Xaloy Inc.'s purchase of Spirex Corp. creates a big kahuna in the screw and barrel world. Even so, smaller players welcomed the blockbuster announcement.
Several screw makers said more consolidation of companies is likely, as the industry reacts to a weak market for new plastics machinery. The replacement screw side also has suffered through a bleak period of little capital spending by plastics processors, although that side of the business seems to be coming back, they said.
Many echoed sentiments that they expressed back in 2003, when Xaloy bought New Castle Industries Inc. — that the Spirex acquisition should help reduce overcapacity in screws and barrels.
“I think it's good. It's good for everybody involved,” said Chris Vasilev, president of Canadian Feed Screws Mfg. Ltd. in Scarborough, Ontario. “Our industry needs to consolidate. It's becoming hard to have the research, to have the good engineering and have a good company with so many of us around with the market shrinking.”
Competitors said they were not surprised by the acquisition, since rumors about a possible deal between Xaloy and Spirex circulated through the screw and barrel industry during the NPE2009 show in June.
Some executives said a combined Xaloy/Spirex could try and slash prices to pressure small and mid-sized competitors, although that is not something they expect.
“I really do think it's a good thing for our industry,” said Jeffrey Kuhman, president of Glycon Corp. in Tecumseh, Mich. “The only negative I see coming out of it is, it could lead to some price pressure. We hope that doesn't happen.”
David Mantyla, vice president of General Plastex Inc., said competition is always there, and it makes the Barberton, Ohio, company stronger. “Unless it means a tremendous cost savings to them and they flood the market with low-cost products, or reduce the price of products, I don't necessarily know that it's going to have a huge impact on us,” Mantyla said.
Just before the market slumped, several screw makers beefed up their technology, adding whirling machines and other high-speed metal-cutting technology that dramatically reduced the time needed to cut screws. “Everybody was doing that eight, nine years ago, when it looked like we could use any milling machine we could get our hands on,” said Dave Larson, president of Westland Corp.
The result: suppliers can turn out screws at a faster rate — way more than the current market can absorb.
Overcapacity continues to hurt the screw and barrel sector, said Andy Zeiger, sales and engineering manager of Canton, Ohio-based Zeiger Industries Inc. “There are plenty of screw manufacturers, but less screw demand,” he said.
Larson agreed, and said consolidation is good for the industry. “I have been expecting some of this to happen, simply because of the downturn in business and the capacity that some people have had. In any industry, when you have overcapacity, there's room for consolidation of some sort,” he said.
The deal should make Xaloy/Spirex “a much more efficient company,” Larson said. “It would help give them an opportunity to be profitable. And that's what the industry needs: Companies that can invest in [research and development].”
Larson is not worried about pricing pressure from the new giant company hurting Wichita, Kan.-based Westland. “I don't think we will see that in our industry. Margins are so low now that I don't know how you get them any lower. Everybody has sharpened their pencil and done everything they can to keep the business going,” he said.
Xaloy is closing Spirex's bimetallic barrel plant in Sullivan, Wis., and moving the operation to the Xaloy barrel plant in Pulaski, Va. According to Peter Jones, president of Wexco Corp., that takes out one of three U.S. plants that make centrifugally cast bimetallic barrels — the other one being Wexco in Lynchburg, Va.
“With the centrifugally case barrel production dropping, it could be good for the entire market,” Jones said.
Barrel competition has been fierce in the economic downturn, Jones said. “Every bone had three dogs going after it, viciously.”
Kuhman said small and mid-sized screw makers can do well if they focus on niches, or develop new screw designs and technologies. For example, Glycon helps create screws to run new materials, which may result in an order for only a small number of screws, he said.
Meanwhile, after the blockbuster deal, Canadian Feed Screws might have to drop its claim to be “North America's largest feed-screw manufacturer.” Can the company still say that?
“Maybe not,” Vasilev said with a chuckle. “It's a different story now.”
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