% fall in 2000. The rough terrain market has fallen from 1,400 units in 1999 to an estimated 850 in 2001. All-terrain sales, which are much lower in volume, have generally held up as this market is much less mature.
What no one is quite so sure of is what will happen next year. Before the terrorist attacks of 11 September, the consensus was that the market had reached the bottom and that 2002 would be no worse, and probably no better, than 2001. Now, who knows? One man never without an opinion is industry consultant Stuart Anderson, who confidently predicts that the crane market is going to get a lot worse. And it will be messy, he says.
More measured commentators believe that the commercial building sector will not be creating any demand for new cranes until 2003, but spending on infrastructure and power is expected to hold firm.
It would be easy to assume that there is a natural cycle in the US market for sales of new mobile cranes. Down at the start of each decade, up towards the end. That was certainly the case in the 1980s and 1990s, and the pattern appears to be continuing, even disregarding the 11 September effect.
The crane rental houses spent heavily in the latter years of the 1990s, encouraged by a combination of factors. A price war among the manufacturers meant there were great deals to be had; the construction industry was strong and the rental market was booming as contractors increasingly outsourced equipment; and credit was readily available. Today, though, banks are not so easy with their money and, besides, rental fleets have been updated and expanded.
Those that have been buying at the same rate this year are the general contractors. In fact, they never really stopped buying, but as the rental side grew, the relative importance of the general contractors to the manufacturers declined. Today, says John Claflin, Link-Belt’s sales and marketing vice president, the general contractors make up a greatly increased proportion of Link-Belt’s customer-base. ‘In the 1990s there was a big switch to the rental houses doing the buying,’ Claflin says. ‘Now, all of a sudden, we are back in the general contractors business.’
Typically, what the general contractor wants is not a small picker – that’s a rental machine – but something like a duty-cycle crawler. The manufacturers have not been slow to respond.
Manitowoc has developed a pair of new machines this year in cooperation with German foundations specialist Bauer. The model 915 is a 100t (110 US ton) duty-cycle workhorse with a heavy duty angle chord boom. Maximum boom length is 54.9m and maximum boom and jib combination is 76.2m. The model 1015 is designed for piling and foundations work rather than grabbing applications. Boom configurations are the same as on the 915. Deliveries of these models are scheduled to begin next month.
Link-Belt has also just introduced a new duty-cycle machine, the LS-308H II (see p19 for details), the third crawler in its range aimed at duty-cycle applications.
The renewed demand for duty-cycle machines is not just from the construction industry, it seems. Says Claflin: ‘Duty-cycle cranes are back in demand with the sand and gravel quarry people. They last longer and have better residual value than long reach excavators, so some customers tell me.’
Manitowoc expanded
On 9 May Manitowoc concluded its purchase of French tower crane manufacturer Potain SA from Legris Industries for $307.1m. Manitowoc has not got a particularly impressive track record with its crane acquisitions to date. The Hydro-Porter straddle carriers and Orley-Meyer bridge cranes, purchased in 1988, did not last long. More recently the USTC and Pioneer boom truck acquisitions seem to have been an expensive way to grow a product range.
There is a new management in place today, however, and there is much confidence that the Manitowoc-Potain grouping will prove a winner.
According to Rob Giebel, president of Manitowoc’s Crane Group, the benefits are already starting to flow. ‘We are way ahead of our internal time line. Potain was purchased as a strategic product fit, not for synergies particularly.’ But synergies are being found, he says. ‘Our sourcing people are doing a good job of finding global suppliers for us. The manufacturing guys are doing well at finding ways of manufacturing closer to the customers.’
This does not mean that tower cranes will be built in Wisconsin and crawler cranes will be built in France. The furthest Giebel goes is to say: ‘There will come a time when we build selected components in one another’s facility. We won’t move core competencies from one location to another.’ Given the total size of the crawler crane market in Europe, and the market share that Manitowoc can realistically aspire to, he acknowledges that French manufacturing for crawlers is unlikely to extend much beyond counterweight sections. However, given the amount of counterweight a big Manitowoc uses, that alone could provide quite a saving in shipping costs.
There are many who think that the price Manitowoc paid (with about half the money being just for the Potain name) was overly generous. For Giebel such comments are attributable to ‘hindsight and/or sour grapes’. He says: ‘I think the price we paid, when we paid it, was a fair price for that company. You can never absolutely predict where the market is going to be even 10 minutes after doing a deal.’
