Continental's purchase of Merlett Group to bring plastic hose capability in Europe

HANOVER, Germany—Continental A.G.'s agreement to purchase an Italian plastics hose manufacturer will go a long way in the firm's ongoing program to find "smart solutions beyond rubber" in its ContiTech A.G. non-tire business.

Conti reached an agreement in early July to purchase the flexible hose business from Daverio, Italy-based Merlett Group for an undisclosed amount. Completion of the acquisition is subject to clearance by the respective antitrust authorities, according to a Conti release announcing the deal.

Conti said the purchase will diversify its product portfolio and broaden its regional presence, particularly in Europe. Once the deal is completed, the Hanover-based conglomerate will gain all of Merlett Group's activities, which include two hose manufacturing factories in Italy and one in Switzerland, along with a network of sales offices in 12 European countries.

Merlett, which employs nearly 500, was founded in 1952 by the Tamborini family. It deigns, makes and distributes thermoplastic hoses for the agriculture, industrial, construction, transport and food industries.

"Merlett is a true expert and one of the European leaders in that field," said Andreas Gerstenberger, ContiTech executive vice president and head of the firm's Industrial Fluid Systems global business unit. "We're adding by far more than just the manufacturing capacity, but also research and development, compounding materials know-how, access to new and different industries, and partly even countries for us in Europe."

This purchase also will help Conti's customers improve their production efficiency and economic effectiveness with Merlett's knowledge of thermoplastics. "This acquisition is another important step to become a global industrial solutions partner," Gerstenberger said. "The performance of thermoplastic materials is increasing, which is broadening the long-term base for future sensor applications."

Identifying Merlett

It's been about three years since ContiTech formulated the strategy to look for solutions outside rubber. As the group aims to reach $10 billion in sales over the near term—it clocked in at $7.48 billion in 2018—Gerstenberger said all areas of the business looked to grow aggressively from within, but also would be open for partnerships and acquisitions to accelerate the growth even further.

That meant having a structured process to look at potential partners in all regions of the world, and Merlett was identified as one of the leading European firms in the thermoplastic hose world.

"They came onto our radar, we looked at the company, we contacted it and agreed together that our future as a team probably looks better together than separated," Gerstenberger said.

He added that Merlett is a family owned group, much like Custom Crimp, a crimper manufacturer out of Valparaiso that joined ContiTech's Industrial Fluid Systems unit in November 2017. Conti and Custom Crimp worked together to develop a cloud-based crimper controller for use in the hydraulic and industrial hose markets.

And just as its earlier acquisition of Veyance Technologies—the former Goodyear Engineered Products business—brought ContiTech much more exposure to North America, Merlett gives the business' thermoplastic business a boost in Europe.

"That's our target in acquiring companies like Merlett," Gerstenberger said. "To not only add something but to integrate and make it better and grow in the future. That's basically been a Conti strategy for many years."

Merlett also will help with Conti's overall effort to add more industrial-based business to better balance the automotive side of the company, he added.

From Merlett's perspective, the purchase will bode well for its future, according to General Director Marco Tamborini.

"With our wide range of flexible hoses, a well diversified customer base and a highly motivated team, we are able to contribute value-added," he said in a statement. "This is a good foundation for a successful joint future.

"We have grown as a family business for the past six decades and now we are very proud to hand over to Continental to continue to advance the business and provide a new home for our employees."

Branching out

ContiTech's Industrial Fluid Division made a big move boosting its plastics presence in North America with a major expansion of polyvinyl chloride hose capacity at its Mount Pleasant, Iowa, facility. Gerstenberger said that project and the Merlett acquisition will provide potential for future joint efforts.

"This material change and development we have seen for quite awhile already, and while we don't think that rubber is going away, we think there will be certain substitutions and additions with thermoplastics," he said. "If you combine that with machine knowledge plus cloud-based, you are starting to work more and more on solutions instead of products only."

And while Merlett currently is European-centric with its revenues, Gerstenberger said "we want to use our strong North American customer base we have today in the future to further develop this business."

Likewise, he sees the opportunity to take a similar approach in providing solutions from Mount Pleasant through Merlett's sales base.

"As soon as the closing is done we can also start to exchange with Merlett recipes, procedures and processes, and believe me Mount Pleasant will be one of the first stops on that journey," he said. "We will strengthen with this acquisition clearly the North American offerings to our customers in terms of thermoplastics. It won't happen tomorrow morning, but it is part of the plan."

The Industrial Fluid Solutions business unit operates more than 25 production sites worldwide. It serves such industries as mining, oil and gas production, the food industry, water management, the chemical and pharmaceutical industry, and mechanical engineering.