Konecranes to strengthen its market position in Southeast Asia by buying full ownership of MHE-Demag
- Konecranes to acquire the other 50% of MHE-Demag from joint venture (JV) partner Jebsen & Jessen
- Konecranes will increase its presence and market coverage in strategically important and fast-growing Southeast Asia; the acquisition will grow sales in Asia Pacific by approximately 30%
- Total annual synergies of approximately EUR 10 million targeted at EBITA level by 2022
- Acquisition is expected to be approximately EPS neutral at inception but clearly EPS accretive post synergies
- Transaction is expected to close on January 2, 2020
Konecranes has signed an agreement to acquire the 50% stake in its MHE-Demag JV held by partner Jebsen & Jessen for approximately EUR 147 million. The acquisition will significantly improve Konecranes’ market position in the fast-growing Southeast Asian markets, creating further opportunities for service sales and simplifying the distribution channel for industrial cranes and components.
The transaction will allow Konecranes to fully consolidate MHE-Demag going forward. Konecranes estimates that the transaction will add approximately EUR 150-180 million in annual sales and approximately EUR 25-30 million of annual EBITA to the Group by 2022, including the targeted synergies.
Konecranes is currently reporting MHE-Demag as an associated company. In 2018, the net result in the Group attributable to MHE-Demag was approximately EUR 5 million.
“With the MHPS acquisition now behind us, Konecranes is ready to take the next steps on its growth path. This acquisition underlines our intent to pursue profitable growth, and meaningfully expands our footprint in a strategically important region with several fast-growing markets. The acquisition will also bring greater balance to Konecranes’ regional sales structure,” said Teo Ottola, Interim CEO and CFO of Konecranes.
Jebsen & Jessen will receive approximately EUR 147 million in cash and deferred payments upon the expected closing of the deal on January 2, 2020. MHE-Demag is expected to have a minor net cash position at closing. The acquisition is expected to close without the need for regulatory approvals.
Overview of MHE-Demag
MHE-Demag is a leading supplier of industrial cranes and services in Southeast Asia under the MHE and Demag brands, engineering, manufacturing and maintaining a comprehensive range of industrial cranes and hoists. Its customized solutions serve a wide range of industries and customers from general manufacturing to aerospace. MHE-Demag also provides warehousing equipment such as lift trucks and dock levelers, aerial work platforms, building maintenance units and compact construction equipment, as well as automated car parking systems.
Service represents approximately 50% of MHE-Demag’s annual net sales, with cranes and components at approximately 35% and other industrial products at approximately 15%. In 2018, MHE-Demag’s net sales were approximately SGD 285 million (EUR 179 million) and EBITA approximately SGD 20 million (EUR 13 million). Konecranes is the main supplier to MHE-Demag, selling crane components under the Demag brand name.
MHE-Demag has approximately 1,800 employees, including some 700 service engineers. MHE-Demag operates 11 factories and more than 70 service locations throughout Southeast Asia and is headquartered in Singapore.
MHE-Demag runs own operations in 8 countries: Australia, Indonesia, Malaysia, Singapore, the Philippines, Taiwan, Thailand and Vietnam. In addition, MHE-Demag has distribution through resellers in several countries including Brunei, Cambodia, Laos, Mongolia, Myanmar, Papua New Guinea and Timor-Leste.
MHE-Demag was formed in 1986 as a JV between Demag and Jebsen & Jessen and to date has built over 26,000 industrial cranes, more than 20,000 dock levelers for warehouses, more than 2,000 building maintenance systems and more than 200 car parks with more than 6,000 bays.
With the acquisition, Konecranes will:
- Add scale and scope to its global service organization with an enlarged service footprint and the addition of some 700 service engineers;
- Achieve synergies and simplify the distribution channel for its industrial cranes in Southeast Asia;
- Increase its presence and market coverage in fast-growing Southeast Asia by growing sales in Asia Pacific by approximately 30%; after the acquisition, Region APAC will represent approximately 20% of Group sales.
Konecranes expects the acquisition to create approximately EUR 10 million of annual synergies at the EBITA level by 2022, including both revenue and cost synergies. One-time costs generated by the integration of MHE-Demag are estimated to total EUR 6 million.
Today, Konecranes operates wholly owned subsidiaries in seven of the eight countries, where MHE-Demag has own operations. The exception is Taiwan, where Konecranes operates through a reselling partner.
The acquisition is expected to be approximately EPS neutral at inception but clearly EPS accretive post synergy realization.
Konecranes is financially well-equipped to complete the transaction and to deliver its benefits. During the fourth quarter, Konecranes has drawn EUR 140 million long-term funding from financial institutions financing the cash consideration.