That said, he claims that sales are benefiting from the tie-up. ‘In the first five months we sold more than $10m of product that wouldn’t have been sold previously,’ he claims. While the Potain connection has won a couple of crawler crane sales in Asia, the big pay-off comes from selling Potain tower cranes in North America. Giebel says about a dozen towers have been sold in North America since May. ‘We are generating a lot of cash and using that cash to invest in the business and to deleverage.’ It would only take a few major projects to be put on hold for a few months for Manitowoc’s cashflow to suffer a damaging hiatus, but Giebel appears to be a stranger to pessimism.
Manitowoc has reorganised its sales force into two groups: Light Equipment, selling boom trucks and self-erecting tower cranes; and Heavy Equipment, selling crawlers and top slewing towers. Of the two divisions, it is the Heavy one that is having the more fun. While the boom truck market is down, the heavylift market, which Manitowoc dominates in North America, remains stable. According to Giebel, sales of 2250 model crawler cranes are 15% to 20% up this year, and half of these have gone out with the pricey Max-er attachments. ‘We don’t see any near-term downside to the heavylift business,’ says Giebel confidently.
Giebel told this magazine back in June that the Potain acquisition meant that Manitowoc was in no position, financially, to rescue Grove. The strongest industry rumour today is that Manitowoc will be Demag’s white knight. Demag offers not just excellent crawler crane technology but also all-terrain mobile cranes that are conspicuously missing from Manitowoc’s product line. Demag’s management has gone public on its desire to find a US partner, and if it is not to be Manitowoc, realistically that leaves Terex, or a dirt company like Cat, Case or John Deere (the latter might see Demag as a route to Europe).
Giebel says today: ‘We continue to look at acquisitions very strategically, that will be accretive to shareholder value.’ Then he says: ‘Our focus right now continues to be to maximise the integration of Potain.’
Creative corporate financiers would surely be able to find a way to structure a Demag purchase without increasing borrowings – perhaps through a share swap for example. The real question mark is whether Manitowoc has the management time to absorb another huge acquisition.
Grove rebuilt
When Grove opened the doors of its Shady Grove headquarters to distributors and customers in the first week of October it was a double celebration. The previous week it had formally exited Chapter 11 bankruptcy protection after just four months, and it had the pre-production models of a new 130 US ton rough terrain crane to show off. It is also very proud of the way that it has reorganised its manufacturing under what it calls its factory flow program.
There are inevitably losers in any Chapter 11 scenario, but Grove’s performance has, it believes, been a text book example of how to do it. The upshot is that a debt of $584m has been changed into a debt of $205m, reducing the annual interest expense from $63m to $17m.
This has been achieved by a debt-to-equity conversion so that the banks, led by JP Morgan Chase, now own 80% of the equity, the bond holders own 20%. The new board, which met for the first time on 9 October, comprises Grove chairman and chief executive officer Jeff Bust, plus three representatives from the banks and one from the bond holders.
The previous owners, an investment group led by Keystone, the vehicle of the Texan oil billionaire Bass family, are now out of the picture and $75m out of pocket. Small change to them.
While Grove is undoubtedly in a better shape today, with the crane manufacturing industry in increasingly grim health, the story is surely not over yet. John Wheeler, Grove’s president and chief operating officer, is confident that the company is positioned to ride any further deterioration in the market.
‘We think we are the right size now. If the economy deteriorates further we have manned our facilities in the US and Germany accordingly,’ he says. And he expects deterioration. ‘In 2002 we see the North America market going down, and Europe softening after a good 2001, especially in Germany where the market has dropped significantly in the first six months. The usual trend is Europe following the US two years later.’
What attitude Grove’s new owners will take remains to be seen. They will not want to hold the company indefinitely, for sure. Options appear to be: a) a trade sale, perhaps to a competitor, although it is hard to see whom in the short term;
b) an initial public offering to take the company public; or c) merge with one or more other vulnerable parties to create a more attractive entity for an IPO. The market is not attractive for any of these options right now.
In response to the slowing US market the Shady Grove factory has been working three-weeks-on/one-week-off since the end of July, and the second shift has been reduced. Even the healthy National Crane subsidiary has had lay-offs and cubacks recently.
