Hey, good afternoon. I'm Greg Rustowicz, the Executive Vice President and CFO for Columbus McKinnon. Here with me today is Kristy Moser, our Vice President of Investor Relations and Treasurer. The format for this is a fireside chat. I'm going to go through a few pages of introductions on Columbus McKinnon, in case you're not familiar with Columbus McKinnon, and then we'll dive into the Q&A. First and foremost, I want to point out that we do have a safe harbor statement on page two of the presentation, and we'll also be using some non-GAAP financial measures. Let me take a moment to frame who Columbus McKinnon is. We're a global leader in intelligent motion solutions for material handling. We have a rich history of over 150 years. We've been a public company since 1996.
We're a leader in global lifting, automation, precision conveyance, and we provide professional-grade solutions for solving customers' high-value problems. We have been enhancing our strategic positioning through expansion into secular growth categories. We're going to take advantage of megatrends that are out there today. We have a growth and margin expansion plan, and we're executing on our transformation through our growth framework, which is modeled with a business system as well as our 80/20 process. We're about $1 billion in sales, about a 16% EBITDA margin company. You can see on the right that we are very geographically diverse. About 60% of our business is in North America, but we also have a significant presence in EMEA, which is about 30%.
From a vertical mix perspective, we play in a lot of different verticals, including general industrial, material handling, aerospace, oil and gas, food and beverage, e-commerce, to name a few. We have four platforms that work together to solve our customers' unique motion control needs. First, on the left is our lifting business, which is about 60% of the company. It basically provides hoists and rigging materials that will lift product from anywhere from an eighth of a ton to as much as 140 tons. It is generally used in industrial applications. It is composed of manual chain hoists, electric chain hoists, wire rope hoists. We have rigging materials. We are known for being a very high-quality supplier. We do provide end-to-end solutions for our customer from a digital perspective here as well.
We also invested about four years ago in a precision conveyance platform, which started with a Dorner acquisition, but we also bought a company called Garvey Corporation and most recently Montech in May of 2023. This is a precision conveyance sector that provides very precise movement, automated precision handling that can be used in food and bev, life sciences, e-commerce, consumer products, as well as industrial applications. Our automation business essentially came with an acquisition from September of 2015 called Magnetek. We have essentially designed and programmed drives and controls that will control the movement of material handling equipment, including our precision conveyance products. Lastly, we have a linear motion platform, which is about 9% of the company. That represents linear actuators and screw jacks, rotary unions, and super cylinders.
That will use the pictures that we're showing here show us lifting high-speed rail cars with about a 2 ML tolerance. Essentially, these are pretty engineered-to-order projects that will ensure that as you lift the train to do maintenance underneath it, it's so precise that you don't have anything off-kilter where the train would actually tip and possibly injure someone. Underpinning our business strategy is a business system and a core growth framework. On the left is our business system. Basically, we identified what are core competencies that are needed to make a company that truly excellent companies have. We develop key processes around those core competencies and then sub-processes. We want to be market-led, customer-centric, and operationally excellent with people and values in the center.
Our business system is modeled after a Danaher business system, and we continue to build that out over time. In addition, we have a growth framework, which is composed of strengthening our core business, growing our core business, and expanding our core business. Lastly, reimagining our core business. We have announced recently an acquisition of Kito Crosby. It has not closed yet. We are expecting this to close sometime by the end of the calendar year, and we will talk more about this. As we think about that acquisition, that certainly is about strengthening our core lifting business and growing our core lifting business. They will cover this in more detail, but they have some categories where they are a much bigger player than we are in their hardware and consumables category, lifting securement and hardware category.
They will expand our breadth of offerings as well as allow us to become a one-stop shop for our current customer base. In terms of reimagining our core, that was the idea behind moving into precision conveyance. Our first step there was buying Dorner Corporation in April of 2021. That was at the time the largest acquisition Columbus McKinnon had ever done. It was about $485 million. We immediately became a significant player, if not the leading player in the U.S. for precision conveyance. It was an area that we spent a lot of time on identifying what were its growth prospects and profitability. It was a fragmented space, and we felt we had a right to play. That led us to moving into that segment.
