Continued Growth and Mergers and Acquisitions Activity Expected for 2017

By Chris Mc Loone

For the fire industry, 2016 continued the rebound many markets have been going through since the economy began its recovery.

Several examples came in the form of mergers and acquisitions (M&A)-some small and some that generated a lot of buzz throughout the industry. This market is a mature market, and the M&A activity is not likely to stop, although the pace at which it occurs will probably fluctuate. For those companies that merged, often they enjoy expanded research, development, and engineering resources at their disposal to improve existing products and develop new ones. For those remaining largely independent, the economy has rebounded to the point where they can reinvest in their products, and orders for new equipment are increasing.

Review of 2016

At Pierce Manufacturing, 2016 was a good year on different fronts. “We had a good year,” says Matt McLeish, vice president, sales and marketing. “It was almost a duplicate of our FY15 in general. Our dealers continued to shine for us.” McLeish says that Pierce invested in its dealer network in 2016, adding service capabilities across the country. “In an 18-month period, they added in excess of 200,000 square feet of service facilities throughout North America,” he says. “So, it was really an opportunity for us to work with them on moving and developing their infrastructure. They’ve really gone from being truck salespeople to really strong business dealerships with a wide variety of products, which makes them a lot more stable. McLeish also cites the company’s Ascendant aerial ladder as part of the company’s 2016 success. “The other story of the year is our Ascendant product and the tremendous success it has had in the ladder market.”

Rod Carringer, chief marketing officer for Task Force Tips, points to individual market segments to chart 2016’s success. “Municipal emergency response and the original equipment manufacturer (OEM) business in North America have been especially robust from a growth standpoint this year,” he says. “Internationally, because of geopolitical issues in some cases, the emergency response market has been much softer. Industrially, with the price per barrel of oil at its current level, both domestic and international sales into the petrochemical business sector have been very soft.”

At Spartan Motors, it has been a busy year, according to John Slawson, president, Emergency Response Business Unit, Spartan Motors. “We’ve introduced a number of new industry-first safety technologies in our RV chassis segment, we broke ground on a new truck assembly plant in our Fleet Vehicles & Services division, and we’ll formally introduce our new S-180 concept to the Emergency Response community this year,” he says. “It’s also been a year of rediscovery in terms of the global Spartan Motors brand. The foundation of the Spartan Motors brand is the notion that we build the very best heavy-duty, purpose-built vehicles on the road. We revisited that heritage in the past 18 months, and we’re seeing the results as they relate to the larger Spartan portfolio, with double-digit increases in sales, gross margin trending up, and a significant increase in operating income. Our renewed focus on operational excellence applies to every category in which we operate, and our Emergency Response team is up to the challenges and opportunities that lie ahead.”

Paul Darley, president and CEO of W.S. Darley & Co., comments, “2015 saw sales for fire apparatus up more than 10 percent, and fire apparatus manufacturers came into 2016 with one of the strongest backlogs in years. New fire apparatus orders for the United States remained strong in the first quarter but then sputtered in the second quarter. New orders rebounded nicely in the third quarter but remain down about 15 percent compared with last year.” He continues, “Because of the strong dollar and slowdown in the oil and gas industries, export sales, which have fueled a lot of growth over the past five years, have slowed a bit. The Canadian market for new fire apparatus sales is particularly slow.”

Specifically for 2016, P.L. Custom Body and Equipment Co. Inc. (PLCB) needed to address a number of challenges, according to Chad Newsome, national sales manager. One challenge has been a decrease in qualified and skilled labor entering the workforce, which hurts the manufacturing industry. Another challenge has been regulatory changes, especially as they pertain to the ambulance side of PLCB’s business. These changes continue to impact overall product costs and, coupled with new stretcher requirements, make a definite negative impact for purchases. In terms of the overall industry in 2016, Newsome says, “The continuing trend of mergers and acquisitions continued, with established brands being acquired by larger companies. Additionally, product offerings by some were streamlined to hone in on their own particular core proficiencies. Finally, new brands, or reimagined ones, were brought to market in an effort to expand market coverage. This trend, which really accelerated over the past eight to 10 years, is not going to abate any time soon.”

