Following my initial article on the Safway / Brand Merger, I have received many inquiries about the merger and how these two scaffolding and industrial service behemoths will be put together. This, coupled with the announcement that current Safway CEO, Bill Hayes, has been chosen to lead the combined entity, has those in the industry trying to read the tea leaves as to what all of this means. Here is my take.
Where will all the pieces fit?
The Safway / Brand merger takes an already complicated situation – Brand has still not swallowed its 2013 acquisition of Harsco's Infrastructure business - and adds another layer of complexity by mixing in Safway. Putting Brand and Harsco ( whose brands included Patent, SGB and Hunnebeck) together was the first step towards making Brand a world-wide provider and one step closer to an IPO. It took Brand from being predominantly a North American provider to a worldwide presence including Europe, the Middle East and Australia. It also took a business in Brand that was focused on scaffolding and industrial services, and to a lesser extent forming and shoring (through Aluma), and expanded its service offering into commercial scaffolding (Patent and SGB) and gave it a global presence in shoring and forming (with Hunnebeck and SGB).
In the Brand / Harsco merger, there was very little overlap so there was very little integration necessary ( I know, I know, tell that to the guys that were working on the integration). Only Patent had significant overlap with existing Brand operations, so Brand allowed Hunnebeck and SGB to continue under their prior names. Brand “integrated” Patent into North American operations by keeping most of the Aluma personnel in Canada, and combined Patent industrial personnel in the US and Canada into the Brand branches. Patent continues to provide some commercial scaffolding throughout North America, but it is no secret that Brand is not a fan of commercial scaffolding.
The integration will be much different when you add Safway to the mix. At its core, Safway is a commercial scaffolder, spending the first 60 of its 80+ years solely in this role. Not until the 1990s, when Safway decided to diversify its revenue stream, did Safway get into industrial scaffolding. Safway continued to be a “pure scaffolding provider” until shortly after they were acquired by Odyssey Investment Partners in late 2009, when they expanded their service offering into insulation, coatings and hoisting, and expanded their presence in events and swing staging.
Combining Brand / Harsco with Safway will be a much bigger integration challenge.
Adding Safway to Brand / Harsco will be much tougher than Harsco into Brand for four reasons:
- Significant branch overlap
- Safway and Brand run their branches very differently
- Commercial Scaffolding is a critical piece to Safway’s success and its history
- Safway brings new service offerings to Brand
What is a Branch?
In nearly every major scaffolding market in North America (every major city and industrial production area) both Safway and Brand have a “branch” (as we will learn a branch to Safway is different from a branch to Brand). This will require difficult personnel decisions at nearly every industrial branch and will leave many highly-qualified scaffolding personnel out of a job. What is hidden here is that Safway and Brand run their branches very differently.
As I mentioned, Safway grew up as a commercial scaffolder. As such, its operations were managed in a decentralized manner with substantial autonomy at the branch level. Safway walks the fine line between autonomy at the branch level, along with significant support at the branch level, and control from central headquarters. Safway does this better than any other group I have observed, and again, might be a result of being a commercial scaffolder at heart.
This philosophy carried over into their industrial branches as well, where Safway has support personnel at each branch to allow such branches to operate as independent business units. Brand on the other hand, operates its branches with significantly less support and elects to manage branches from a central location. As a result, a Safway branch and a Brand branch look very different from a personnel, support, and operations standpoint. It will be interesting to see what style is adopted in the new entity. One might guess that with Bill Hayes assuming the CEO role, that it will be Safway’s branch style that will govern the operation, but that is only my guess.
Commercial vs. Industrial Scaffolding
Commercial scaffolding is not only at Safway’s core, it is a critical piece to its financial success. This will be added to the Brand service offering (putting aside the commercial scaffolding done by Patent and SGB, which Brand merely tolerates). It is no secret that Brand believes “you can’t make any money at commercial scaffolding”. Truth is, some groups can’t, many do, and few do it very well like Safway. Any successful combined entity will be required to embrace commercial scaffolding. If the authors of the integration are smart, they will leave Safway’s commercial scaffolding alone, possibly roll the Patent commercial scaffolding in with the Safway operations and see if those can be blended without affecting the Safway branches. It might make sense to keep all commercial scaffolding operations under the Safway name and operate that business out of Waukesha, WI (Safway’s current HQ).
Profitability isn’t the only reason Brand doesn’t like commercial scaffolding, it believes it isn’t worth the risk to its industrial business. The thought goes something like “if I have a commercial accident, it will affect my safety rating with my industrial jobs”. This might be why commercial scaffolding stays under the “Safway” name, similar to Brand’s treatment of other businesses it has acquired (Aluma, Patent, SGB, Hunnebeck, etc.)
Safways Adds Other Services to the Mix
Safway also brings new business services to Brand, namely, hoisting, swing stages and events. Some of these services will be new to Brand (hoists and swings) while events are something Brand dabbled in through an acquisition and later decided to exit. It will be interesting to see where these land. Safway's hoisting is run through its Safway Atlantic operations. Swing operations were recently supplemented by the Safeworks acquisition, where Safway acquired Spider, Power Climber and Power Climber Wind. Again, it may make sense to leave these operations where they currently are and include event operations with the commercial scaffolding arm under the Safway name.
I haven’t even touched on incompatible equipment, but I leave that for another day....
How Will All the Pieces Fit Together?
The real answer in the short term might be, who cares. It is clear that the Brand / Safway merger will allow Brand to go public in a big way provided that the entity can string together a few good quarters. Clayton, Dubilier & Rice, Brand's private equity owner, is certainly looking at this exit possibility and I am confident the offering circular will make many promises of synergies, efficiencies, benefits to customers and perhaps even world domination (insert Dr. Evil laugh here). It will be interesting to see where the IPO prices and where the combined entity trades 12 months later. If you are an investor, you might want to wait to see how the new entity operates for a while.
Tim Oleszczuk is a Managing Director at TKO Miller, LLC and heads the Construction and Building Services group. He has spent more than 25 years working with companies in the scaffolding industry, including Safway Group. More of his writing can be found at tkomiller.com/tim.