April 2019 Vol. 74 No. 4
Features
Questions Abound After Toro Acquisition of CMW
Jeff Griffin | Senior Editor
It’s been two months since The Toro Company announced it had reached an agreement to acquire The Charles Machine Works (CMW), best known as the parent company of Ditch Witch.
The news came as a surprise to much of the underground construction industry and to CMW employees at the Ditch Witch offices and plant in Perry, OK, as well as Ditch Witch dealers, management and employees of the various companies that CMW has acquired over the last several years.
Ditch Witch has long been an attractive target for would-be buyers, but eventually it became clear company founder and president Ed Malzahn was not interested in selling. Malzahn enjoyed what he did and was extremely loyal and supportive of his hometown of Perry. Employees of the family-owned company were comfortable and felt safe from the possibility of “outsider” owners taking over.
Still, there always was concern and speculation about what would happen “when Ed is gone.” Malzahn did step back in 2003, but remained chairman of the board. His granddaughter, Tiffany Sewell-Howard, assumed an active management role in the company.
In December 2015 Ed Malzahn died. In a 2017 Underground Construction magazine profile of CMW, CEO Rick Johnson said the period immediately after Malzahn’s death was a difficult time and the what’s-going-to-happen-now-that-Ed-is-gone question was a frequent topic.
On the surface, nothing much changed. Business seemed to continue as usual. In the article, Johnson was asked if plans were for CMW to remain a family-owned company?
“We continue to be happy and quite successful with our current ownership structure,” Johnson answered.
What changed?
“The company was not for sale,” said Johnson soon after the Toro deal was announced. “The family had every intention of continuing ownership. However, we were presented with a significant, viable offer from a very well-respected company. Although a gut-wrenching decision, it was one the family could not ignore.”
Both CMW and Toro emphasize the acquisition is good for both companies, that they are a good “fit.”
Richard Olson, Toro’s chairman and chief executive officer said, “Culturally, our two organizations are very well-aligned and, in our past experience, that has been essential to the success of a business combination like this. We share similar people values; performance expectations; business models focused on innovation, brand and channel; and strong community ties.
“With its rich multigenerational family legacy, commitment to its employees and market leadership position, we have respected and admired Charles Machine Works for a long time.”
Said CMW’s Johnson in the same press release: “From developing the world’s first service line trencher in Perry, OK, to today’s robust Ditch Witch dealer network, our family of companies is well-positioned to join The Toro Company’s family of brands. We look forward to building upon our founder’s legacy of best-in-class offerings in the expanding underground construction market.”
The sale is expected to be finalized this summer and, in the meantime, CMW companies continue to operate as usual. Yet employees are moving toward an unknown that makes many uncomfortable.
CMW is by far the small town of Perry’s largest employer. With that in mind, it has been made clear by both CMW and Toro that Ditch Witch equipment will continue to be made at the Perry plant, which will become the largest manufacturing facility in the Toro organization.
A few days after the announcement of the acquisition agreement, a joint Toro/CMW press conference was held at the annual American Rental Association trade show in Anaheim, Calif., where Ditch Witch and Toro were exhibiting. It was announced by Toro that Rick Johnson would remain as CEO of CMW while the transition was underway and that Toro’s Rick Rodier would take over management of CMW companies.
After the ARA show, Rodier attended the annual Ditch Witch sales meeting in Perry and addressed those attending and others in the organization.
New reality
Regardless, the bottom line is that employees of CMW, Ditch Witch dealerships, and management and employees of other CMW companies will soon go from working for a family-owned company to a larger, publicly traded company. Johnson said when CMW employees learned of the pending sale, there initially was a “significant amount of surprise.”
“Although rumors come and go,” said Johnson, “there was an expectation that the Malzahn family would continue their ownership of Charles Machine Works. The rationale behind the decision is generally understood and accepted, however, change is difficult for everyone and there will be an adjustment period.”
A summary of comments of CMW employees, former employees, owners of Ditch Witch dealerships, and former employees that remain close to the company is that they have concern about what the future holds, but hope for the best. They expect changes but believe Toro to be a better choice for the new owner than many other companies would have been.
While discussions of the Toro/CMW deal primarily have focused around Ditch Witch, the deal also includes other CMW companies:
- Subsite Electronics (HDD tracking and utility locating equipment)
- American Augers (large HDD and auger boring equipment)
- Trencor (large trenchers)
- HammerHead (pipe bursting, piercing tools, ramming, lateral rehabilitation and cured-in-place-pipe lining)
- Radius HDD (after-market HDD tools for all brands)
- MTI Equipment (seller of reconditioned HDD equipment of all brands)
- DW/TXS (a joint venture that produces basic HDD models in China for emerging markets)
Other than Subsite, these companies are outside the traditional Ditch Witch market of underground construction for utilities. Does Toro plan to expand to these markets?
Said Toro’s Rodier: “This acquisition aligns with our long-standing capital allocation priorities of seeking strategic acquisitions to grow in the professional market and technology-advancing spaces. Charles Machine Works helps us expand our business in a meaningful way and in an adjacent market that we know well.
“Charles Machine Works has significantly more scale in the underground construction market, covering the full lifecycle of underground pipe and cable, in addition to an established and best-in-class dealer channel,” he continued. “This market is particularly attractive given the potential for growth in addressing both aging and new infrastructure.”
Questions and concerns of CMW employees won’t be fully answered until some time following Toro assuming control later this year. Options are most likely being considered, but answers probably won’t emerge for a year or two. •
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