For PLCB, 2016 will finish with all three of its divisions-PL Custom Emergency Vehicles (PLCEV), Rescue 1, and New Jersey Emergency Vehicles (NJEV)-meeting their robust goals for the year. “Combining our tradition of lean manufacturing principles with a focus on continuous improvement, PLCB continues to stay out of the merger and acquisition fracas, and it allows us to build on our 70-year tradition,” Newsome says. “We believe that our stability is our strength, and our future lies with remaining true to our values of building products that are durable, reliable, safe, and serviceable.”

Purchasing in 2017

Navigating the market landscape for purchasers will not be without challenges in 2017. Newsome says apparatus and equipment purchasers will face three primary challenges in their acquisition processes: researching the companies from which they are purchasing, determining the return on investment they will realize on what they purchase, and discerning the difference between regulatory changes and marketing hype (see sidebar).

Ron Truhler, divisional vice president, North American sales, for Safe Fleet, says that he expects to see many loose equipment manufacturers redesigning their current products or updating them. “We’re doing that,” he says. “We’re coming out with a new Chief nozzle. We have started working on an update of our Selectomatic nozzle. We just redesigned our RAM XD.” He adds, “But as far as new products go, integrated controls on fire trucks, where you’re going to be controlling the governor, the monitor, the valves, the foam system, etc.-we’re designing an integrated system that will control component functionality from the pump panel.” Truhler points out that some of the mergers and acquisitions that have taken place in recent years have involved companies that manufacture pump-panel-related systems: the pump, the valve, the monitor, the foam systems, and the governors. “Systems integration is where the future lies,” he says.

Carringer comments, “I believe, in an effort to save critical tax-funded dollars at the municipal level, agencies will continue to search out cooperative purchasing opportunities, both locally as well as regionally.” He also states that with the demand for volunteers and the growing need for emergency medical response and prehospital care, apparatus will become much more mission-specific in their designs. “On a more business-related note,” he continues, “while we will continue to bring a dozen new innovative water flow and initial attack fire flow products to our customers in 2017, the development team has worked extensively developing a series of high-flow-8,000 to 10,000 gallons per minute-products for key OEM customers.”

From an apparatus perspective, McLeish predicts that multipurpose apparatus will continue to be popular, whether it’s in ladder form or emergency medical treatment or patient transport. “The convergence of fire and EMS and what that looks like-I don’t think anybody’s got that nailed down yet. But as we see the population getting older, that’s going to be a big piece of what product offerings are coming.”

Slawson says that Spartan ER continues to see larger engines, space optimization, and multifunctional designs being more prevalent. “Additionally, safety equipment and technologies such as crash mitigation and even autonomous driving technology, which we’re on the forefront of in partnership with the automotive OEM community, will continue to migrate into fire apparatus.” That said, Slawson says there is an issue with gaining access to these technologies in a timely manner. “Currently, a 12-month backlog of apparatus orders exists that at times may force fire departments to work with aging fleets that can compromise first responder safety,” he explains. “Our aforementioned S-180 is a concept we developed in direct response to this need.” The S-180 represents a speed-to-market approach that allows for a custom built truck to be manufactured and delivered in a reduced amount of time. “We understand the firehouse perspective: A new fire apparatus represents a significant financial investment to the community, and it’s often a grueling process for the chief. We need to offer a solution that doesn’t require a sacrifice in technology, safety, or quality. We believe the S-180 will do precisely that.”

Mergers and Acquisitions: 2016

2016 brought more M&A activity than in recent memory, which represents the interest private equity groups have in the mature fire market. “Private equity groups still have strong interest in investing in companies in the fire service,” says Darley. “The REV Group’s acquisition of KME was the largest and most significant acquisition during 2016. REV now owns E-ONE and KME and has a strong portfolio of ambulance manufacturing companies. They also have a diverse portfolio of other companies including bus, recreational, sweepers, and other specialty trucks. Most private equity groups will hold onto portfolios for about five years and then harvest the companies or go public. The private equity group Safe Fleet and Idex have both made substantial acquisitions over the past 12 months.”

