Megadyne to merge with Ammeraal, creating belting juggernaut

ZUG, Switzerland—Partners Group, a private equity firm based in Zug, has completed its acquisition of Megadyne Group and intends to merge it with Ammeraal Beltech to create a broad-spectrum service provider for the belting industry.

Megadyne's acquisition, which closed Sept. 11., is another step in bringing the two companies together, according to Philip Cohenca, president and CEO, Megadyne Group Americas. The terms of the acquisition, announced in July, were not disclosed.

Megadyne was sold by Astorg, a European private equity firm that had been a part of the company since 2014, according to an Astorg news release.

In June, Advent International, a private equity firm, sold Ammeraal to Partners Group after having owned the company since 2015, according to a company news release. The details of that deal also were undisclosed.

From the announcement of Partners' acquisition of Megadyne, the intention was to merge the two companies together upon completion of the process, the firm said. The combined enterprise value of the two transactions, which both include investment participation from management teams, is about $2.35 billion.

"The back story was to buy one, then the other. Then to merge the two entities to create, for lack of a better description, a global belting juggernaut, a classic one plus one to make three," Cohenca said.

The two companies are similar in size, Ammeraal employing about 2,600 and Megadyne about 2,300. Both serve different parts of the belting market, with some overlap, Cohenca said. But the message going forward is one of expansion rather than trimming.

"These were two successful and profitable companies. Combining was rooted in the idea of going to the marketplace with a new company that offered recognized brands, a broader product line and an expanded geographic footprint to better serve our customer both globally and locally," he said.

Ammeraal is a manufacturer and distributor of lightweight process and conveyor belts, headquartered in Alkmaar, Netherlands. Megadyne, a manufacturer of polyurethane and rubber belts for power transmission and conveyor systems headquartered in Turin, Italy, also has a range of other products such as rubber hoses. Those additional products are included in the overall acquisition and merger, and their integration going forward will be part of discussions among the companies beginning in October, Cohenca said.

"The leadership of the two companies will get together soon to start reviewing how and what needs to be done to integrate the two companies," he said. "It's a little premature to say anything beyond that. But at this meeting, we'll discuss the culture, the name, the vision, and define strategies. And then we'll go from there."

The companies are only now beginning the process of understanding where synergies will come together that will best benefit customers, said Kerry Baskins, president for Ammeraal Beltech North America.

"We have synergies where we have products in common," he said, "And from a belting perspective, if you look at the companies side by side, we have everything from conveyor belts all the way through timing belts, drive belts, etc. So we have a pretty comprehensive range of solutions between the two companies, easily the most comprehensive and largest in the industry."

Future integration

Both companies service similar industrial segments and original equipment manufacturers, including packaging and food industry, as well as conveying and modular belting, Cohenca said.

"There is sure to be overlap, and it's a matter of then understanding how best to capitalize on that overlap, be it in industrial verticals served, product or customers," he said. "The key will be to understand the best way to do it so we don't misstep."

No potential integration timeline has been established, but "I would suggest that we're going to take a very measured approach," Cohenca said. "We do not want to put in jeopardy anything that we have in place, because at the end of the day, both companies have been quite successful, and the last thing you want to do is mess that up."

One step in that process that is already complete is a new combined CEO, Stijn Vriends. He joins the firm after a three-year tenure as CEO of Faster s.r.l., a manufacturer of hydraulic couplings based in Milan. "With a track record of growth-focused leadership, I believe I am well-suited to combine the best of both companies' cultures in order to realize the full potential to clients and employees, and to achieve global market leadership," Vriends said in a statement.

Vriends runs "a very professional, tight ship," and has definite ideas and expectations for the new merged company, Cohenca said.

Vriends has emphasized a message of continuing to over-serve customers, and to keep up employee excitement about goals for the future, including finishing 2018 on a strong note, Baskins said.

For the time being, the businesses are running as they have in the past, said Thomas Tesoro, vice president, sales and marketing, for Megadyne.

"What we're telling our customers is to continue to do business as you've been doing business," Tesoro said. "Continue to buy from who you've been buying from."

Both companies have been part of a strong belting market so far in 2018 in North America.

"It's no secret that the U.S. economy is doing well, and we're participating in that goodness, if you will," Cohenca said.

Megadyne expects to finish the fourth quarter of 2018 as a continuation of what it's seen so far in the year, which is strong growth, he said.

Ammeraal is looking for the belting market to continue expansion in the next three years, Baskins said.

"The beauty of the belting industry is we're in these good, strong markets like food and logistics with Amazon and companies like that, corrugated boxes, automotive. So many of these industries continue to grow," Baskins said. "They can be relatively recession-proof. And with a lot of the things going on in the political world, so much manufacturing is kind of coming back toward the U.S., it's driving even more opportunity for us."

Some problems could be on the horizon in the form of tariffs or rising interest rates, but those are hurdles to mount, Cohenca said.

"If it's managed well, I think good times will continue. If it's managed poorly, we could see a significant slowing in the economy," he said.