Acquisitions have been a big part of the growth story for Columbus McKinnon over time. This chart just looks at acquisitions over the last 10 years. Generally, they've all been pretty substantial. We bought the Magnetek business in September 2015 for about $182 million. At the time, that was very sizable for us. That basically gave us our automation platform. In January 2017, we bought STAHL from one of our principal competitors, Konecranes. It was a carve-out that was a forced divestiture. Konecranes had bought in Terex's material handling port solutions business. The European Commission said, "You have to divest this asset." It was actually their crown jewel. It was their most profitable business. One large facility in Künzelsau, Germany, about $180 million worth of revenue.
We bought it at a very attractive price of about eight times, about $182 million. It has been very, very accretive for us. They are known as the expert in explosion-protected hoists, which means that the hoists are composed of—they are spark-resistant. They use non-ferrous metals, so very heavy into oil and gas and other environments where a spark could essentially blow something up. They invented this technology 100-plus years ago. As I mentioned earlier, Dorner, we bought in April of 2021 for $485 million. That was our entry into precision conveyance. Garvey was a bolt-on that we bought about nine months later. It was an accumulation technology. If you think of, say, a bottling line and you have different pieces of equipment that run at different speeds, you need an accumulator to buffer the different speeds.
This results in about a 29% productivity improvement for our customers. For instance, some of their larger customers would include people like Pfizer. They were very heavily involved with the COVID vaccine when Pfizer needed that productivity to pump out as many COVID vaccines in 2022. Tito's Vodka is another customer of ours. From a bottling perspective, they are also used in wine bottling and other applications. Montech, the most recent acquisition, was in May of 2023 and brings a much higher unique technology called asynchronous conveying. They are independent shuttles that, instead of a conveying system where everything is moving together, are shuttles that can move in different directions, different speeds. They can go up. They can go down. There are lots of really interesting applications, especially in battery production and in the aerospace space as well.
That's been a really nice acquisition for us. It was relatively small from a revenue perspective, but we expected to double revenue within three years. I'd say we're on track to do so. Most recently is the Kito Crosby acquisition, which truly is a transformational acquisition for us, $2.7 billion. Very, very sizable, probably as large of a deal as we could have done. I'll talk more about that on the next slide. We have had some divestitures along the way, which you can see on the bottom. We do an annual portfolio review. These businesses together were not core to who we were, so we divested them. Essentially, it was very accretive to our margins because essentially, it was about $40 million of revenue with about a and so not really core.
Looking at Kito Crosby in a little bit more detail, they're a global material handling company as well, about $1.1 billion in revenue, very strong margin profile, about 23% margin profile. They are essentially slightly larger than Columbus McKinnon from a revenue perspective. I mentioned we're about a billion. They're a billion one. We play in a lot of the same space. This isn't really an adjacency. This is a business, an industry that we know very, very well. We have overlap in manufacturing, the customer base as well. We feel really comfortable that we know the space very, very well. When you look at their business, about 54% of it is what they call lifting and securement consumables. That is hooks and shackles and other items that have low average selling prices, less than about $500 and more replacement items.
It's going to be more resilient, a little less cyclical. You can look from a global presence perspective, very strong in North America, as are we, but they are especially strong in the APAC region. Kito Crosby was formed in 2023 when Crosby, which is owned by KKR, bought a Japanese public company called Kito. Kito is centered in Japan. They have a world-class lean million sq ft facility in Japan. They also have some manufacturing in China as well, as do we, but they're significantly larger in the region. That will be an asset for us going forward. We are much stronger in Europe than Kito Crosby is. We think there's some good opportunity for cross-selling down the road. You can see from a vertical markets perspective, very diverse manufacturing infrastructure, metals and mining, energy.
