Berings Manifacturer Spots M&A OpportunitiesWed, 10/18/2017 - 14:30
When markets are down and business slow, companies across the value chain have to be creative. No longer able to rely on their traditional sources of revenue, executives are forced out of their comfort zone in search of alternative methods for generating sustained growth. Some choose to achieve this organically through internal restructuring and streamlining operations. Companies with greater liquidity and spending power can drive returns for investors inorganically by entering the potentially lucrative M&A market.
During the mining industry downturn of 2012-2016, Timken, a bearings and chain manufacturer with more than 15,000 employees worldwide, decided to use its global presence to diversify its portfolio through a series of strategic acquisitions. Gerardo Angulo, Director General of Timken Mexico, explains that the idea was to convert the company into a one-stop shop for industrial parts and machinery.
“A broader portfolio will help us improve our customer service and support,” he says. “We want to reach a point where our clients can procure everything they need for their processes directly through us without the need to talk to third parties.”
Timken’s purchases during the past decade include the power transmission belt manufacturer Carlisle, gear-drive systems provider Philadelphia Gear and lubrication delivery systems manufacturer Interlube. These followed the acquisition of needle roller bearings specialist Torrington, for US$840 million in 2003.
In September 2015, the company continued its acquisitions with the purchase of UK-based split roller bearings manufacturer Revolvo, which has designed a product ideally suited to the mining industry, according to Angulo.
“Revolvo’s key technology is a split-housed unit, which enables the user to dissemble the housed unit instead of the whole machine during the changeover of heavily loaded applications,” he says. “The operator no longer needs to access the shaft ends, meaning that a process that would usually take up to 24 hours is now completed in 20 minutes.”
These split-to-the-shaft roller bearings certainly seem to be popular in Mexico. Grupo México, Industrias Peñoles and Minera Frisco are just three of the operators currently using the product in Mexico to save time and boost productivity in their mineral processing and power transmission projects.
Mexican mine operators are known to have their eyes on the best deal, and that could cause challenges for a company like Timken whose products are not the cheapest option on the market. To convince potential buyers, Angulo explains that the company highlights the technical and operational benefits of its products, which will ultimately pay dividends.
“We always make sure to talk to the mechanics who have experience using the machines and can therefore see the advantages of our designs,” he says. “The mechanics can then discuss with the decision-makers and convince them of the long-term economic benefits of our products.”
Timken has several causes for optimism regarding the continued growth of its business in Mexico. Two of the company’s traditionally strong sectors – rail infrastructure and automotive – are booming in Mexico, while the Energy Reform of 2014 should bring a swathe of new opportunities in oil and gas, renewables and mining once the changes are fully implemented.
“It is still too early to feel the benefits of the Energy Reform,” says Angulo. “When private companies start to take advantage of the new opportunities and begin to seek more advanced technology, we expect to see more projects for power transmission companies such as ourselves.”
To prepare for those changes, Timken is continuing with its portfolio diversification policy in a bid to serve distributors and clients more comprehensively. The company acquired Lovejoy in a US$66 million deal in June 2016, adding the joint manufacturer’s renowned flexible couplings to its portfolio. Then, in November Timken added stainless steel ball bearings specialist EDT Corp, and Angulo is confident that this diversification drive will stand the company in good stead for a strong year in 2017.