“I think it’s a very positive thing,” says Truhler. “It’s been very positive from an engineering standpoint. We’ve got a lot more engineering resources now. We’ve done very well on the sales side where we’ve been able to take the strongest salespeople and put them out in smaller regions where they cover less territory so they are more focused.”

Carringer relates, “In all my years, I’m not sure I remember a time when the water flow segment of our industry has undergone quite so many changes. Speaking from a Task Force Tips strategic planning perspective, while fire stream management and water flow equipment have always been at the core of what we do, the opportunity to acquire AMKUS Rescue Systems and expand our global high-performance equipment footprint just could not be passed up. As we strive to maintain the AMKUS and Weigand family’s commitment to products that provide rugged durability, TFT’s design and development group, taking advantage of our manufacturing resources, will bring a whole new level of innovation to the hydraulic rescue tool business.”

Slawson states that the fire industry is an increasingly consolidating landscape, and recent acquisitions and efforts to gain market share demonstrate this. “The news is sometimes met with concerns regarding lack of competition or fears that a favorite tool or apparatus may no longer be available,” he says. “That may happen at times, but more often than not these mergers, if done properly, provide synergies and access to capital that result in new advancements that provide real-world solutions that advance the industry.” He advises that it’s important to view consolidation through the lens of who the acquirer is and its track record of serving the fire apparatus and equipment market.

Although Pierce was not a player this year in the M&A space, McLeish says that M&A activity is healthy for the industry. “It takes a little bit of a fragmented industry, probably with too many suppliers for how mature the industry is, and starts to bring them into a more concentrated group,” he says. “Competition is good. We don’t want to get too small, but I don’t fear that with the amount of competitors in the fire equipment space.”

Although PLCB is comfortable with its slow and consistent growth, Newsome asserts that uncertainty in the marketplace can be unsettling-not just for purchasers but also for those in the industry. “2016 brought more merger and acquisition activity from all segments of this industry,” he says. “Manufacturers, distributors, and other emergency service-related industries were all impacted by this trend. As these activities continue, consumer choice will be degraded. There are now times when all vendors at a bid table, each with a ‘different’ product, are all owned and managed by the same parent company. How is that competitive for the purchaser?”

Mergers and Acquisitions: 2017

Across the board, respondents for this article do not expect M&A activity to stop and, as you’d expect, each respondent had a slightly different “take” on this activity. Also important to remember is that the fire industry is a mature market, meaning that most if not all of the suppliers in this market are established. “If you look at some of the people who started these companies, they’re all getting a little older now,” says Truhler. “This was their passion: to be able to build innovative fire equipment. And once they got to a certain age, it was time to retire, or look at other options for the company.”

McLeish thinks M&A activity will continue in 2017 as some of the public companies continue to strengthen. “For a long time, the fire and equipment industry was all private almost, with a lot of family-run businesses,” he says. “But now we really are seeing the emergence of the public companies and the larger private equity held organizations. So, we are starting to see how this is unfolding, where some larger organizations are bringing in some of the smaller companies. So, I think that trend will continue. I doubt it’s going to continue at the pace we saw in 2016.”

Carringer adds, “Our industry, once populated with small, family-owned, multigenerational companies, more and more is consolidating. Stability, while not nearly as exciting as being on the telecom or pharma roller coaster, is attractive to investors seeking reasonable low-risk returns.” Carringer explains that the fire equipment market globally, from his perspective, is in a stable, slow-growth mode. “Stable, slow growth, while not as exciting as some technology sectors, still prompts many larger organizations with excess assets to seek out growth opportunities to maximize their investments.” And regarding M&A activity for 2017? Carringer says, “With the amount of venture capital money currently in the marketplace, expect to see additional consolidation within the OEM and loose equipment channels.”