At one time, energy was, I would say, an outsized percentage of Crosby's overall book of business. That was like in the 2014 timeframe. Obviously, with the oil and gas issues in 2015, 2016, they've diversified their business, I think, in a good way. Now oil and gas is a much lower percentage of the pie. Why did we do the deal? There is a number of strategic and financial rationale for doing the deal. First and foremost, it enhances our scale. It is going to make—we're obviously doubling the size of the company. It is going to give us a broader product portfolio, enhanced operational capabilities. They obviously have a very strong lean mindset, especially with their Japanese facility. They are also going to benefit from growth by secular tailwinds like automation, reshoring, infrastructure investments, scarcity of labor, etc.
That's all in their favor. They have a very highly attractive financial profile. Together, we would expect that our company is going to be double the size in revenue, triple the size of EBITDA, and with an overall EBITDA margin of 23%. You might say, "Well, how does that math work? If Columbus McKinnon, you're 16%, they're 23%, how does the combination equal 23%?" It just so happens, and we'll cover that on the next page, we expect there to be about $70 million of net synergy. If you take $70 million on top of our billion, that's the extra 7%. When we're all said and done, this is going to be a low to mid-20s EBITDA margin enterprise. We see substantial value creation with the synergies. As I mentioned, $70 million in net synergies.
We'll go into some more details on where that's going to come from on the next page. Both businesses are CapEx light. We expect to generate substantial free cash flow, roughly $200 million of free cash flow in the first year, even taking into account funding the cash interest, etc. Where do we stand in the process? The deal was announced February 10th of this past year. There's been a lot of work involved in going through all the different regulatory filings that we need. The committed financing was put in place, obviously, with the announcement of the deal. We needed that. JP Morgan, Wells, and PNC Bank provided that for us. That also includes a new $500 million revolver. We'll have plenty of liquidity because we don't typically draw on our revolver at all.
We've gotten 13 of the 14 regulatory and financial filings approved. What's open is HSR in the U.S. We have been meeting with the Department of Justice. We've had constructive conversations. We did get a second request, as we would expect. We are working through that right now. We expect that's about a three- to four-month process. The Department of Justice has 30 days to make a decision. During this timeframe, we're advancing on a number of other fronts. There are going to have to be some financial pro forma filings. That work is underway. We've got to convert them from a private company, U.S. GAAP perspective, to a public company. There are some different accounting treatments regarding goodwill and taxes that have to get kind of adjusted for. We're working through integration planning as well. We started that process.
We've got teams from both companies working together in a clean room environment. There's a limited number of people. We have full visibility to information to help us understand where do we look first to accelerate the cost synergies. We also would expect the permanent financing to be put in place prior to deal close. The synergies themselves, $80 million of gross synergies, $10 million of disynergies. We know it's for $70 million of net. We know that we need to bring them up to public company standards. There's going to have to be some investments that we make. That's the $10 million. That's expected to be on an ongoing run rate basis. The synergies are really coming in three main areas: in the procurement area, facilities, and SG&A. From procurement, it's really about leveraging the supply base.
As I mentioned, we both buy a significant amount of steel. We're working through who buys what, who pays what, where's the best deal. We're going to leverage the suppliers to get the best deal, whoever has that. From a facility perspective, we're really strong on 80/20. They're very strong on lean. We think we can put that together. They're very interested in learning more about our 80/20 process. There is going to be consolidation opportunities from a factory perspective. Those can be fairly substantial synergies. A medium-sized plant will typically have $10 million-$12 million of fixed costs, people who don't touch the product, but the infrastructure around it. One big factory, instead of three little ones, saves a bunch of overhead. Finally, in SG&A, there's a lot of overlap, both from a technology and third-party spend perspective.
We're not going to need two sets of audit fees. Insurance costs, we should see synergies in with broker fees. It's pretty fertile ground. There is also, on the people side, a lot of redundancies from a leadership team perspective, from a selling force perspective. Because we have the same, in large part, probably 80% of their customers and our customers are direct overlaps. We don't need two people calling on the same customer. We do think there's also an upside from revenue synergies. With that, given that Kito, as I mentioned, is very strong in APAC, we're very strong in Latin America and Europe. We think we can cross-sell products in these regions. We think we'll be able to attract new customers, just given our size and scale.
