Web exclusive: Airgas CEO predicts banner M&A year
Industrial Distribution staff -- Industrial Distribution, 1/10/2008 1:23:00 PM
Peter McCausland, the founder, chairman and CEO of industrial gases distributor Airgas, told INDUSTRIAL DISTRIBUTION that 2008 should be another record-setting year for acquisitions.Airgas bought 16 companies so far during fiscal 2008, adding $450 million in revenues to its top line. McCausland tells us that pace will continue during the calendar year, noting that the company’s strategic acquisitions fall along two lines: Those that bolster its core business and those that will expand its product offering, such as welding equipment rental firms, safety product suppliers and medical suppliers.
“We’re always looking and there do seem to be a quite a few opportunities out there that meet our standards,” McCausland explains. “We’ll finish our 2008 fiscal year in March and it’s already a record year, the second record year in a row. There is still around half of the market in the hands of independent distributors—there are about 900 of those and that’s just our core market of packaged gases and welding [distributors]. … What we try to do is find companies where the product line is something our customers buy. We expect a continued high level of activity in core acquisitions and product line acquisitions and I think together we could put some significant numbers on the board over the next few years.”
One area of particular emphasis is a new specialty products division, which he predicts will grow from about $175 million in annual revenues to $500 million. The most recent example of this strategy is the Jan. 2 purchase of the industrial ammonia operations of Pacific Diazo Products Inc.
But don’t look for a blockbuster deal along the lines of the Rexel/Hagemeyer/Sonepar tryst that would unite Airgas with a peer or competitor, though McCausland says it’s not out of the question.
“We’re not in discussions with any blockbuster distribution companies about such a deal, but we’re always open to things. There are few companies in our size in industrial distribution and we really haven’t explored whether or not it makes sense. What makes sense for us is leveraging our platform and customer base. We have a national platform, the broadest product offering and one million customers. If there was a big chunk of distribution business, like in safety, we certainly would be interested if it were available,” he explains.
The company, which ranked fifth on ID’s 2007 Big 50 list of distributors with sales of $3.2 billion during fiscal 2007, has an advantage over other acquirers, McCausland says.
“We’ve not only been buying companies, but we’ve been building up infrastructure. The synergies are so much greater than they were a year ago and five years ago and certainly 10 years ago, because we have so many important parts of our infrastructure that serve as ‘plug-and-play’ for the companies we acquire,” he explains. “The bugs are out and the kinks are out … so when we do buy a company, we can bring a lot more to it than we did a year ago and certainly 10 years ago.”
For the acquired company, that makes a big difference when it comes to revenues, McCausland notes.
“It used to be standard around Airgas the first 10 years that if you bought a company, you lost 2 percent of the sales before you started making headway again,” he says. “The opposite is true for the most part [now]. We can enhance the sales of a target through the programs and functions we bring to the table. … One advantage Airgas is going to have over the next five to 10 years is that our infrastructure and our functional capabilities have evolved to the point where we can bring synergies well beyond the typical synergies [of an acquisition]. This is especially true in the sales, marketing and customer support areas.”
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