Why Morgan Decided To Sell
For some in the Central Massachusetts business community, news that Worcester-based Morgan Construction Co. will soon give up local control to a subsidiary of the global powerhouse Siemens AG is like hearing about a death in the family.
"They (Morgan) are one of the last independent manufacturers in Worcester from the old guard," said Jack Healy, head of the Massachusetts Manufacturing Extension Partnership in Worcester. "It's really a passing."
Family Affair
Morgan Construction, which makes the equipment used in steel mills around the globe, has been owned by the Morgan family through five generations since its founding in 1888. It's evolved and grown to a company with 1,100 employees around the world - including 460 in Worcester - and to more than $180 million in annual sales. But if all goes according to plan, the company will be acquired by Austrian-based Siemens AG for an undisclosed sum. Specifically, Morgan Construction is expected to be folded into a subsidiary known as Siemens VAI Metals Technologies GmbH & Co.
The decision to sell, which Morgan Construction President and CEO Philip Morgan admits is bittersweet, was one of timing.
"Our sales reach has never been bigger, but with a weightier organization like Siemens, it gives us much more clout worldwide," he said.
Morgan said the idea to sell first became a real consideration after an annual strategy session where an outside advisor pulled him and his brother Daniel Morgan aside after looking at the company's financials and said, "If you ever want to sell this company, now is the time."
Morgan Construction has been riding a strong tide in recent years with blockbuster revenues. Morgan said the company has a backlog of orders to keep the company flat-out through 2009, and possibly to 2010.
That nudge led the family to consider the strengths and weaknesses of the company. In the strengths column, according to Morgan, is the company's reputation for quality, innovation and technology as well as its leadership position within its specialty niche. It's a capital-intensive business that requires big outlays of cash from customers - a Morgan Construction set-up for a steel mill can cost around $60 million. Weaknesses for the company mostly revolve around its size - it's a small company within a global market dominated by much larger players.
Those in the steel industry reported that the sale of Morgan Construction is simply a sign of the times - albeit an unexpected sign.
"I'm surprised," said Rolf Kuhn, controller of Nucor Connecticut in Wallingford, Conn., a steel mill and Morgan Construction customer. "I would have thought the Morgan family would have wanted to keep it private. But in today's global economy and all the merger activities, you see that a lot of larger companies are buying up smaller companies."
Nucor Connecticut succumbed to a similar fate nearly two years ago. Kuhn and three other partners founded Connecticut Steel nearly seven years ago. But in 2006, the owners sold the company to Charlotte, N.C.-based steel giant Nucor. That sale, according to Kuhn, was simply because Connecticut Steel was too small to compete, and needed the backing of a larger player in the market, like Nucor.
Sell To Grow
Jo Isenberg, editor of American Metal Market, a trade publication for the metals industry, said Morgan Construction was one of the last independent engineering and construction firms left in the U.S. steel industry. Being acquired "could be a way to help Morgan grow," she said, as well as to avoid succession issues if there isn't an heir apparent readily available to take the company's helm.
Gus Porter, one of the founders along with Kuhn of Connecticut Steel, had an especially optimistic reaction to the buyout news, saying it was an "absolutely excellent sign" that Siemens would even be interested in acquiring Morgan.
"I genuinely expect Morgan Construction to continue and to grow in Worcester," Porter said. "If I were a Morgan employee I would be excited and interested. I'd be thinking, 'Let's see what happens next.'"
Job Security
Morgan echoed those comments, saying he expects no change in local employment after the deal is finalized.
"What Siemens VAI wants to do is grow, not shrink, its manufacturing," he said.
Before the deal can go through it must be approved by antitrust regulatory bodies in both the United State and Europe. Morgan said that should take about three months.
Part of what made Morgan Construction an attractive buy for Siemens is several smart strategies the company employed to stay competitive, according to Healy of MassMEP. Those strategies included developing proprietary processes (the company holds more than 650 patents) as well as delivering excellent customer service to its customers when its complex equipment did falter.
"They've done a good job of selling service as well as selling a product," Healy said.
As Morgan put it, his company had two choices, to be the best or be the cheapest.
"With being based in Worcester, we were never going to be the cheapest, so we had to be the best," he said.
Healy also speculated that Morgan Construction might have sought a partnership with Siemens because of the current credit crunch, which has dried up a lot of capital.
"For manufacturers, it's always a struggle for financing," he said. "That's why some of them go public."
But Morgan said going public was never considered because it's "a complete pain, and a worse pain now with Sarbanes-Oxley." He also said that his company has had a good relationship with its primary bankers.
While there are many details to be worked out, Morgan will stay on as president of the Morgan Construction operations, reporting to Richard Pfeiffer, CEO of Siemens VAI.
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