With a background in computational biology, Rueben Scriven joined Interact Analysis two years ago and leads the warehouse automation and on-highway commercial vehicle research areas. Rueben has spoken at some of the leading industry events and moderated several panel discussions on the topic of commercial vehicle electrification. He’s also appeared on CNBC to provide insight on the global electric bus market.
Earlier this month, Material Handling Systems (MHS) announced it was acquiring TGW’s US conveyor business. This marks the latest in a spree of acquisitions resulting in MHS becoming one of the largest warehouse automation vendors in the world. This insight provides an analysis on the phenomenal rise of MHS.
Growth Through Acquisition
Since Thomas H. Lee (THL) became the majority owner in 2017, MHS has completed a series of acquisitions resulting in MHS becoming one of the largest warehouse automation vendors in the world. We estimate that MHS was the 7th largest warehouse automation vendor globally by revenue in 2019, up from 8th place the previous year. That said, THL’s combined warehouse automation portfolio, which includes MHS, AutoStore and Fortna Inc, would move up to the 6th spot in the global market rankings.
MHS first entered into an agreement to recapitalize its partnership with THL in 2017, making THL the majority owner of the company. That same year, MHS acquired Atronix Engineering Inc, known for integrating control systems, and Advanced Production Systems Inc, which specialises in engineering, designing and assembling control panels. In 2018, MHS acquired European companies VanRiet and OCM, both of which specialise in conveyors, sortation systems and integration.
In 2020, MHS acquired eMotion, another control systems and integration company, followed, most recently, by TGW’s conveyor business earlier this month (January 2021). As a result of MHS’s phenomenal growth, both organically and through acquisitions, MHS has had to double the size of its headquarters.
Leading the Parcel Segment
Whilst MHS sells automated equipment into several different vertical markets, its main focus is on the parcel segment where it generates a large share of its revenues. MHS has been the market leader in the parcel segment for the past two years straight, accounting for 14.8% and 15.5% of the market in 2018 and 2019, respectively.
Driven by the growing share of online retail, the parcel industry is forecast to be one of the fastest growing warehouse automation segments with a CAGR of 13.7% between 2019 and 2024. In addition to the growing parcel volumes, reverse logistics is causing a further strain on the parcel network resulting in huge investments in sortation automation.
Amazon’s expansion into the parcel delivery segment has further accelerated investments in sortation automation. Amazon accounted for 12% of parcel deliveries in the US in 2019 and currently has 24 million square feet of out-bound sortation facilities across the United States. As we’ve discussed before, online retailers are increasingly looking to bypass express delivery companies which is leading to intense competition and a flurry of investments as the delivery companies try to catch up with the likes of Amazon’s technology prowess.
Expanding to Europe: Headwinds Await
While MHS is primarily focused on the US market, that acquisitions of OCM and VanReit, based in Italy and The Netherlands, respectively, has given it a foothold in Europe which it will want to exploit over the coming years.
In doing so, however, it will face several headwinds. Firstly, Vanderlande and Fives Group will prove to be worthy adversaries in the European parcel segment. Secondly, it may struggle to win business in European fulfillment centres which tend to favour highly compact and dense solutions such as shuttle-based systems and AutoStore. This contrasts with the US market where lower industrial rent prices has given rise to gigantic warehouses with sprawling convey-and-sort solutions which MHS specialises in.
MHS has become one of the largest vendors in the global warehouse automation market through a series of well executed acquisitions. As it looks to expand beyond the parcel segment and outside of the US, however, THL should consider leveraging the potential synergies of a distribution partnership with AutoStore. This will give MHS the competitive advantage it needs to grow in the e-commerce market and in particular the European market where solution density is one of the key factors for success.