President of One Equity Partners
by Richard Cashin, President One Equity Partners
In the 250 miles from Malpensa to Rimini, there are at least 200 B2B suppliers to global customers doing E200-400 of revenues.
These companies make cool stuff, witness the average gross margins in the 30 pc range, that takes a lot of money to sell it, witness the 20 pc sales and administrative expense investment.
These companies sell to the biggest, best customers in the world who are willing to pay for the quality and engineering/design content and to concentrate their purchasing.
To become more important to their customers, these Italian supply chain needs to acquire manufacturing and distribution assets in America and, to a lesser extent, France and Germany. These assets would enable the companies to broaden their customer base, expand their relationships as they export lower cost, high-quality Italian engineering, and design.
It used to be that Italian companies were looking to expand in Asia. Now, notwithstanding the recent agreements between China and Italy, America is the new China.
A story worth sharing. Caterpillar – CAT — used to hate the Italian construction aftermarket service parts companies, calling the biggest and best “Italian Pirates” because they sell virtually the same high-quality parts for a 20 pc discount to the branded parts made by the OEM’s.
One Equity Partners made an investment in a 49 pc stake to enable the worldwide market leader based in Modena to simplify his shareholding and grow by acquisition. We’re friendly with CAT who wasn’t pleased. They couldn’t say the owner’s name without profanity attached. It was like it was one word.
But everything’s changed. As the Modena company expanded its product range, maintained high service levels, and invested in market facing branches, CAT decided that their dealers need to compete by providing the same mix of parts and service to all makes of construction machinery, and that they need a second tier priced part to complement their pricier Genuine CAT parts.
Competitive anger has faded to respect and a desire to work together. As these mid-market Italian superstars grow, the global simply has to figure out a way to partner, not compete.