As a few commenters mentioned in recent posts, KKR, a USA-based private equity firm, has purchased Hitachi power tools and Metabo. This all happened back in January 2017.
If you recall, Hitachi purchased Metabo not too long ago. After talking with a Metabo rep last week, I’m convinced that the two brands have been working out a synergistic relationship, and that upcoming and perhaps recent tools have benefited from collaborations and tech sharing.
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I’ve been trying to settle my thoughts on this.
Bain Capital owns Apex Tool Group, and in the years following the acquisition some brands thrived and others faltered. They recently announced closure of an Armstrong and Allen tool factory, although reports are a little vague as to whether the brands themselves are being dissolved.
While all businesses aim to turn a profit, how will ownership by an investment firm affect the spirit of things?
Hitachi and Metabo have both been pushing forward, and I don’t see any signs of that slowing down. Will ownership by a private investment company help or hurt their motivation?
I know little about KKR, but I can only hope that they’ll add funds for R&D without changing Hitachi’s or Metabo’s souls.
I suppose that an investment company is little different from any corporate parent, except that an investment firm tends to be very diversified. They’re looking to turn a profit, but instead of changing the tool brands, perhaps they see potential in what Hitachi and Metabo can and will do these next few years.
It’ll be interesting to see how this plays out.
I’m optimistic.
Cr8on says
I too an optimistic, with the resent release of some serious tools under the new ownership it keeps me intrigued. Hitachi the parent company has a ton of resources and could have easily maintained their tool line, this transition to new ownership at first glance seemed to be bad, but looking a little at KRR, they seem to be supportive of their properties, and while not unheard-of it kinda cool to see another US company take over a foreign brand.
fred says
I’m assuming – given the typical lead time to market – the new releases were in the works well before the acquisition. I’m not optimistic at all and see the potential for the Hitachi Koki somewhat disparate businesses being spun off or split in two to new buyers. My take was that the acquisition included power tools as well as a medical centrifuge company – and can’t quite see how they will continue to fit together. Maybe the new owners got the combined company on the cheap – but now comes the part where they will want to squeeze as much profit as they can out for their investors. KKR”s due diligence may have seen that Hitachi tool production in Japan and Europe would “benefit” (at least from a cost standpoint) from a move to China – as a way to increase profitability and pay back the investment.
The yeti says
So basically if u like hitachi stuff buy it now . Soon it will be junk
HobbyWrench says
KKR is probably the premier private equity firms (“barbarians at the gates” was written about them!).
It all depends how they view the investment. if they view is as a cash cow, then the innovation may slow down as they look to keep more cash to pay themselves (lower R&D spend) . Also, the quality may suffer as they look to cut costs on materials by substituting cheaper stuff.
On the other hand, if they are looking to IPO it down the road, they will look to push forward by growing revenue with comparably less focus on margin expansion
Matt says
I think it opens up the door for a more motivated focus on strictly power tools as opposed to tool marketing, development and exposure taking the backseat a midst Hitachis broad spectrum of consumer goods.
The Hitachi-Metabo partnership was already an intriguing move and now fueled by a US investment company I see no reason for these tools not to bring some heavy competition to the game. I doubt people will leave their m18 or DeWalt to go green and it may be too late for them to win a new market but if what they have begun to release is any sign of things to come then they definitely have my attention.
Their 14.4v tools are kind of cool(4 speed Brushless Impact). The ergonomics of there cordless gear is near the top when it comes to grip in my opinion. The nailers are excellent…. Also, an array of decent miters..
I’m excited to see what is next.
James says
KKR’s press release about their purchase. http://media.kkr.com/media/media_releasedetail.cfm?ReleaseID=1007881
Tim says
The company I work for has thrived under private investment firm ownership.
That’s all I can say but it could be not bad.
Brent says
I’m a longtime investment management professional, with extensive experience evaluating the impact of M&A transactions. In general, private equity buyers are the worst acquirers of companies out there, at least from the standpoint of customers and employees.