We hope to capture more of the wallet share of the existing customers through a better customer experience. When we looked at the company, we thought it was truly a value-creating combination, which will drive shareholder value. This page, let me take you through this. Essentially, we took a look at how many public industrial companies are there, and there are essentially 2,020. Of those, how many have market caps of $2 billion-$8 billion? There are about 260 of them. If you look at those, how many have revenue between $1 billion and $3 billion? We are going to be in the middle of that at $2 billion. There are about 100 of the 2,000. If you say, "Of that 100, how many of those have EBITDA margins greater than 20%?" There are only 50.
We expect, once again, EBITDA margins of 23% with the full run rate of synergies, which is going to take about three years. Those traded at about 12 times. We do think that as we deliver the balance sheet over time, we will be able to drive significant shareholder value. From a delevering perspective, we have a great track record of delivering. First of all, our priority is going to be to pay down debt. We will maintain our dividend, but essentially, all of our free cash flow that is available is going to go down to debt repayment. We can deliver as quickly as possible. We think we can get to about three times net leverage on a credit agreement basis within two years and slightly over two by year three.
A little bit in the year three, we can get back down to a two-times net leverage basis. On the right is just with a couple of the more recent acquisitions, you can see that we've delivered pretty quickly, both with the Dorner and Garvey acquisitions and even with the Montech acquisition. With that, I think we can turn it over to Q&A. Okay?
Great. I'm Kirk Mann. I'm a senior investment banker at Wells, and I'll moderate the discussion from this point going forward. Maybe just I'll start off with some questions, and feel free to jump in as we move along here. We have about 15 minutes left. Greg, I think that was very helpful. One of the topics that you've talked about publicly, but not today, and that's very topical, is tariffs.
Yes.
Right?
Can you update us on kind of where things are with regard to not only Columbus McKinnon, but your perspectives on what Kito Crosby may be doing and just kind of address that topic?
Sure. We actually, Johnny-on-the-spot, we've got a slide in our deck on tariffs.
I didn't know that.
Everybody wants to know about tariffs these days, right? When we looked at kind of the worst-case scenario with what was talked about or has been talked about, which at the very top, imports from China to the U.S., we said would be a $12 million impact at the 145% tariff level. Now, obviously, there's been a stay. It might be lower.
When we look at it kind of on that worst-case scenario based on the liberation day tariffs, we felt that there could be an impact to our cost by about $40 million. We also expect that we'll be able to offset about 3/4 of that. There is roughly about a $10 million headwind in the first half of the fiscal year. We've implemented a number of pricing actions, surcharges. The difference between pricing and surcharges in our industry is surcharges are overnight. Effective tomorrow, there's going to be a surcharge of X. Now, with surcharges, though, if tariffs change, customers expect it to go away as quickly as you put it on.
With price increases, they take roughly, in our industry, about 60 days because there are notice requirements that, because we sell probably 50% of what we sell is through distribution, they need 60 days to update their price lists and their systems, their price books, etc. With price increases, they tend to be sticky in our industry. They're not generally wild up and down pricing here. We've done a combination of tariffs, price increases. We're obviously looking at our supply chain to figure out ways to reduce the impact of tariffs for our customers. It's not just all passing it on through pricing. Net net, when we look at it, we think there's about a $10 million headwind potentially in the first half of the year related to tariffs.
We expect to be profit neutral in the second half of the year and margin neutral sometime in our next fiscal year, fiscal 2027. I failed to mention, we're a March 31 year-end company. We are going to be reporting in July our first quarter of FY 2026 results. Related to that, Kito Crosby, what's your understanding of how they're responding? Yeah. For competitive reasons, they can't share with us what they're doing. What we do know is, and because Kito was a public company under the Japanese stock exchange, we know and the market knows if you went back in time and followed their earnings releases, they have essentially the one factory in Japan that I mentioned. They sell a significant amount to the U.S., and they are facing headwinds from Japanese tariffs coming from Japan to the U.S.
