Breaking News: July 1997, Exmark's The Spot For Toro

This deal comes just weeks after the new ownership of Yazoo Power Equipment, Jackson, Miss., signed a letter of intent to acquire F.D. Kees, Beatrice, Neb. (Yazoo’s new president, Alan Herstrum, declined comment until the transaction is finalized.)

Toro’s acquisition of the $50 million manufacturer of commercial mid-sized walk-behind and zero-turn radius mowers gives it annual revenues of approximately $100 million in mower sales – estimated at 25 percent of the market. The acquisition represents a significant, and to some people surprising, step toward the company’s goal of becoming the "worldwide leader in the supply of equipment, services and information systems for the landscape contractor," as Kendrick Melrose, chairman and chief executive officer of the company put it.

WONDERING WHY. Some of Toro’s chief competitors expressed surprise that the manufacturing giant would look to another company to complement its product line.

"I’m not sure why Toro would make this deal," questioned Bob Walker, president, Walker Manufacturing, Fort Collins, Colo. "It really doesn’t need Exmark in terms of its product line. On it’s face, this looks like a deal where Toro is just buying out one of its competitors."

"With all of Toro’s expertise and resources, I’m surprised it wouldn’t just develop the products itself in research-and-development," agreed Dane Scag, president, Great Dane Power Equipment Inc., Elm Grove, Wis.

In questioning the reasons behind purchasing Exmark, manufacturers pointed to the 15-year-old company’s reputation as favoring affordable prices over higher quality products. "Exmark has the reputation of being a price and volume leader in the market," Walker noted. "It put volume ahead of everything else, so the margins were extremely thin."

Dick Tegtmeier, president, Encore Manufacturing, Beatrice, Neb., was involved with the formation of Exmark in the early 1980s and still holds Exmark stock. He wasn’t surprised that Exmark executives would sell the company. "Manufacturers can control the market either by profit or by volume," he explained. "In my opinion, Exmark designed its sales program to control the market by pricing in order to position the company to be sold."

"One benefit to Toro might be Exmark’s established dealer/distributor network which targets contractors — Toro’s present network focuses more on institutional and golf sales," Walker added. "But I can’t see Toro allowing Exmark to be run the way it was run in the past."

TORO TALK. Don St. Dennis, director of public relations for Toro, pointed out additional benefits the company expects to enjoy from the acquisition. "We see this as one of the fastest growing segments in the lawn care or turf maintenance markets," he explained. "Exmark was one of the fastest growing companies in this market. Although we feel we’ve made some very good progress in developing our own products, this deal offers us the opportunity for instant market share and name recognition."

St. Dennis added that Exmark will continue to operate from its current headquarters in Beatrice and will market its products under the Exmark name. He added that John Smith, president and chief executive officer of Exmark, will oversee the operations in Beatrice.

St. Dennis rejected claims that Exmark sacrificed quality to produce a less expensive product. "Exmark has a very healthy market share and is highly thought of for its wide-area and zero-turn mowers," he countered. "Yes, this move does gives us a wide breadth of price points to offer the market, but it also complements our product line."

RAMIFICATIONS. The question now facing the industry is whether or not these deals signify an impending shakeup among manufacturers, or if they are just isolated incidents. Most agree it’s a harbinger of things to come.

"I think it’s clear there’s going to be additional changes," noted Smith.

"There’s about 39 manufacturers of midsize commercial mowing machines," according to Scag. "That’s a lot of manufacturers for this part of the industry."

Tegtmeier agreed consolidation is likely to continue. "Toro and Jacobsen have always combined for about 80 to 82 percent of the turf industry," he said. "All of a sudden, John Deere decides it wants a big chunk of the industry, and it will be difficult to stop them. So Jacobsen buys Bunton to broaden its base and Toro makes this deal to strengthen itself."

Tegtmeier did see one silver lining in the Toro/Exmark deal. "I have a feeling our industry may be able to make a little bit of margin again without Exmark controlling the pricing," he related. "They really forced the rest of the industry to lower its prices as well, and that hurt some companies."