The factory flow program, coupled with a rationalisation of product lines over the past two or three years, has totally overhauled production processes. Instead of the former assembly line structure, Shady Grove is now a hub and spoke operation ‘like Walmart distribution’, says Alan Antoniewicz, senior vice president operations. Components are transported from different halls around the 305 acre campus to a central final assembly hall. To see transporters moving huge components around the site suggests there is further still for Grove to go, but the numbers are impressive. In April 2000 there were 365 pieces of rolling stock (fork lifts etc); today there are 190. Productivity has improved from 70% to 90%. On-time shipping performance has improved from 65% to 100%. Average lead time for an E series rough terrain was 58 days; now it is 28 days. The number of suppliers has been cut from 1,500 to 553. By September next year there will be 350, says Antoniewicz. The reduction in suppliers is achieved not only by having a greater commonality of parts in the reduced product range, but also by greater use of outsourcing so that components arrive as part of a larger pre-assembled section. For example, control panels now arrive at the factory with all wiring, gauges and switches already installed, whereas previously Grove would have assembled them from individual components.
This year Shady Grove will build something in the region of 500 RTs and 125 truck cranes. It will also assemble about 35 all-terrains. The GMK 5100 and 5200s (badged as 5120B and 5240 in North America) are shipped over from Grove’s German factory in kit form. Other ATs arrive in a greater state of completion. Consideration is being given to doing major welds on the GMK 5100 and 5200 in Shady Grove too. John Wheeler says that the plan is to reduce the kit content and make more in the USA, but major components will still be sourced in Germany.
The lesson of Grove’s recent history is that Keystone paid far too much for Grove when it bought the company in March 1998 for $605m. Bob Stift, the CEO at the time, and a Hanson executive rather than a Grove man, is regarded in hindsight as a business wizard. When he took the helm of Grove in 1993 his brief from Hanson, it now seems, was just to fatten the company and sell it for as much as possible. He did a brilliant job.
Terex reorganised
In April Terex Corporation announced major restructuring. Instead of being organised along product lines, with a Lifting division comprising all the various crane, telehandler and aerial work platform businesses around the globe, the group would be split into two geographic operations – the Americas and Europe/rest of the world.
Colin Robertson, from the construction and Powerscreen divisions, was given overall charge of the European operations. Ernie Verebelyi, previously in charge of Terex Earthmoving, was placed in charge of all operations in the Americas. Fil Filipov, who had built up Terex Lifting into a major force, was given a roving brief to travel the world buying companies and turn them around. There is therefore, no senior Terex executive with a dedicated interest in the lifting business anymore.
Ernie Verebelyi, who joined Terex in 1998, explains that the reorganisation was driven by customers, or more particularly by national accounts. ‘United Rentals, Hertz, a number of national accounts, those people had said to us that Terex has improved and they will do business with us but they want a single face to deal with,’ he says. In other words, buyers wanted one organisation from which they could buy the full range of equipment that Terex manufactures. While those customers might buy aerial work platforms, a business that Terex seems to be de-emphasising in the face of a market collapse, they are not players in the crane business. It is possible that Terex will, at some stage in the future, realise this and resurrect a distinct crane division. Internal politics cannot have been made any smoother by putting another tier of management between Verebelyi and such crane industry luminaries as Craig Lichty and Leon Deutsch. Lichty and Deutsch were key to the construction of the Terex Lifting business and previously reported directly to Filipov.
Verebelyi is clearly aware of the difficulties that the new structure throws up. ‘There is a little bit more of a matrix approach and so communication is enormously important.’
One of Verebelyi’s early decisions was the closure of the Conway assembly plant in South Carolina, where Lichty was based, as was Filipov until last year. The larger RTs, 60 US ton and above were assembled at Conway. This work will now be done at the Waverley plant in Iowa, where the booms are already made.
Other changes may be on the way. ‘We are reassessing what markets we want to be in, across the Lifting segment,’ Verebelyi says.
The Terex message remains unchanged, however. ‘Our mission is to give the best return on invested capital to our customers,’ he says. Low cost remains, though not the only tool, an important part of the strategy. As for acquisitions, he says: ‘We continue to look at acquisition opportunities.’ Demag, however, seems an unlikely prospect.
Link-Belt prepares
The collapse of its leading distributors in June (see News) was a distraction that Link-Belt could have done without. Looking, forward, however, the focus is on exploiting the opportunities presented by the Japanese alliance announced between its parent company Sumitomo and Hitachi and Tadano. It is not yet clear what all the implications are for the US company. It seems that Hitachi will be the prime manufacturer of crawler cranes within the alliance, rather than Sumitomo, so Link-Belt will effectively have a new supplier for a significant part of its product line. The transition will need to be carefully managed.
