An analysis of thousands of pump acquisitions over the last 30 years shows that the pump market is built on the niche achievements of several small companies who were acquired by publicly traded companies or private equity firms. The many benefits of mergers have recently increased due to the advent of IIoT and remote O&M which allow suppliers to provide solutions and not just products.
By Bob McIlvaine, President and Founder, the McIlvaine Company
There are several motivations that can cause a pump company to seek acquisitions. The four most prevalent causes are depicted in Figure 1. For example, one can look at the benefit for a pump company to acquire a company with complimentary products. Typically, there are a minimum of two valves, or more, which are used in tandem with every industrial pump. As remote monitoring of a pump-valve system is now cost effective, there is significant potential for large revenues to accrue for solution suppliers. This has led pump companies to acquire other system component suppliers making them total solutions providers.
Total Solutions Market
The total solutions market for pumps can be defined in different ways. One is a pragmatic approach based on the capabilities and interests of a group of suppliers. This approach excludes most discrete and mobile applications. The reason for this exclusion is that a different group of suppliers typically pursue this high volume, but small, pump market. Most residential and commercial markets are also excluded. Each of the market niches in a pragmatic approach are defined in one umbrella market report.1
Pumps themselves, represent a USD $75 billion segment of this Solutions market.2 Dryers, kilns, and furnaces are not included in the total, even though the pumps used with them are. If they were to be included the pump percentage of the market drops from 11% to 7%. In general pumps represent about 1% of the total installed cost of process systems.
The most successful acquirers have been focused on specific market niches.
The largest acquisitions to take place recently have covered several market niches, while the successful smaller acquisitions have often been focused on narrow market niches.
A review of recent pump company transactions shows that one or more of these solution benefits has been acquired in various companies.
For example, Atlas Copco has acquired Industrie Pumpen Vertriebs Gmbh. The company has sales of less than USD $10 million but is a significant player in the European chemical industry. So customer access was an important wisdom gain. Atlas Copco also purchased Pumpenfabrik Wangen, a German manufacturer of progressive cavity pumps used for transferring fluids mainly in the biogas and wastewater sectors. The company also manufactures twin-screw pumps used in sectors like food and beverage and cosmetics. Revenues are USD $50 million.
The Ingersoll Rand purchase of Albin pumps was based on the belief that electric peristaltic pumps are one of the fastest growing positive displacement technologies and yield strong aftermarket opportunities. The conclusion was that the business possesses strong technological expertise in niche applications and end markets.
Another justification was that it had products commonly used in the same strategic markets as other Ingersoll Rand products, including water (municipal and industrial), chemical processing, food & beverage and mining.
Albin will complement the product lines of ARO®, Milton Roy® and other Ingersoll Rand brands, see Figure 3.
A third example is Tuthill, which manufacturers lubrication pumps that fit well with the compressor products sold by the company.
Independent companies therefore need to consider ways to compete in the supply of solutions. Fortunately each application niche is a unique market. Therefore, solutions can be added one niche at a time.
There are a few alternative options for pump companies looking to transition to the total solutions market. One option is to become part of a collaborative group. Independent cleanroom laundries around the world have banded together as Micronclean. The Star Pump Alliance(SPA), for example, is a collaboration of pump users and manufacturers.
The SPA is mostly German based companies which are privately owned and have market leadership in niches including:
• Plunger pumps for deep subsea functioning in the equivalent of a submarine;
• Centrifugal pumps modified to handle 320 °C hot oil;
• Rotary lobe pump for aggressive paper starch;
• Gear pumps for highly demanding margarine manufacture.
With the international political situation as well as the advent of IIoT and Remote O&M pump suppliers will need to continually assess the opportunities and make critical decisions on a timely basis.
1. Air/Gas/Water/Fluid Treatment and Control: World Market published by the McIlvaine Company
2. Pumps: World Markets published by the McIlvaine Company
ABOUT THE AUTHOR
Bob McIlvaine founded the McIlvaine Company in 1974 and oversees the work of 30 analysts and researchers. He has a BA degree from Princeton University.