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Spotlight

Combining Iron Consolidation among forest companies has become commonplace, but there have also been some interesting combinations among logging equipment manufacturers and dealers.

By Paul MacDonald


While there has been no shortage of action on the mergers and acquisition front in the forest industry in Canada, the United States and abroad, there has also been a quiet consolidation happening on the forestry equipment front over the last year and among dealerships in the last several years.

One of the largest deals to date and which could have a significant impact on the forest machinery end of the business was John Deere's purchase of forest equipment giant Timberjack from Finland's Metso Corporation for approximately $570 million US earlier this year. The deal will considerably broaden Deere's presence in the woods. And besides including Timberjack's extensive lineup of forest equipment such as skidders, it also included the purchase of a separate company, Waratah, a leading manufacturer of heavy-duty harvester heads.

Sometimes it's tough to keep track of the equipment consolidations without a scorecard. Waratah itself had been involved in joining forces not too long ago with felling head producer Koehring Waterous to establish Waratah Forestry Attachments.

The purchase of logging equipment manufacturer Timberjack by John Deere is one of the high profile deals that have been completed by heavy equipment manufacturers in the last year. Other deals have involved equipment producers Partek Forest, Tigercat and on a regional basis, Madill in British Columbia, all as purchasers of other companies.

Besides the Timberjack equipment that the deal brings to Deere, Waratah includes a broad range of harvester heads and processors, felling heads, forest machine cranes and booms, as well as delimbers, and slashers.

A couple of other cases illustrate the consolidation trend among logging equipment manufacturers: Caterpillar acquired Swedish forestry equipment manufacturer Skogsjan in 1997. Cat says Skogsjan offered access to technologically advanced products to complement the company's existing line of forestry equipment.

Skogsjan specialized in cut-to-length forestry machines and equipment including forwarders, wheeled harvesters and harvester heads. Skogsjan distributed its products in Sweden, Norway, Germany, Austria, Switzerland and the United Kingdom.

Tigercat Industries, a well-established manufacturer of forestry equipment including feller bunchers and skidders, recently acquired Swedish forestry equipment manufacturer Hemek. Like itself, Tigercat says, Hemek has a strong engineering focus.

The company manufactures a line of cut-to-length equipment that includes 14 and 18ton forwarders as well as three eight-wheel harvester models. Hemek also manufactures the Woodking line of single-grip harvesting attachments. With the acquisition of the Hemek/Woodking line, Tigercat's product line is significantly broadened and enhanced, allowing the company to supply equipment for the full range of mechanized tree-length or short wood logging applications.

The takeover action is happening the other way geographically, as well, with Scandinavian companies interested in North American forestry equipment manufacturers. Partek Forest is one of the world's leading forest machine specialists, with a strong focus on harvesters and forwarders.

Partek Corporation recently announced a deal which would see Timbco become part of Partek subsidiary Partek Forest. Wisconsin-based Timbco is a pioneer of purpose-built, levelling, track forest machines and has a leading market position in North America.

While global deals may dominate the forestry equipment scene, there is also some regional consolidation taking place, with the combination of two venerable veterans of equipment manufacturing on the west coast. Through Key Equity Capital, British Columbia-based Madill Equipment, a manufacturer of yarders, loaders and feller bunchers, recently merged with Oregon-based Ross Corporation which manufactures the Thunderbird line of log loaders, yarders, delimbers and processors.

The consolidation trend is also going on among heavy equipment dealers in Canada. "It's not just happening on the manufacturing side of the business," said Nancy Ellen Leu, executive vice president of the Canadian Association of Equipment Distributors (CAED). "We've seen a lot of mergers and acquisitions among dealers over the last 24 to 36 months ." These involved leading heavy equipment players such as Wajax, Toromont and Strongco. The consolidation that has gone on with the equipment dealers and is going on with manufacturers is sure to be a topic of discussion at the CAED's annual convention being held in Ottawa this month.

Tim Kramer, president of Saskatchewan's Kramer Tractor and president of CAED, noted that while there has been consolidation happening among Canadian equipment dealers, it seems to have settled down of late.

