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Integrating After the Acquisition – Toro Co. & Charles Machine Works Moving Forward

The Toro Co. and Charles Machine Works (CMW) announced their blockbuster acquisition news in February 2019, catching the construction industry off guard and, in many, cases shocked. The $700 million-plus sale combined two of the industry’s iconic brands, catapulting The Toro Co. to a key spot in the trenchless market.

The deal was finalized on April 1, 2019. Nearly 18 months later, the two companies are fully immersed in the integration process, and both companies tell Trenchless Technology that the process could not be any smoother.

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In addition to the Ditch Witch brand — a trenchless market pioneering and premium brand — The Toro Co. also acquired the following trenchless brands under the CMW umbrella: HammerHead Trenchless, Radius HDD, Subsite Electronics, American Augers, Trencor and MTI, as well as DW/TXS, in Beijing.

There’s been quite a few changes during the integration process, including three of the brands — Ditch Witch, American Augers and Trencor — combining under one general manager, and another MTI, leaving the CMW group of companies. CMW and Ditch Witch CEO Rick Johnson retired.

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RELATED: Looking at the Toro & Charles Machine Works Deal

CMW — built from the ground up by the Malzahn family in Perry, Oklahoma — evolved from a privately-held, family-owned company to part of the much larger and publicly-traded The Toro Co. On the flip side, The Toro Co. instantly became a key player in the trenchless market, adding one of the most recognizable HDD rig product fleets with Ditch Witch, as well as entrance into the trenchless rehab market with HammerHead Trenchless and Subsite — something the Bloomington, Minnesota-based company has been trying to do since marketing its first HDD rig in 2013.

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Employees from The Toro Co. and CMW companies — 9,000 worldwide — are working together, streamlining work, as well as resources, ensuring that all of the companies remain at the top of their respective markets. The merging of personnel, production and processes hasn’t always been perfect but company officials on both sides are more than happy with the results going forward.

“It’s crazy to say this because it sounds like rhetoric but it’s gone really close to how we hoped and how we scripted how the year would go,” says The Toro Co. Group vice president for construction, residential and contractor businesses Rick Rodier. “During a recent board meeting, we discussed that a low percentage of acquisitions, especially acquisitions and mergers of this size, rarely end up fitting the script or turning out positive. This has been a win-win. We believe this is how it’s gone to date and see no reason that it won’t continue.”

Continuity and a commitment to the CMW company was of utmost importance, Rodier notes. After Johnson’s retirement, which was planned prior to the acquisition, The Toro Co. tapped longtime CMW financial officer Angie Drake to lead the CMW group of companies as vice president of construction. She, along with Toro vice president of Sitework Systems Peter Moeller, lead the two main Toro construction groups and report directly to Rodier.

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Drake has been with CMW for 22 years and also co-leads the integration team. She acknowledges the uneasiness that everyone at CMW felt in the immediate aftermath of the acquisition announcement, not just for the employees but the entire town of Perry. Rodier and Drake believe her appointment to lead CMW going forward helped alleviate some anxiety from the CMW community in the weeks that followed, giving CMW stability.

“The merger has had a huge impact on CMW as a company and its employees but also the community of Perry,” Drake says. “Going from a privately-held, family-owned company to a public company can be a difficult transition, but has proven to be a challenge we are up to. I’ve been proud of the way our employees have managed through the transition.”

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Drake notes that communication with employees during the integration process has been an important facet of the process. “Since the acquisition, the integration team, puts out a regular communication, giving CMW employees an idea of what’s going on and what is coming,” she says.

“I think there has been a lot of things that have been better than they expected,” Drake says of CMW workers. “We knew it would be good long-term for the company but it is also good for employees to see CMW recognized for meaningful contributions to such a large company [in The Toro Co. earnings reports]. I think that means a lot to our employees, our dealers and even our customers. We want to continue to contribute at a high level.”

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RELATED: The Toro Company Announces New Underground Construction Business Strategy

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Both companies come with rich, longstanding histories. Headquartered in Bloomington, Minnesota, The Toro Co. was founded in 1914 and is a leading worldwide provider of turf and landscape maintenance equipment, rental and specialty construction equipment, snow and ice management equipment and irrigation and outdoor lighting solutions. Its dealer, distributor and retailer networks reach more than 125 countries.

Headquartered in Perry, Oklahoma, CMW designs, manufactures and sells a range of products including HDD equipment, walk-behind and ride-on trenchers, compact tool carriers, vacuum excavators, asset locators, pipe rehabilitation solutions and after-market tooling. The company’s roots date back to 1902 when it started as a blacksmith shop.

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Trenchless pioneer Ed Malzahn invented the service line trencher in 1946 and launched an industry, becoming The Charles Machine Works Inc. and manufacturing a comprehensive line of underground construction equipment, worldwide. CMW began adding trenchless companies to its portfolio in 2010. Today, CMW has 170 Ditch Witch dealers selling in 110 countries.

