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In the world of petroleum, margins are shrinking and so is the number of players in the game. Two years ago, the major oil companies realigned, with some companies, like Phillips, concentrating on refining the product, and some, like BP, on retailing. The mergers of BP, Amoco, and Arco, and of Exxon and Mobil, were the biggest business deals of the end of the 20th century.
Now the same kind of realignment is occurring on the petroleum equipment side, as major players work to position themselves in a consolidating market.
In February, Danaher Corp. purchased Marconi Commerce Systems, maker of Gilbarco petroleum equipment, for $325 million. Just two years ago, with much fanfare, the Gilbarco name was rebranded as Marconi both to reposition the company and tie it to the father of radio and to the concept of innovation. While Marconi continues as a separate company, the purchase of the petroleum equipment business resulted in a return to the Gilbarco name. The name re-emerged in a big way at the National Association of Convenience Stores convention in Orlando in October.
The acquisition tied Gilbarco to Veeder-Root, another Danaher acquisition, which manufactures underground tank gauges and fuel management systems.
Another consolidation was completed this summer when Franklin Fueling Systems acquired Incon, which has its own fuel management and tank gauging system. That move puts Incon together with FE Petro, EBW, and APT, all petroleum equipment companies now operating under the Franklin umbrella. It is expected to provide similar economies of scale while capitalizing on the synergies of the combined companies.
Putting such companies together can be a tricky proposition. Look at Halliburton's 2001 jettisoning of Dresser Wayne, another major petroleum dispenser company, for example. In 1998, Dick Cheney, then Halliburton's c.e.o. and now vice president of the U.S., called his company's acquisition of the Dresser Equipment Group "a major step forward in creating our goal of creating a fully integrated oilfield and engineering and construction services company."
Less than three years later, the Dresser Equipment Group had been sold off to an investor group because as c.e.o. Dave Lesar said, "The business did not closely fit Halliburton's core businesses and the company's long-term goals and objective."
What also changed was the economic climate, something petroleum equipment manufacturers struggle with even as high-volume retailing continues to gain market share. "There are a number of industry studies that show that segment will grow," says Martin Gafinowitz, general manager of Veeder-Root, headquartered in Simsbury, Conn. "We're seeing more stations, more growth in that market. Instead of four dispensers, they're buying six or eight.
"But it's been a pretty tough year," Gafinowitz says. "The major companies have reported third quarter earnings, and all of them show retail margins are down and refining margins are down. We've seen that cascading down to investment in their stations."
"We hope the situation has stabilized," he adds. "We don't see a major upturn."
What the merger has done is given Gilbarco and Veeder-Root a chance to integrate their products. "The big advantage is our ability to have key pieces of the technology together, and then bring those solutions to the marketplace," Gafinowitz says.
That was the strategy when Danaher acquired Marconi at the end of 2001, with c.e.o. H. Lawrence Culp Jr. calling the deal "an excellent and natural adjacency of Danaher's environmental platform and its Veeder-Root business. Combining Gilbarco and Veeder-Root creates a leading global franchise with outstanding brands."
The merger gives Gilbarco the chance to provide a comprehensive product that works from the underground tanks to the dispenser to the back office, but Gafinowitz stops short of calling it one-stop shopping.
"We're in a strong position with our electronic fueling component through to the back office automation," he says. "But not everyone in high-volume retailing is necessarily looking for a front-to-back solution. They may be looking to us for a solution on pumps or tank gauges. Some marketers are looking for that, clearly, but there's no real one-size-fits-all solution."
That has been the nature of the petroleum business as well. High-volume retailers have gained an increasing share of the market, and that share is expected to grow to 15 percent by 2005, according to a NACS study. But that means convenience stores and traditional gasoline retailers will still have the lion's share of the market, and supermarket operators looking into the business continue to seek to be seen as not just the least expensive outlet, but the fastest as well.
For technology companies fighting for that new business in a shrinking market, having as many options as possible to present to customers is an important advantage. How petroleum equipment companies serve that new market will determine what the reshaped equipment business will wind up looking like.
One goal is certain, though. The aim of these recently consolidated and repositioned industry leaders is creating not just bigger companies, but better ones. "We can get these systems working together more efficiently," Gafinowitz says. "That's really the intelligent process."