A compilation of key mergers and acquisitions in Major Domestic Appliances (MDA) in Western markets is potentially looking to restructure the home laundry appliances' competitive hierarchy in 2015 and beyond.
The global major appliances market in 2015 generated US$212 billion, shared amongst a small number of manufacturers currently operating at a global level. It could well be the case that major merger and acquisition activity will redistribute the multi-billion annual ‘pay-out’ to even fewer companies.
Yesterday’s woes for a key competitor are likely to have been cause for celebration for the market leader, but now the latter will be concerned with the new rival that is fast coming up behind.
Like in any big race, in the world of appliances the key strategy has been a focus on stamina over the long distance (term) rather than brief bursts over short ones. Economic instability over 2010-2015 has meant a focus on factory strategy and careful navigation of production capacity. With many regions experiencing consumer anxiety, delayed purchasing and demand pressures, brands are coming up against increasing competition and having to deal with excessive supply, so it is no shock that factory strategy is now the defining element of winning or losing; something recently demonstrated in quite stark ways in Europe.
Falter at the Starting Gates
The recent push to gain ground started when US company Whirlpool Corp expanded its global position by absorbing the flagging Indesit and Hotpoint brands in Europe. Taking over the controlling share from the Merloni family in July 2014 for US$1 billion, this move opened up the European market that had long resisted major gains for Whirlpool. That deal went through without overt opposition from the industry, and was ratified by the European Commission. This acquisition created multiple production/factory duplications for product type as well as location, allowing Whirlpool to swallow volume and make significant gains on capacity utilisation and factory efficiency; a process that is still currently on-going.
The world’s number one in major consumer appliances, Whirlpool at 12% volume share in 2015, made a bold move into the world number three’s, Electrolux Group at a 7% share, home region by entering and expanding into its home market and core strength categories such as laundry care. A move made possible after Indesit lost its own battle to rival Arçelik A.S. from Turkey, on efficiency and ultimately pricing. This ‘defeat’ left Indesit vulnerable to a vicious downward spiral of excessive scale and little or no resources left to fight with in its coffers. In the case of Indesit, factory locations and agreements had turned from strengths into liabilities, massive over capacity compounded by heavy market wide competition on price.
Yet more Hurdles
Two months after Whirlpool’s Indesit acquisition, the BSH Bosch & Siemens Hausgeräte GmbH joint-venture announced that Siemens wished to exit the consumer business in pursuit of higher margin activities elsewhere. Bosch bought the company out of the joint operation - BSH GmbH - and took control of all production strategy and sales across both brands. The alternative for Bosch appears as stark, either go ahead with the M&A or allow Samsung to take over the deal.
The big counter move to Whirlpool’s entry began in that same month when Electrolux announced a deal to buy General Electric Co (GE)’s appliance business for US$3.3 billion, potentially threatening Whirlpool with a jump into the second spot globally. According to Euromonitor data that would be a jump to a 25% share of appliances volume sales in the US in 2015 for Electrolux, without the loss of its iconic local brands. This acquisition would be returning the favour, with Electrolux matching scale efficiencies against its US rival on its home turf.
The Swedish rider is in trouble
In July 2015 the US government halted the Electrolux/GE merger by charging Electrolux with an anti-competitive take-over. This was on the basis that it would consolidate too much share into too few players, creating the risk of duopoly. The following December (2015) GE pulled out of the deal amidst the antitrust battle, which would likely have seemed like a victory and a near miss to managers in Whirlpool. The latest news will have changed matters.
An Electrolux take-over of GE would have meant a continuation of a chase between established players who both approach the fight in much the same way, struggling for incremental and profitable gain. That is a very different proposition to competing on scale against Haier, a fast moving rival with massive capacity, a history of low priced market entry strategies in Europe, and a previous attempt to break into the USA market. Especially when this move by Haier is motivated by problems back home - spare capacity, labour pressures and reducing subsidies. As a result, US currency cash flow and market share looks incredibly tempting.
Tempting enough that Haier announced in January 2016 a US$5.4 Billion deal to buy GE’s appliances business, a 60% larger value than Electrolux’s deal, and coming one month after that attempt had failed. With antitrust blocks unlikely in this case as Haier occupies only a small share of 3%, Whirlpool now has to contemplate a very different type of conflict in its home territory in the next few years, against an ambitious and hungry new player.
Sometimes you need to be careful what you wish for, even a winner.