In December 2015, Malzahn passed away at age 94. The company reins had already been turned over to his granddaughter Tiffany Sewell-Howard in 2003. His death may have triggered The Toro Co. to initiate the conversation with CMW about selling, but it was not a factor in the board of directors’ and family’s decision to sell, CMW officials have previously said.

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RELATED: All the Right Moves: Charles Machine Works Expands Its Trenchless Market

“From Day 1, I’ve said that there’s a lot of heavy lifting that has to get done to bring these two groups together and there is a lot of opportunity there, too,” Rodier says. “The better we work together, the more we will be able to take advantage of those opportunities.”

Rodier points to what he calls “similar cultures” when it comes to working together with the CMW crew, noting that in the 33 years he’s been with The Toro Co., that he’s gotten to know many of the CMW team. “The cultures of these two companies mirror each other so much,” he says. “Teams have worked so well together because the cultures mesh so well and each company has such dedicated employees.”

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Changes Going Forward

While many changes are going on behind the scenes since the integration process began, outwardly there have been a few notable ones, including Ditch Witch, American Augers and Trencor being combined as one company operating as three brands and Toro exiting the HDD market. By discontinuing its directional drill product line, The Toro Co. deferred its trenchless arm to CMW, which, besides being a powerful brand, has status, longevity and position in the marketplace.

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“When the merger happened, Charles Machine Works was by itself a solid brand,” Rodier says. “But it was managing a family of companies that have multiple brands. All of these brands had equity in the marketplace. We saw that right away and that hasn’t changed.”

What has changed is that Toro and CMW have tightened the brands from a standpoint of working together where appropriate, whether through multiple brands or single channels or sharing more platforms. Rodier says that when all is said and done, it’s the CMW and Toro brands that stand out in the marketplace.

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With American Augers, there was crossover of customers between the company and Ditch Witch. American Augers makes the larger, million-lb HDD drills, with Ditch Witch drills maximizing at 100,000 lbs of thrust and pullback. It just made sense to combine leadership of these two brands, Rodier says.

“We brought them together after looking at them from the customer [perspective],” he explains. “We believed that there was synergy from the customer level even though American Augers makes really large drills and Ditch Witch makes comparatively smaller drills.”

CMW made a similar organizational move a few years back between Subsite Electronics and HammerHead Trenchless.

Another big change was MTI Equipment leaving the CMW umbrella last fall. Less than a year after The Toro Co. acquired CMW, it sold back MTI to the pre-owned construction equipment provider’s original owners. MTI’s founding ownership group that re-acquired the Florida-based company consists of Canon Stahl, Shawn Hendricks and Alain Trimble.

Drake and Rodier both say that the move was a mutual parting of the ways and the decision had to do with MTI’s fit in the overall plans for the company. “MTI as a company was a complement to [The Toro Co.] but it was not a hand-to-glove complement,” Rodier says. “They are really good at what they do, which is refurbish and sell used equipment and it’s an important service to the dealers and customers. However, when you think about resource allocation and where our DNA is and what we do day-in and day-out, both CMW and The Toro Co. are big on innovation and we’re manufacturers. That’s what we do and what we do best. We wanted to make sure we weren’t taking our eye off the ball and that we had our focus on the right things for our iconic brands and the other brands, as well. The move had nothing to do with performance. It just didn’t fit the overall approach of the enterprise of who we are.”

Drake and Rodier note they don’t foresee any other such sales of CMW brands. Drake says that most of the changes for CMW businesses are occurring behind the scenes and do not affect how operations are run in the manufacturing facilities.

“CMW has continued to operate like it did before the acquisition,” Drake says. “We’re focused on our market position, products and customers. Besides the Ditch Witch distribution channels getting to play a bigger role in the American Augers and Trencor brands, everything else is pretty much operating as it did before.”

Rodier concurs, emphasizing the ways in which the two companies complement, as well as expand each other’s reach in their markets. He says at Toro, the goal is always to work to attain No. 1 marketplace position or at minimum No. 2. The merging of Toro and CMW makes that reality even closer. “We think we have that today in virtually every market we compete in and we don’t want to change that,” he says. “That drives us. Our job is to continually find ways to have these brands complement each other with the end goal of being No. 1.

“We’re a very innovative company. We invest a lot in technology, research and development and product development. We are product focused. That’s how CMW got started and it’s in our DNA, as well. We see that continuing,” he adds.

As for the future, Drake says everyone is anxious for tradeshow season to resume. With the global pandemic shutting down virtually all tradeshows so far in 2020 (save for the WWETT Show in February and CONEXPO in March, so far), The Toro Co. and CMW are looking forward to meeting and talking face-to-face with their customers and showcasing their equipment.

Long-term, “Charles Machine Works and Toro together will continue to maximize our brand power and build innovative new products that our customers love,” Drake says. “That is what is expected of us.”

Sharon M. Bueno is managing editor of Trenchless Technology.

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