Blake has worked as a Market Analyst at Interact Analysis since 2017. Covering the markets for low voltage AC motor drives, predictive maintenance, and mobile hydraulics, Blake has developed expertise in automation systems, industrial digitalization, and off highway-electrification.
- Acquisition means Danfoss over-take Bosch to become global #1 mobile hydraulics vendor
- With acquisition, Danfoss is the 2nd largest supplier of industrial hydraulics globally
- Danfoss has aggressively pursued advanced technology capabilities in digital hydraulics and electrification
On Tuesday, January 21st 2020, Danfoss announced plans to acquire Eaton Hydraulics for $3.3bn. This acquisition and its implications for both the mobile and industrial hydraulic markets cannot be overstated. This acquisition makes Danfoss Power Solutions the market leader in mobile hydraulics, a top three vendor in industrial hydraulics, and reveals Danfoss’ long term vision as having hydraulics be the core of its business.
A Mobile Play
In the Interact Analysis report titled The Mobile Hydraulics Market – 2019, we found Danfoss Power Solutions to be the second largest supplier of hydraulics to mobile applications. We estimated the company held a 9.6% share of the global market for such products. The same report found Eaton Hydraulics sat just behind the 2nd place Danfoss with a 7.3% market share. This acquisition would place Danfoss comfortably in the top position in the mobile hydraulics market with a 16.9% share having gained the number one spot over Bosch Rexroth who we estimate hold a 12.8% share.
This jump in share comes at a time when Danfoss is already looked upon as one of the best performing hydraulic suppliers in the mobile space. The company’s presence in mobile hydraulics has grown at a rapid rate over the last five years, gaining share from Eaton, Parker, and Bosch Rexroth in the process. Additionally, Danfoss has aggressively engaged in a variety of other acquisitions/partnerships aimed at putting the company on the forefront of hydraulic technology. Notably, in late 2018, Danfoss acquired a majority share of Artemis Intelligent Power, an early pioneer of digital hydraulic technology. While it is still very early days for digital hydraulics, we view this tech as being a significant disruptor to traditional hydraulic technology and Danfoss has shown its savviness in investing in the technology as early as it has.
An Industrial Play
While Danfoss has shown remarkable strength in the mobile hydraulic market, the company had not been present in the industrial one. The acquisition of Eaton Hydraulics has changed that. Whilst Interact Analysis has primarily focused on the mobile hydraulics market, we are confident in assessing Eaton (now Danfoss) as the number two supplier in the space just behind Parker Hannifin.
Aside from going from insignificant to being the number two vendor of industrial hydraulics, Danfoss entering the industrial hydraulic space is likely to be very disruptive to the current landscape for other reasons. The company has already developed a strong reputation in industrial applications through the various other industrial products it offers. Perhaps most notably, Danfoss has developed a very compelling offering of low voltage AC motor drives; a product for which it recently became the second largest supplier of globally. We believe that Danfoss has developed significant brand equity amongst the users of its drive products in recent years and expect the company to leverage that brand equity to help sell their hydraulic products to many of the same customers.
Doubling Down on a Core Business
This acquisition makes hydraulics the majority focus of Danfoss’ business. Last year, Eaton reported that the portion of its business which was sold to Danfoss produced $2.2 bn in sales. In the same year, Danfoss Power Solutions, the hydraulic branch of the company, reportedly made up 35% of Danfoss’ total business which roughly equates to $2.36 bn. With the Eaton Acquisition, assuming sales remain constant, Danfoss Power Solutions would be looking at revenues in excess of $4.5 bn. This would push that 35% split of the company up to 50%.
Perhaps it would be appropriate to compare this acquisition to Danfoss’ acquisition of motor drive manufacturer Vacon in 2014. There we also saw two top ten suppliers merge and gain significant share over competitors. Since 2014 however, Danfoss has continued to gain share in the drives market. We believe this displays Danfoss’ unique competency of quickly growing the businesses it acquires. The Eaton acquisition is similar in nature, albeit on a larger scale, in that it is the acquisition of a manufacturer of a technology which is already a focus for Danfoss.
Danfoss’ history of forward minded acquisitions and pace at which it has grown its core businesses make this acquisition particularly important. We expect that, similar to the Vacon merger, Danfoss will find continued success in growing its now top share hydraulic business. It is our view that this acquisition marks a new era in hydraulics with a new leader in the driver seat. Typically, when we see consolidation in a market, prices tend to go up. That said, we have not seen any indication of this being the case as there is still a healthy amount of competition within the hydraulics market.
One facet of the market that may change however with Danfoss as the dominant influence, is the status quo among lead times. During our interviews with suppliers and vehicle manufacturers, Danfoss was looked upon as having better lead times than their competitors. One reason for its success was the company’s focus in mobile hydraulics which tends to be more easily served due to the large batch nature of vehicle manufacturing. In contrast, the customizable small batch nature of industrial hydraulics poses a challenge for hydraulic manufacturers which can push out lead times substantially. If Danfoss can bring its competency in mobile hydraulic manufacturing to industrial hydraulic manufacturing and reduce lead times, there will be added pressure for its competition to do the same.