Slawson concurs. “I would expect we will see more merger and acquisition activity in our industry as longstanding players look to partner with complementary players to grow product and geographic reach while carrying on the traditions and quality of legacy ownership.”

Darley contends that the fire industry is similar to other industries when considering M&A activities. “M&A activities across most markets is very strong right now,” he says. “I don’t think the fire industry is much different from other industries. There has never been this much money sitting on the sidelines looking to purchase companies.” And for 2017, he thinks small companies, both fire apparatus manufactures and component suppliers, will continue to look to take on partners. “Darley is looking at a few different potential acquisitions and will continue to keep our eye open for the right deals,” he says.

“2017 will see even more M&A activity, of that I am sure,” says Newsome. “Our plan regarding this ongoing trend is to continue our 70-year tradition of focusing on our company and making it strong and stable.” He adds, “For a smaller company like PLCB, our future lies in our decades-long focus on building the best cutom-built products that are durable, reliable, safe, and serviceable.”

Growth and Challenges for 2017

Although the consensus is that the fire market will continue to grow, there will also be challenges along the way in the form of qualified employee recruitment challenges, changing fire department leadership, and continued M&A activity.

“I believe manufacturers and distributors within our marketplace will continue to struggle, as many of our volunteer fire department customers do, with the recruitment and retention of qualified employees,” says Carringer. Newsome adds, “The entire industry needs to pressure local, state, and federal representatives to increase support and funding for skilled labor. The dwindling of the trades, both in terms of offering training and appreciation of and promotion for such skills, continues to hurt the overall manufacturing industry.”

Carringer continues, “We will see inflation rise somewhat, oil prices per barrel rise somewhat, states struggle with pension reforms having an effect on local budgets, and our healthcare insurance costs will continue to creep upward. Still, as statistics tell us, since 2004, fires are down, deaths from fires are down, and injuries and dollar loses are down. Hopefully, political uncertainty will subside, the Fire Act can be reauthorized, and we can all figure out how to help the next generation tackle the next challenges.”

Truhler touches on the changing leadership in the fire service. “The fire service is becoming more technical,” he says. “You have younger officers and younger chiefs who are highly educated and are not afraid to take the challenge to embrace the technology side. For years, we would hear, ‘Why are we doing it that way? Because we’ve always done it that way.’ Well, these new chiefs don’t want to hear that. They want to understand why we’re doing things a certain way, and they want to improve it.” To that end, Truhler expects to see integration of systems on apparatus increase. “Video is going to become huge in the fire service. 360-degree cameras, DVRs, drive cams-we’re going to really start seeing more of that in the next couple of years.”

Slawson expects that the industry as a whole will continue to see increases in new apparatus sales, the emergence of new technologies that advance safety and effectiveness of first responders, and a more global marketplace in which manufacturers operate. Darley adds, “Overall, I think the market will continue to grow. There is a lot of pent-up demand and, according to the National League of Cities annual survey, cities are in the best financial shape they’ve been in over the last eight years.”

McLeish says, “From the fire industry in general, I think it follows closely with general economic times. I think all signs point to having a similar year to ’15 and ’16. But, I also don’t expect large increases in our overall market right now. The way municipalities are structured, dollars are a little freer than they were five or six years ago, but I don’t see an onslaught of spending regardless of any political change. The country has just changed. Sequestration and other very tight fiscal policies are not going to allow that free spending that we saw prerecession. So, I think we’re looking at markets that are very similar to what we saw the last couple of years, and it’s really about becoming efficient and determining how you grow or what you need to do in that space to make sure you’re making your investors, your employees, and everybody else happy.”

CHRIS Mc LOONE, senior editor of Fire Apparatus & Emergency Equipment, is a 23-year veteran of the fire service and an assistant chief with Weldon Fire Company (Glenside, PA). He has served on past apparatus and equipment purchasing committees. He has also held engineering officer positions, where he was responsible for apparatus maintenance and inspection. He has been a writer and editor for more than 20 years.

Three Primary Acquisition Challenges

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