NEWS RELEASE May 2019
Flow and Treat Acquisition Choices Shaped by Most Profitable Market Program
A new program available from Mcilvaine Company will help acquirers make the best choices and then maximize the value of these acquisitions.
There are continuing acquisitions of flow and treat suppliers. Some acquirers such as the Filtration Group and IDEX have grown and prospered as a result of their acquisitions. Others such as GE have not. Picking the right candidates is the first and most important step. Proper integration is equally important. It is difficult to leverage the benefits available from the acquiring company with the independence needed to succeed.
Some companies such as Emerson have been focused on flow but not treat. They have acquired valve and automation companies but avoided the product and chemical companies. Danaher has acquired companies across the spectrum including Hach for flow measurement, Chemtreat for treatment chemicals, and Pall for filtration.
Treat system companies are not constrained by manufacturing capability. Filters and scrubbers are typically constructed of ¼ in. plate and can be sub contracted. Valve and pump companies have moved away from owning their own foundries but provide other fabrication capabilities in their own facilities. Therefore the location of manufacturing facilities becomes a factor in decision making.
Anticipation of future trends is one of the more difficult determinations. Few people anticipated the steep drop in oil prices in the past or the massive new planned investments by Chevron and Exxon Mobil in U.S. shale. The single use biopharmaceutical system market for T-cell transfer immunotherapy has grown more rapidly than had been commonly anticipated.
Some future trends are negative. A company with a specific flue gas conditioning agent to make precipitators work better was making huge profits at the time it was acquired. Within a year the precipitator companies introduced a mechanical solution completely eliminating the demand for the chemical. Thorough understanding of the industries, processes, and products is advantageous in anticipating future trends.
The flow and treat industry has not been nearly as innovative as some other industries such as semiconductors or pharmaceuticals. It can be argued that there is not the same potential. On the other hand a few individuals completely changed the world economy by developing commercial horizontal hydraulic fracturing. Fifty years ago the conversion of flue gas and liquids to a toothpaste type foam was achieved. The mass transfer from gas to liquid is 1000 times greater than with packed towers. However, the subsequent separation of the liquid and gas was not fully perfected and the pursuit quickly canceled. There was a short period in the 19666-1974 period where R&D budgets were almost unlimited as U.S. power companies tried to perfect flue gas desulfurization. However the industry was soon content with a solution even if it was not ideal. Less R&D money has been spent on FGD in the four decades subsequently than was spent in the first eight years of the program.
Clearly the horizontal fracturing development has had a huge return on investment. How do the flow and treat companies find these highly profitable opportunities? One is answer is a new program from McIlvaine
The McIlvaine Most Profitable Market Program provides acquirers with
- A valuable tool to select acquisition candidates
- A program to integrate the new acquisition painlessly
- A growth platform for both organic and acquired companies
A valuable tool to select acquisition candidates
The Most Profitable Market (MPM) Program provides forecasts of the gross margins and EBITA which can be achieved with each product in each industry and in each location. This is based on present and future lower total cost of ownership. This lower cost can be leveraged to increase margins. Estimates of future EBITA using this approach are superior to estimates based on historical performance.
A new product such as automation can lower the cost of ownership for the product being automated. A purchase to match a pump product with the accompanying valves provides a package approach which will likely result in lower costs for the customer. The program eliminates silos between industries, technologies and products and helps identify profitable R&D investments.
A program to integrate the new acquisition painlessly
MPM forecasts the specific purchase opportunity at each major prospect. This provides a foundation for bottoms-up collaboration. The newly acquired company local sales representatives can share information with peers in other divisions and pursue each opportunity. This collaboration potential can also be an acquisition criteria. A candidate whose products are well received by important prospects is attractive.
A growth platform for both organic and acquired companies
The MPM program is based on understanding processes and technologies and developing new and better products. The resulting higher margin opportunities create funding for increased R&D and further innovation. With shared process and technology knowledge the acquired company can improve its products and increase EBITA faster.
More information on the Most Profitable Market Program is found at www.mcilvainecompany.com