Opportunities for Link-Belt lie in tapping into Tadano’s German subsidiary Faun. Link-Belt has long felt the need to offer its customers a genuine all-terrain product, and while it has undertaken its own product development in this direction, the Faun all-terrain carriers and telescopic booms could be well exploited by Link-Belt.
It has to be said, however, that this relationship is unlikely to benefit Link-Belt quite as much as the alliance with Demag which it nearly pulled off just before Conexpo ’99. Demag’s heavy crawlers and larger AT range would have been a stronger addition to its range, but assuming the Japanese alliance proceeds, bringing with it the Faun relationship, it finally and firmly puts an end to any such aspirations. The task now is to maximise the potential from Faun, in telescopic cranes, and Hitachi in lattice boom ones.
Where this leaves Tadano’s own presence in North America is unclear. After a hiatus in its sales last year, Tadano has now brought the new 45 US ton rated TR 450 XL-4 to the US market. They have only now been officially released, but early units were shipped to the New York area between May and July, with distributors Greater New York Equipment (the distribution arm of Bay Crane) taking 15 and Syracuse taking eight. (One of Bay’s units was the first crane into Ground Zero after the collapse of the World Trade Center.) These sales meant that Tadano’s US sales were up 30% in the first half of the year.
The rental business
While the manufacturers are already suffering a drop in sales, for the crane rental houses it is a slightly different story. Competition is fierce but, says Jeff Fenton, chief executive officer of Maxim, the USA’s biggest crane hire company, ‘We are not at the same pain level as the manufacturers’. The work is out there, he says. This is a view supported by others in the rental business. We are not buying so much equipment this year, they say, but there is still plenty of work.
What makes Maxim different from most others is that it is, almost, a national player and so has a wider view of the market. ‘At the end of May, early June we started to see some softening [in the market],’ Fenton says. ‘That’s not to say we didn’t have some soft segments in the first half, but as a business it was pretty strong in the first half. Revenues were up on last year.’
Fenton says that a slower June and July was followed by an upturn in August. The economic impact of the 11 September attacks cannot be predicted, however. Within days a major turnaround contract scheduled for January had been postponed until next June. ‘But power and infrastructure spending has been growing and I don’t expect that to change,’ he says.
Fenton says that capital expenditure in both 2000 and 2001 is a third of what it was in 1999, the year that Bain bought control of the company from the Anthony family. But Maxim still allocated $35m for capital expenditure this year, similar to last year, of which $25m is for acquisitions and equipment. Including money from selling old cranes, $35m to $40m will be spent on new equipment this year, says Fenton. Spending has primarily been on Terex tower cranes and Manitowoc crawlers.
Maxim is another company, like Grove, that has been saddled by a huge debt since its change in ownership, and crippling interest repayments. As of 30 June this year, Maxim had debts of $735.6m. While it returned $57.6m in EBITDA (earnings before interest, taxation, depreciation and amortisation) in the first half of 2001, on revenues of $220.6m, Maxim made a net loss of $14.6m for the six month period. Fenton remains resolutely upbeat about prospects. ‘Our financing is set up through 2004. We are generating free cash flow to reinvest in the business. We have got more than $150m of unused credit today. That gives us flexibility. Liquidity is more the name of the game in a down market.’
Maxim will not be following Grove’s lead and go into Chapter 11, he insists. The first reason he gives is that ‘it wouldn’t be a smart move by the banks’. He insists that he doesn’t mean that Maxim simply has too much debt to be allowed to fail. Rather, he says, that the business is pointing in the direction of success. ‘What we are doing, running the business day in, day out, gives me confidence,’ he says. ‘We are bringing a lot of new customers to the table.’
The strategy is to chase national accounts, such as Praxair, Siemens Westinghouse and Duke Energy. Two years ago national account revenue was $15m. This year it is $80m. Next year it will be $150m, Fenton says. ‘It’s just growing like crazy with these customers.’
The secret to this success, he says, is a $1m investment in safety training, getting operators CCO certified and putting the weight of senior management, under Andy Peters, behind a programme called START – Supervisory Training & Accident Reduction Training. ‘When it comes to safety and training, we are walking the walk,’ says Fenton.