Private equity funds focus on cutting costs to drive short-term profit growth while they try to figure out ways to accelerate revenue growth over the longer term. Unfortunately, the companies they buy tend to be large companies in slow-growing industries. If you are the #3 player, with 15% market share, in an industry growing 2%, it’s really hard (read: impossible) to accelerate growth to 10%; if there were an easy way to make sales take off, management probably would have tried it already. It’s kind of like buying a 747 with the intent of turning it into a supersonic fighter jet… the physics is against you.
The net result is that a company acquired by private equity will likely cut R&D, move production offshore even more aggressively, and will thus affect quality and customer service, diluting brand equity built up over years. The private equity fund manager will hope that their financial “razzle dazzle” in engineering the numbers will allow them to spin the company back out to another corporate buyer (or in an IPO in the stock market) in 3-5 years so they will cash out at a profit before a death spiral begins.
I expect this to happen with Hitachi, just as it happened when Bain bought Apex. My guess is that once Hitachi moves production more aggressively to China than in the past, sales will slump and they’ll position the brand down-market more to DIY and entry-level buyers than in the past. As they cut costs in the Metabo brand, they’ll probably also move that down-market and attempt to position it against either Milwaukee or Dewalt, but I don’t think that will work well as Milwaukee has a hammerlock on Home Depot and KKR will have a tough time getting distribution for Metabo at that position in the market. They’ll also
Incidentally, looking at Bain’s history with Apex, look for them to start tinkering more with the brands in Apex soon. The deal closed about 4 years ago, so Bain is likely to start looking for a buyer to spin the company out, given the typical 3-5 year target for cashing out of an acquisition. Given other moves that have gone on (Irwin coming out of Newell Rubbermaid and Craftsman being sold, for instance), natural acquirers for Apex may be a little hard to find as the logical acquirers have all just done major acquisitions with heavy overlap on Apex’s product lines. If that’s the case, then Bain is likely to become more aggressive in cutting costs via product line consolidation at Apex so that they can continue growing short-term cash dividends to their investors while they hunt for a buyer.
Jim Felt says
Yes. Sadly.
But so far (since the ’80’s in particular) it’s the way Wall Street* “works”…
Good analysis.
Groan.
*Regardless of actual location.
Stuart says
Thank you for the insight!
Adam says
I didn’t intend on getting a finance lesson, but thank you. Well written summary. Where do I send my money for you to invest? 😀
Michael says
This gentleman knows what he is talking about. Great comment.
Jim says
Acute analysis, which seems probable. Love Metabo! Downmarket, China, less R&D: More poorly designed and made tools in landfills! There’s financial wisdom in your calculus!
Robert says
I’m quite familiar with KKR: Hitachi and Metabo are finished. Their fans should start looking at other brands.
Mike says
It’s never good when a equity firm buys your buisness RIP Hitachi and Metabo
BikerDad says
Not true. There are quite a few companies that would be gone if it were not for equity firms buying them. One example off the top of my head is Ducati.
ktash says
Something like this must have happened with Porter-Cable and Dewalt. When I was looking for a router, PC was at the top of my list. But I had old information, since PC and Dewalt were owned by the same firm and they were making Dewalt their premier brand and downgrading PC.
People who want to buy US made tools, in my opinion, want to go back to the days when tool brands were made to be good tools with good value for the purchaser, and the shareholders benefited if they were. That kind of thinking is a thing of the past. Now for the purchaser it’s just trying to figure out whether to invest in a line of tools (since batteries and chargers are part of the equation) that will be around for a while and not go downhill. If I thought Hitachi was solid in this regard they’d be an option. But no way to tell from what I can see.
Along with this goes advertising that is meant to create buzz and also emphasizes “benefits” and image to the potential purchaser. This drives me crazy since it’s often impossible to find out all the actual features and specs of a tool. For instance, what are the three dimensions of the dewalt table for its planer. They do give the shipping dimensions in most cases, not the actual dimensions. I looked and looked and finally had to rely on Amazon commenters’ measuring it. People who are buying tools and who are likely to be repeat customers ARE interested in complete specs. Ok, that’s my soapbox.