We believe that they're taking actions similar to us in a combination of prices and surcharges based on input we're seeing in the marketplace.
I'd just add that competitively, our industry has been very rational when it comes to pricing. Through times of inflation in the past, through times of tariff increases in past cycles, obviously not as significant as what we're seeing today, that's passed through pretty swiftly. It's been very sticky, as Greg mentioned. Over the last 20 years, price net of material cost inflation has been positive for the company all but one quarter. It was just a small amount. I think, in general, our industry passes it through pretty reasonably. It's remained sticky. That's largely what we're seeing right now.
Certainly, for antitrust reasons, as Greg mentioned, we can't be sharing information around what we're going to be doing with pricing until the deal closes. Of course, we monitor the competitive landscape and what all of our competitors, including Kito Crosby, are doing. Largely, they're moving in a similar direction to what Columbus McKinnon's been putting in place.
Thanks. Quick check. Anybody in the room have a question? I have others, but okay. Let's move on to maybe some questions around demand in your business. In your earnings call recently, you talked about the fact that orders were strong in the last quarter. They were up 4%, but sales were down given mix issues related to longer cycle and short cycle. How do we think about that near term and then heading into the rest of fiscal 2026?
Yeah.
The impact was really, we break our business up or look at it. We look at it by some of our platforms, as I mentioned. We also look at it as short cycle versus project business because it is two different demand profiles and funnels. We saw some weakness in our short cycle order activity in the October, November, December quarter. That kind of bled into the fourth quarter. Even though typically short cycle orders come in and will get shipped very quickly within a week or two, we were coming from a lower base as typically we see the channel reduce inventories in December just as part of their normal calendar year-end closing activities to maintain, maybe for bank reporting purposes. They manage their inventories down, and then they would typically increase it.
We saw a little bit of a decline in the fourth quarter. In general, things have been somewhat muted, I would say, from an order perspective and short cycle just given all the trade policy uncertainty and that there has been a little bit of destocking that has gone on, but not to the point where inventory levels aren't healthy. Kristin, you want to add anything?
No, I'd just say, yeah, I think Greg, just building on what you were saying in short cycle, I think while it was softer in our fiscal third quarter, calendar fourth quarter, that's rebounded. It's been flat year over year. We have seen kind of an abatement of the destocking issues. We shared on our earnings call that it was moving a little bit more positively in the early part of our first quarter.
Moving in the right direction, but we're not seeing a material move towards restocking. Really, what came down to in terms of orders, when we talk about orders being up 4% both for the year as well as for the fourth quarter on a constant currency basis, it was because of the strength of what we can control, which is our project business. We've got in place a lot of commercial initiatives, a lot of efforts towards how do we do vertical market-specific selling strategies so we can bring solutions that are fit for purpose in a specific industry, bringing to bear all of our collective capabilities and product lines. That's been very successful for us. It's been something that's been ramping over time, and that actually grew 8% both for the year and then 7% for the quarter. It's had a nice strong trajectory.
How that translates into sales, though, is those are going to be longer time delivery orders on the project cycle business. That is going to be later in our fiscal 2026. It shapes us up very well for fiscal 2026, but creates a little bit of a mix shift between short cycle being lower and project being longer. It creates a little bit of a dip in sales temporarily, but that kind of evens its way out as you go over the course of the year. Over time, as short cycle comes back, that should actually shape up for a pretty nice next year. Of course, we are kind of expecting a more muted short term until some of the policy volatility begins to even its way out.
Greg, in your prepared remarks, you talked about Columbus McKinnon focusing on secular growth and markets with secular growth.
If we look at where we are today, what markets are you seeing that are stronger and maybe ones which are not as strong right now?