Megadyne expansions

Megadyne has made significant investments for new processes and capabilities at its Cumming, Ga., facility in the past year, said Steve Facetti, director of marketing and business development for Megadyne. The company has brought on new automation to expand its offerings in the areas of rubber molding, coating, spin casting and machine modifications of belts.

The focus of the new capabilities at the Cummings facility is product handling and unit handling, Tesoro said. The business is taking focus to accommodate shipping companies like Amazon, and warehouse automation is a growing market for Megadyne.

"There's such a focus on speed by the companies that are producing cardboard, corrugated paper, printing material," Tesoro said. "They're basically running equipment very, very fast. They're wearing it out quicker, and they're looking for solutions that will maximize uptime. When those machines go down, they're expensive to fix. Downtime is very costly because of a surge in packaging needs from the dot-com warehouse transformation that we're experiencing."

Equipment was added for better consistency of manufacture and higher quality for higher volumes, as well as to address labor issues facing the industry, Facetti said.

An expansion of about 20,000 square feet is underway at Megadyne's urethane extrusion facility in Charlotte, N.C., Facetti said.

The expansion will bring a substantial increase in capacity and broader capabilities to support more business in cleats, fabrication and splicing as the market for urethanes grows in North America, Tesoro said. One product being produced there is the company's new Megalinear FC belt, a blue urethane belt made to be able to come into direct contact with food. It has multiple types of embossed backings, and is available in the U.S.

"We're expanding our capabilities to create more customer solutions that are driven by the market," Tesoro said.

Facetti added that the Charlotte expansion also will bring in new equipment to help manage that growing business.

"Urethane is finding its place more and more as a product that can be used in areas where washdown occurs. It is very sanitary with the right urethane materials," he said. "We're taking urethane further and implementing it."

The company fits into several key industries nicely from a vertical standpoint, with hose, power transmission and product handling items, he said.

"Our focus has been in areas like food industries, material handling, the packaging industry, the automotive industry, oil and gas," he said. "We'll continue to develop and market more toward those industries where the whole portfolio of Megadyne fits."

The company has invested an undisclosed amount in the new equipment, and has mostly integrated personnel through acquisitions made in the last four years, Tesoro said.

Megadyne's industrial hose business has been very strong as well, with the company entering the hydraulic hose space a year ago and seeing an increase in momentum, Tesoro said. Industrial hose also has been strong in the oil and gas markets. Specialty belts have also seen a boost this year.

"We're taking a more proactive approach to put ourselves out there as a solution provider with a vertical marketing approach," he said. "We're trying to present ourselves as a 'You buy hose, we've got that. You buy power transmission belts, you buy lightweight conveyor belting, we have that. If you buy specialty belts, we have all that.' We're offering a one-stop solution to many of these distributors' needs."

Reinventing Ammeraal

Ammeraal has used the last two years to implement lean manufacturing to undergo a business transformation, Baskins said. Originally, the company sold directly, alongside its distributors, and struggled with on-time delivery.

When Baskins joined the company in 2016, his focus was to refresh the business with a focus on fundamentals, he said. Ammeraal focused on business with core customers. Once the company was able to accomplish that, it looked into specific products and customers for increased business.

"We wanted to get exceptionally good at working with the distributors and OEMs who were still trying to do business with us," Baskins said. "That's fueled some excellent growth, because people who were already strong customers with Ammeraal, but were still on the fence, have turned completely back in our favor and driven a lot of market share gain back to us."

Using lean manufacturing methods, the company focused on the chain of "Safety, Quality, Delivery, Inventory and Productivity," Baskins said. To earn the ability to grow, each part of the phrase had to be managed, working from a safe environment toward quality, on-time delivery, then building inventory and productivity.

"It was a top-to-bottom metamorphosis of how we did HR, how we did accounting, operations, sales. We really had to re-engineer the entire business," Baskins said.

He brought in some new leadership to help effect the change, including Tracy Canter, vice president of human relations; Chief Financial Officer Lynn Broaddus; and Jeff Russell, vice president of operations.

The company also shifted to a distributor-powered model instead of taking business direct, putting energy instead into supporting distributors to drive growth and value in the market, Baskins said.

"We really believe in distribution," he said.

Baskins said Ammeraal closed down satellite facilities that were used to serve end users direct, and reallocated those jobs to its remaining fabrication sites in Jefferson, Pa.; Grand Prairie, Texas; and Skokie, Ill. The company still serves some larger multinational OEMs direct.

The company recast its sales teams and territories, and set up a measurable customer experience to find and fix pain points throughout the process, Baskins said.

Baskins said the company is competing at the top of supplier lists now in terms of response time, quote turnaround and customer service, compared to 2016. On-time delivery is up to 97 percent, and has been sustained at that level for more than 18 months. And 82 percent of Ammeraal employees said the company is the best place they've ever worked in a recent survey, compared to about 50 percent in 2016.

"We feel like we're in a position today to go out to our distributors and OEMs and say, 'We are not the same company we were two to three years ago. What can we do to earn your business? We're ready for it,' " Baskins said.