Consolidation Picks Up in U.S. Tool Market

Last week’s announcement that Black & Decker Corp. plans to buy Porter-Cable and other brands from Pentair Inc. was another in a series of deals now reshaping the tool market in the United States and around the globe.

According to a Reuter’s report, Sweden’s Atlas is seeking buyers for its electrical tools group, which includes Milwaukee Electric Tool, a Wisconsin-based maker of drills, impact wrenches and saws, and AEG Tools of Germany. The units, don’t fit Copco’s goal of being a top global player in its markets.

Several investment analysts said manufacturers are under pressure to add new features while keeping prices down, and those best positioned to profit have the economies of scale that allow quick product launches, analysts said.
“Tools are cyclical and they’re just not the highest growth business out there,” said Bob Goldsborough, an analyst with Ariel Capital Management.

David MacGregor, an analyst with Longbow Research, said power tools have become an overcrowded sector with underperforming brands, at a time when brand loyalty is becoming less important.

Analysts see Black & Decker as a natural buyer of tool assets, given its core competency in the business. The company sells DeWalt, a leading professional brand, as well as lasers, cordless drills and other consumer tools. But other companies could also step up to gain a bigger slice of North America’s tool market, where strong U.S. housing starts and increased remodeling among aging baby boomers has spurred tool demand.

For instance, recent analyst and foreign media reports have said possible buyers of Milwaukee include Sweden’s Electrolux and Hong Kong’s Techtronic Industries, which already sells power tools at retailer Home Depot under the Ridgid and Ryobi brand names.

“I think you could see foreign power tool manufacturers buying into the American market,” MacGregor said. “If you can acquire the right brands, they come along with a good retail relationship.”

This week Stanley Works, the New Britain, Conn.-based maker of wrenches and hand tools, said it may buy more tool companies, noting that some are priced attractively. Stanley, which has acquired a number of security companies over the past year, said its search was not necessarily confined to the United States.

“We are definitely looking at additional acquisitions like our (measuring device maker) CST/Berger or perhaps more in the core of our hand tools and mechanics tool businesses,” said Jim Loree, Stanley’s chief financial officer, during an earnings conference call.

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