Critical mass is everything in the modern rubber industry. So is "big fish eat little fish."
The case in point is Parker Hannifin Corp.'s agreement to buy automotive sealing supplier Wynn's International Inc. Completion of the $497 million deal would create a company that generates $900 million in seal sales, and place Parker Hannifin in the same league as market leaders Freudenberg Group-NOK Group, Federal-Mogul Corp. and Dana Corp.
Wall Street didn't smile much at the deal. Stock watchers worried the automotive market Parker Hannifin now enters is too cyclical and low-margin. The company's stock fell after the acquisition was announced.
The investment community is obsessed with short-term gains. Parker Hannifin is looking at the long haul, as it properly should, and believes the Wynn's deal is vital for its future, even if the immediate reaction is a downswing in its stock price.
Acquisitions continue unabated in business today, particularly in the basic industries. Consider Parker Hannifin and Wynn's recent experiences.
Parker Hannifin believed it had to get bigger to succeed, so it is buying Wynn's, at a premium.
Last October Wynn's decided it had to get bigger to compete in the automotive sector, and agreed to buy Goshen Rubber Cos. Inc.
And Goshen itself, in August 1999, took the acquisition route to become bigger, purchasing Waukesha Rubber Co. While that deal actually made Goshen more diversified, rather than increasing its automotive interests, it did provide the company with more mixing capacity, as well as expanding its total sales base.
The "big eat little" trend is far from over in the rubber industry. Stay tuned.