Proving the Business Case for the Internet of Things

Kion acquires Dematic to attack intra-logistics market

Steve Rogerson
June 30, 2016
 
German forklift truck and warehouse equipment company Kion aims to become one of the leading global providers of intelligent intra-logistics by acquiring for US$2.1bn US automation company Dematic, a specialist in supply chain optimisation.
 
Dematic is a global supplier of integrated automation technology, software and services to optimise supply chains and meet material handling automation needs. The company's product and systems portfolio ranges from automated guided vehicles, palletisers, storage and picking equipment including automated storage and retrieval systems, sorters and conveyors to a leading integrated software platform and automation technologies.
 
Kion agreed with funds managed by Dematic owners AEA Investors and Ontario Teachers' Pension Plan as the sellers on this transaction to create a global provider with close to 30,000 employees, more than €6.7bn in revenue for the calendar year 2015 and a strong profitability with a combined adjusted EBIT margin of approx. 9.4 per cent for this period.
 
After deductions for certain liabilities, Kion expects the purchase price for the shares to amount to about $2.1bn, based on an enterprise value of Dematic of $3.25bn. The transaction is subject to customary closing conditions and regulatory approvals and is expected to be closed towards the end of of 2016.
 
Dematic has been growing annually by more than 12 per cent since 2013. It generated approximately $1.8bn in revenue and achieved an adjusted EBIT of $166m during the calendar year 2015. The company employs almost 6000 skilled logistics professionals, including more than 3000 engineers in software development, R&D, engineering, project management and customer service. It supports customers globally with engineering centres and manufacturing facilities around the globe.
 
With more than 100 locations Dematic is present in 22 countries, including in the USA and Europe. It has implemented more than 4500 integrated systems for small, medium and large companies with business in a broad variety of industries around the globe including the fast-growing e-commerce business.
 
The purchase of Dematic should establish Kion as a leader in Intralogistics 4.0. Leveraging its sales and service networks, technologies and resources, the enlarged company will be able to offer the full material handling product and service offering to customers of all sizes in a broad range of industries across the world. This material handling offering ranges from manually operated industrial trucks to complete fully automated warehouses.
 
Kion aims to enhance its position as one-stop-supplier for intelligent supply chain and automation services and believes it is perfectly positioned for attractive and profitable growth driven by megatrends such as Industry 4.0, digitalisation and e-commerce.
 
"With the acquisition of Dematic we are substantially changing and enhancing what Kion Group is and does for further profitable growth in a quickly changing industry and digitalised world," said Kion Group's CEO Gordon Riske. "We are becoming a unique provider of products, services and solutions. Like no other company in our industry, we can accompany every customer seamlessly on its journey to Industry 4.0 and Intralogistics 4.0 now and everywhere."
 
Both companies contribute complementary market positions and geographical footprint as an opportunity for revenue growth. Dematic will leverage Kion's service network and brand reputation in key markets such as Europe, China and Brazil, whereas Kion will take advantage of Dematic's strong position in the US and European automation markets. This complementarity is also the source of cost synergies from this combination. Kion's strong sales and service network together with Dematic's sizeable installed base could provide the basis for unlocking further revenue potential from services and systems upgrades.
 
In the past year, Kion has already started to build a strong position as a provider of automated systems by acquiring Egemin Automation and Retrotech, thereby making further inroads in this attractive and growing market. After closing of the transaction, Dematic will be integrated into the Kion Group forming an additional fifth operating unit, which will also comprise the businesses of Egemin Automation and Retrotech. This future operating unit will be headed by Dematic CEO Ulf Henriksson as its president.
 
"This transaction will be transformational to our industry," said Henriksson. “Kion Group and Dematic together will design and deliver solutions that better position our customers to respond to dynamic demand. With a shared vision and commitment to R&D, the combined company will continue to focus on superior customer solutions with significant investment in this area. Together, Kion Group and Dematic will jointly define a new era in material handling."
 
Kion is already one of the largest suppliers of forklift trucks, warehouse equipment and related services.
 
"The entire Kion Group supervisory board is excited about the combination of Kion Group and Dematic and is fully supportive of this landmark transaction," said John Feldmann, chairman of the Kion supervisory board. “Together Kion Group and Dematic will be even better able to offer their customers worldwide the best suiting products available on the market."
 
Following their purchase of Dematic in early 2013, AEA investors and Ontario Teachers' Pension Plan, supported by a renewed management team and board, invested significantly in the company to take advantage of automation trends in the supply chain driven by omnichannel retail and e-commerce.
 
"In the ensuing three years, Dematic has achieved impressive results: rapid growth in order book, sales, and profitability; dramatically enhanced global business processes; and an expanded and diversified global customer base,” said Richard Wagoner Junior, chairman of Dematic. “To support the next stage of Dematic's development and our customers, employees, and other constituents, we are very pleased to have Kion Group as the company's new home."
 
The transaction will be funded initially with a bridge loan facility of €3.0bn, which has been firmly committed by a group of Kion's core relationship banks. Kion intends to refinance the acquisition permanently through equity, long-term capital markets and bank debt. The equity issuance of up to ten per cent of new shares would use the entire currently existing authorised share capital and is fully supported by Kion's major shareholder Weichai Power. Kion says it is committed to maintaining its position as a strong cross-over credit with reliable access to debt capital markets and would therefore consider the full spectrum of equity-generating instruments in line with its conservative financial policy.
 
"Kion Group's strong cash flow generation and debt reduction over the last years since the IPO has provided us with the balance sheet strength for such a transformational transaction," said Thomas Toepfer, CFO of the Kion Group. "We have solid financing in place to fund the transaction with a prudent mix of equity and debt in line with our conservative financial policy that will maintain our financial profile as a good cross-over credit."