Whether via acquisition or partnership agreements, West Michigan’s office furniture makers are looking to fill product holes with their recent spate of deals.
In the span of about six months, Grand Rapids-based Steelcase Inc. (NYSE: SCS) and Zeeland-based Herman Miller Inc. (Nasdaq: MLHR) announced nearly $286 million in acquisitions. The deals signaled to industry watchers that the largest office furniture OEMs were getting serious about adding new capabilities, chasing sales and rounding out their product portfolios.
“I think most of the larger companies in the industry are actively pursuing acquisitions currently,” said John Kerschen, managing partner and president of Charter Capital Partners, a Grand Rapidsbased investment banking firm that includes an M&A practice focused on the office furniture industry.
“A fair share of that (dealmaking) is this transition from selling furniture to being space solution providers for the entire space,” Kerschen said. “It’s about having product and solutions for the entire space, not just desk chairs.”
Just this month, Steelcase signed a $145 million definitive agreement to acquire Texas-based education furniture maker Smith Systems. The company entered into a pair of partnerships involving West Elm, a New York-based furnishings designer, and Extremis, a Belgium-based designer of outdoor furniture. The announcements follow a deal in November in which Steelcase acquired AMQ Solutions, a California-based maker of heightadjustable desking, benching and seating, for $69.9 million, according to a federal securities disclosure.
“Don Heeringa, CEO of Holland-based Trendway Corp., sees the recent M&A activity by the larger OEMs as a way to “advance sales” and find additional growth, despite some “flat growth in the market.”
“(Office furniture makers) are finding ways to grow without actual market growth,” he told MiBiz. “I think we are going to see more (acquisitions) where smaller companies are struggling to survive.
“From the flattening out of (growth) in the industry, margins are tighter (and) new players put pressure on the industry. Are those companies up for the challenge? We will see.””
Crosstown rival Herman Miller also announced a pair of minority acquisitions in June: a $66 million deal for a 33-percent equity interest in Nine United Denmark A/S and a deal valued at $6 million for 48 percent of the equity in Maars Living Walls of the Netherlands.
According to Todd Custer, president and CEO of Custer Inc., the deals prove that OEMs are paying attention to feedback from their dealer networks to identify product portfolio holes. The Grand Rapids-based Custer Inc. is an authorized dealer of Steelcase products.
“Steelcase is listening to the dealers, listening in on the market and saying, ‘Hey, we’ve got gaps in our portfolio. To fill it out, we either do product launches and come out with a new product, or we partner with West Elm, or we go acquire like with Smith Systems,’” Custer said. “I think you will start to see more of that happening — where the larger manufacturers are looking to see what our clients are buying … and fill those holes up.”
According to Custer, dealers are the “front lines, feet on the street” for the industry, so it becomes imperative that OEMs listen to their feedback to “arm themselves with the best possible arsenal” of products and solutions.
“If you’re a Haworth, a Steelcase, whatever it is, you want to give (dealers) as much good product (as possible) that they can sell to clients and bring it all together,” Custer said.
While Steelcase President Jim Keane said it’s true that the dealmaking process often starts with the possibility of filling a product gap, the conversation goes well beyond the OEM’s portfolio.