Is Consolidation a Creeping Trend in the Machine Tool Industry?

GF Machining Solutions recently announced an agreement to purchase 100 percent of the shares of Microlution Inc., a developer of micro-machining products incorporating milling and laser technologies.

(Image courtesy of Microlution.)

On the surface, this may seem like just another acquisition, but digging a little deeper reveals that it could be part of a growing industry trend.

Mergers and Acquisitions in the Machine Tool Industry

In 2009, Japan’s Mori Seiki entered into a strategic partnership with Germany’s DMG, resulting in the DMG MORI Co.. Last year, the Japanese half of the company acquired its German partner in what DMG Mori Seiki president Masahiko Mori described as “a friendly takeover bid.”

Less than six months later, Hurco announced its acquisitions of the Milltronics Manufacturing Company and Takumi Machinery Company.

Examples like these represent a significant departure from the machine tool industry of the 1980s. A report commissioned by the National Academy of Engineering (NAE) in 1983 stated that, “The trend toward concentration through mergers and acquisitions, which is well advanced in other industries, is scarcely discernible within the machine tool industry.”

Although the global economy has also experienced dramatic shifts since the Regan years, certain aspects of the machine tool industry have remained largely unchanged. For example, the 1983 report notes that “[M]any machine tool company executives come from machinist or engineering backgrounds and often have little in the way of financial, legal or managerial experience.”

(Image courtesy of Microlution.)

As a case in point, Microlution was founded in 2005 by three engineers from the Chicago region. Yet despite its humble beginnings, the company generated USD$10 million in sales and employed 30 people in 2015.

For this reason, it should not be surprising that GF chose to acquire the smaller company for an undisclosed amount. “The company has developed, within a short time, a remarkable know-how in micro-machining, which complements very well the technology portfolio of GF Machining Solutions,” said GF CEO, Yves Serra.

The Future of the Machine Tool Industry

Serra happens to be a degreed engineer, but he’s not necessarily representative of machine tool company executives today. I suspect that the number of current machine tool company executives with machinist or engineering backgrounds is significantly lower than it was a few decades ago.

Moreover, an increase in the number of executives with extensive financial, legal or managerial experience would account for an increase in machine tool company mergers and acquisitions.

(Image courtesy of Microlution.)

The 1983 NAE report acknowledged a prediction by some industry analysts regarding “a rapid rise in machine tool company mergers and acquisitions.” Although the rise of mergers and acquisitions in the last few decades may not be astronomical, it’s still worth considering the effects of a growing consolidation within the machine tool industry.

Such a concentration could aid the industry in responding to large turnkey-type orders as well as increasing the standardization of machine tool accessories like controls. On the other hand, it could also lead to decreased competition in an already highly specialized market—an outcome that is almost never beneficial to the consumer.

What major changes have you seen in the machine tool industry? Comment below.