A Closer Look With Jack Keough - Applied Industrial

As it celebrates its 90th anniversary, Applied Industrial Technologies (AIT) has positioned itself for continued growth through a series of acquisitions, geographical and product expansions, and technological expertise. It’s little wonder as to why this Cleveland, OH-based company is one of the premier industrial distributors in the country with $2.4 billion in sales.

This article first appeared in Industrial Distribution's March/April issue. To view it, click here.

As it celebrates its 90th anniversary, Applied Industrial Technologies (AIT) has positioned itself for continued growth through a series of acquisitions, geographical and product expansions, and technological expertise. It’s little wonder as to why this Cleveland, OH-based company is one of the premier industrial distributors in the country with $2.4 billion in sales.

Just to show you how big AIT is, it averaged $9.5 million in sales per day in the last quarter. Total sales for its 2nd quarter were $589.5 million, an increase of 3.4 percent from the comparable period a year ago, with much of that increase coming from acquisitions.

In reporting its earnings for the quarter, AIT, like many distributors, saw a slowness in sales during December that continued into January. But despite that slowdown, Applied believes that business will accelerate as we get further into 2013.

“We faced some headwinds in the second quarter,” Applied CEO Neil Schrimsher told financial analysts during a webcast of its results. “But we remain optimistic about the overall North American economy for the fiscal year.”

A Storied History

AIT’s roots began with the vision of one man who believed that responding quickly to customer concerns was one of the keys to a company’s success.

Applied was founded in 1923 by Joseph Bruenig in Cleveland as the Ohio Ball Bearing Company. Bruenig, according to old Industrial Distribution articles, focused on service, a philosophy that helped Ohio Ball Bearings grow in the marketplace. The yearly sales figure for Ohio Ball Bearing in 1923 was $82,000.

Reflective of the company’s product offerings, its name was changed to Bearings Inc. in 1953. As the product mix changed and it refocused on other markets, the company continued its fast growth and, in 1995, passed $1 billion in sales. Two years later the company was renamed Applied Industrial Technologies.

It only took another twelve years – until 2007 – before AIT doubled its sales, surpassing $2 billion in revenues. Also in that year, the company moved into its new curved steel and glass world headquarters, located just east of downtown Cleveland.

Over the years, Applied has acquired some of the most well-known PT/bearing distributorships in North America. For example, in 1957 it acquired Dixie Bearings; in 1990, it rocked the PT sector with its purchase of King Bearings.

The company made several other smaller purchases over the years but the year that stands out was 1997 when it made the large purchase of Invetech, the parent company of Detroit Ball Bearing, American Bearing and Power Transmission, Moore Bearing, Kentucky Bearing Service, and Hewitt Transmission. That purchase signified, if people hadn’t recognized it before, that Applied was a major player in the PT sector.

Dozens of additional purchases were made over the years as the company expanded into Mexico, Canada, Australia, New Zealand, and other countries.

Acquisitions

Schrimsher said AIT’s acquisition activity will pick up later this year and probably match that of last year “We’re continuing to look at sites for acquisition,” he said. He and other company executives said AIT will remain active in looking at additional opportunities.

He pointed out that the keys to AIT’s growth are acquisitions, organic growth, and its technological expertise.

AIT has a long history of acquisition success. As mentioned earlier, when it first started in business it was primarily known as a bearings company. Eventually, the Cleveland-based company became known not just as a bearings distributor but a technology driven, power transmission distributor/solutions provider.

Over the years, Applied, through a number of acquisitions, has also become a fluid power and hydraulics powerhouse. Today, fluid power comprises about 28 percent of sales with 72 percent coming from other product groups.

Its purchase last quarter of HyQuip, a fluid power distributor with two locations in Wisconsin, wasn’t a blockbuster deal but it did further complement its fluid power offerings. Although company officials declined to disclose the costs of the transaction, President Ben Mondics said HyQuip has less than $10 million in sales.  

On the other hand, AIT’s purchase of Parts Associates Inc. (PAI) surprised many in the industry.

PAI, with sales of about roughly $25 million, is a distributor of supplies like fasteners, electrical, and general maintenance — product areas not previously sought out by Applied.

“We like the growth prospects in maintenance supplies and solutions,“ Schrimsher said. “The purchase will allow AIT to use its synergies to reach local customers and expand product offerings.”
Schrimsher told analysts: “This will be a platform for us to grow our maintenance supplies business.”
 
Top Down Philosophies

Applied has had the good fortune to have a number of outstanding top executives to guide the company through tough times in the distribution business. David Pugh, for example, who retired as CEO and chairman last October, oversaw much of the growth from 2000 to 2011.

One of his moves in 2009 was to develop a strategic partnership with ORS Nasco and Lagasse Sweet, enabling the company to offer tools, safety items, janitorial supplies, and other maintenance items. This agreement allowed the company to expand its product offerings to many of its traditional customers.

Only a year earlier, AIT acquired seven fluid power distribution companies, greatly expanding its presence in that product area. It has also purchased hydraulic distributorships.

AIT now has more than 500 facilities and 5,000 associates around the world. The company represents more than 2,000 manufacturer suppliers to serve the needs of Maintenance, Repair, and Operations (MRO) and Original Equipment Manufacturing (OEM) in virtually all industries. The company also provides engineering, design, and systems integration for industrial and fluid power applications, as well as customized mechanical, fabricated rubber, and fluid power shop services. Additionally, Applied offers maintenance training and inventory management solutions that provide added value to its customers.

The company was first publicly traded on the American Stock Exchange. It is currently traded on the New York Stock Exchange with the symbol AIT.

“Our founding philosophy – to take care of the customer – remains our guiding principle today through our dedicated associates who are highly trained and focused on providing value-added solutions,” said Schrimsher in a company press release.

Jack Keough is a contributing editor of Industrial Distribution. He can be reached at john.keough@comcast.net.

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