I was in Ace recently and a new DIY purchaser was asking an employee about recip saws. The Craftsman was alongside Milwaukee and Dewalt. The potential purchaser said, “Oh yes, Craftsman is supposed to be the best, right?” The salesman did not correct that but pointed out that the Craftsman was on sale and pointed out the features. I just facepalmed and bit my tongue.
Sgoody says
Ktash just an FYI, Porter Cable wood working tools(routers, sanders) are the same as they were years ago, model number and all.
Although Porter Cable Tradesman series is probably what you are referring to, which is thier mid-price power tool line.
Yadda says
If KKR does for Hitachi what they did for Revco, Kmart and Bruno’s, then ……
John Fal says
Yea, it doesn’t sound like the best news for the brands. I can’t see this being good yet, only time will tell.
fred says
Yep – when plan for the worst and hope for the best – then see what happens – sometimes you are pleasantly surprised – other times not.
Jon says
Please allow me to offer a different perspective than Brent. I too, work actively with Private Equity.
Not all P.E.s are in the business of cutting costs for the sake of cutting costs. P.E.s are sold based on a multiple of their free cash flow (EBITDA) or the overall value of the company’s brand and technology (Enterprise Value). You CAN raise EBITDA by cutting costs. You can also raise it by increasing sales.
In my experience a P.E. is not different than most owners of businesses with exceptions for small, family run businesses. If you think that KRR is focused on making money while the previous owner was not…I’d have to disagree.
It is true that MOST (not all) P.E. investments are 3-5 years. However, there is always a strategy. P.E.’s will struggle to make a return if they just cut costs and offload things because…anyone can do that. An intelligent seller knows that and thus, there is likely much more to a strategy than to just offshore and cut costs (or else they would just do that and make more on the sale).
Think of companies like SnapChat that trade for higher multiples than companies like Ford, regardless of the earnings/sales ratios. Creating excitement and sales growth is just as (if not much more) alluring to P.E.’s than cutting costs.
My guess: They will refine the brand to better fit into a specific price point and technology point where they can take on the competition and position themselves for a sale to a strategic (this would be like the Milwaukee owners as an example).
Who knows how it works out, but at the worst you’ll get a fresh look and strategy at the company because an extremely intelligent person just bet a lot of money they can grow Hitachi.
Robert says
Yes, but, we’re speaking of a specific company with a specific track record.
Samuel says
I have the Hitachi triple hammer and love it. I see Hitachi promoting their line of cordless nailers now as well. Pricing is at or even above the top-tier brands for equivalent tools. I hope they keep pushing in the direction of offering more at a higher price. Would be nice to see a company like that turn things around and rely on innovation to compete for market share, instead of hacking quality to move units at a lower price point. In a race to the bottom, nobody wins.
h2s says
I have 30 years in the building industry on the west cost and mountain region. I have never seen metabo in a store, magazine, website. You know what people think when they see a tool that looks exactly like a name brand premium quality tried and tested tool, chinese junk knock off. Hitachi use to make and sell the “greatest” framing guns in the 80’s its just not like that anymore. You’re gonna loose millions trust me, branding is so important in the tool junky world. I’m stickin to my makita, skil, and 5 hitachi guns and looking at buying senco(made in usa) guns from now on.
Jarome says
Never seen Hitachi or Metabo tools anywhere on the west coast so they have 0 name recognition. I know that Bosch owns skil and they are starting a new line and so far the videos look great and at least that has name recognition so it should do well. The same goes for craftsman with rebrnaded dewalt and porter cable unites, it’s all about the brand name. Why did TTI buy Milwaukee? Look how successful they are and brand name is not everything they do make good tools even though they are all made and designed and fully owned by Chinese but they do have that recognized brand.