Yeah. There is certainly a number of markets that I would say globally are strong for us: battery production. We have talked about, if you follow the company, that we have received $30 million of orders from PowerCo, which is a Volkswagen subsidiary, as they are building out two new lithium battery factories, one in Valencia, Spain, and the other in St. Thomas, Canada. We are the preferred supplier to them. We have gotten the first couple of lines, and there are two different technologies. There is a bridge technology and a stacking technology. That continues to be strong, and we are looking to take our expertise to other companies that are expanding in the battery area. E-commerce is strong.
If you follow the company at all, we had significant business with the largest player in e-commerce in the COVID timeframe. We all were getting packages delivered to our houses from them. They were building out distribution centers at a very rapid pace. Shortly thereafter, they had a change of CEO. They put a pause on building distribution centers. They canceled a number of orders. We worked through a settlement with them, received cash to offset our costs and then some. Now they're picking that back up. We're also diversified in the e-commerce space, and we're working with companies like UPS and some of the major big box retailers, Walmart and others, as they look to increase their e-commerce capabilities. Life sciences continues to be strong for us. Three years ago, it was all about the COVID drugs.
What is it about today? It's the weight loss drugs. So we're working with Lilly on their product. And it's one of those things where you can't make this stuff fast enough. Food and bev continues to be strong. We continue to, as a society, we buy a lot of prepackaged foods. And so you need sanitary conveyance systems, whether it's frozen bagels, waffles, pizzas. If you think about mass-producing pizzas, you want to make that as automated as possible. Aerospace, especially with Airbus, they continue to invest. Obviously, they're taking share from Boeing right now. And we've got a really good presence with our Montech product with Boeing. And we are seeing industries that have been impacted by tariffs looking to maximize productivity. So the steel businesses have been investing to automate Nucor Steel in particular, heavy equipment manufacturers.
One of the wins we just recently received was with Caterpillar. They're putting in a $725 million expansion of an engine facility in Indiana. We won that business, so we're going to get a piece of that. In Europe, entertainment is back, and we provide entertainment hoists. At virtually any major concert, if you look up and there are speakers, trusses, and lights, they've got to be held up by something. It's our entertainment line of hoists. We're the leader in that, both for fixed venue and for touring shows. We're seeing that in Europe is a strain. U.S. defense is a strain. Germany is now, as we've all read, gearing up to spend more on defense. Middle East is oil and gas is still the thing in the Middle East.
India, there's a lot of investment going in with our rail projects, our rail capabilities for transportation, for high-speed rail. Weaker would be Eastern Europe, still with the overhang of the Ukraine war. France and Italy right now aren't great, but Germany is coming back. Germany was in a recession last year.
I think the only thing I'd mention is that there's a bit of a rotation, right? Some of the softening you saw in the market over the last little bit in parts of Europe are not necessarily what's coming back, but that's what's great about the global presence that we have. You think about defense spending, that's not been a historical place of investment.
It is a great opportunity for us to leverage some of our capabilities that we are very strong with in the U.S. and bring some of that expertise over to Europe where they are choosing to invest. We are very excited by the potential and by staying very focused on vertical end markets. We can see opportunities where we can potentially differentiate our offering versus others that might be a little more fragmented.
Great. We have a little bit more than a minute left. Any final words? Anything we have not talked about that you want to make sure you get across?
Yeah. I mean, clearly, the Kito Crosby acquisition, we look at it as an incredible value-creating opportunity for the company. We obviously had to take leverage up. That has created some issues with the stock, for sure.
We do believe that in the value-creating opportunity from the cost synergies, the fact that it's a business we know incredibly well, it's going to increase our scale substantially, and that within a couple of years when leverage is essentially three or under three, we are going to be a completely transformed company. We will be able to continue with our strategy of intelligent motion, looking to expand further into precision conveyance, perhaps other new businesses that are related to that in the material handling space as part of our transformation journey. Some people have said, "Well, this seems like you're going back to your old strategy." The reality of it is we're strengthening our current core business, which was 60% or is 60% of our business.
Going forward, once we digest this acquisition, which is going to take a couple of years, we will be in a much better position to continue on with the transformation journey that we're on.
Great. Thank you very much for coming to the conference.
Thank you.
Thank you to all of you for coming.