Kramer noted that Canadian equipment dealers, in general, have always been larger than their American counterparts. "The Canadian industry has had to be a leader in being efficient because of the Canadian tax system ." He said there might be some concern developing about a "shrinking powerbase" in the industry, with larger, and fewer, players on the equipment dealer side.

For companies with dealers in a number of locations and provinces, there are economies of scale in operating a larger company, with cost benefits from a shared, central infrastructure in everything from computer systems to parts ordering. The move to bigger companies can leave smaller equipment distributors wondering how-and if -they can still compete.

Kramer said while larger operations can be more efficient, they also run the danger of being more bureaucratic. Some large equipment dealers, to their peril, find out that smaller competing dealers can be more nimble and flexible in meeting customer needs.

In terms of the future of Canadian heavy equipment dealers, there may be some further consolidation, but Kramer says a more likely scenario is a shuffling of equipment lines among dealers. He added that on the manufacturing side, acquisitions can be very good fits. Kramer pointed out Deere buying Timberjack as an example. "That was a good marriage," he says. "The large manufacturers of heavy equipment are looking to expand and broaden their markets and they are doing this through acquisitions ."

At the manufacturing level, with global players like John Deere and Caterpillar, the moves are also part of the larger trend-in all industries from cars to colas and from forwarders to feller bunchers- to a further globalization of markets.

The big equipment manufacturers have been large global players for some time, but the pace seems to be quickening. These companies are apparently looking to offer as broad a range of equipment, including logging equipment, to a worldwide market rather than focusing on a more narrow range of equipment and only certain markets. Deere, for example, would undoubtedly like to sell Deere equipment in other world markets where it has limited penetration. And like just about any other industry, it often makes more sense to "buy" substantial market share-by acquiring another company-rather than try to grow market share by adding brand new products and manufacturing facilities.

On the equipment dealer side, other companies, such as Finning International, which represents Caterpillar in both BC and Alberta, have long taken an international approach to their business. The company also represents Cat in parts of the United Kingdom and Chile. Finning (UK) Ltd is the national Caterpillar dealer for Britain, serving England, Scotland and Wales. Finning Chile SA is the national Caterpillar dealer in Chile, serving the northern, central and southern regions of the country, with its head office located in Santiago.

For the logging contractor, the consolidation among equipment manufacturers raises the question of whether they will enjoy the variety of choice they have had in the past. In some cases, the same products will likely be available, but under a different name.

CAED's Tim Kramer says that logging contractors, and other heavy equipment users, will likely end up having a choice of machines that are more targeted to their needs.

But should that not be the case, he added that there is no shortage of entrepreneurs in the forest industry who are looking for opportunities on the equipment side, especially on a regional basis. "In some parts of the country, the industry is very localized and they favour one type of equipment in one part of the province and another piece of equipment in another part because the wood is different ."

There's very little room for complacency among equipment manufacturers and dealers, he believes, because these entrepreneurs are ready and willing to take business from a large equipment dealer by offering a niche product that better meets a customer's needs. "It's a very competitive industry ."

Marv Clark of the Forest Engineering Research Institute of Canada (FERIC), which carries out a great deal of forestry equipment trials and research, said he was surprised at the move by Deere to purchase Timberjack. But he suggested it might have been part of a larger corporate strategy to increase market share on the forestry side.

Clark said logging equipment in general is poised for a substantial technology upgrade, with added features taking it to the next level of automation. There have been a number of pilot machines featuring increased automation out in the bush, but they have not evolved to the production model stage yet, he said.

Another reason for the Timberjack purchase might have been a feeling that Deere would be able to benefit from the research and development that Timberjack had been doing in next generation forestry machinery.

And rather than going head-to-head against Timberjack in selling new generation machinery and continuing to share the market-added to the fact that Timberjack's parent company had also put the company up for sale because it wasn't considered part of its long-term business strategy- Deere chose to buy the company.

Clark added that it was interesting that Deere, with its solid agricultural roots, is investing so much in the forestry equipment area. But as indicated by this and other investments, Deere is committed to growing its market share in the forest industry.

Deere, through its long standing partnership in Deere-Hitachi construction machinery, purchased the BC forestry equipment modification business of Wajax in 1998 and expanded their "purpose-built" forestry equipment market. Deere-Hitachi has since built a 115,000 square foot forestry equipment manufacturing facility in Langley, BC.


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