Consolidation in the specialty gases/distribution industry has been occurring since the early 1990s, and the industry continues to shrink.

Hector Villarreal, vice president of sales and marketing for Weldcoa (www.weldcoa.com), said consolidations have provided interest to an industry that could otherwise seem lackluster.

Weldcoa (Welding Company of America) manufactures of gas cylinder handling and filling equipment, and is the largest independently owned manufacturer of palletized trucks, trailers and filling equipment in the world.

Villarreal has the catbird seat for observing the industry's merger and acquisition roll-up activity.

Many of the largest companies in the industry have engaged in some type of merger activity for more than 10 years, following in the footsteps of Airgas whose growth-by- acquisition strategy accelerated between 1991 and 1995 and continues today. Praxair, Air Liquide, and Matheson Tri-Gas all have made strategic acquisitions, including the Matheson Tri-Gas recent acquisition of Aeris Inc.

Matheson Tri-Gas, Inc. added 14 new locations in Nevada and northern California and to its network with the mid-October acquisition of Aeris Inc.,

Aeris was northern California's largest independent medical, industrial and specialty gas manufacturer, and it was formed in 2006 with the merger of Wine Country Gases, Central Coast Gases, Wesco, Arc Gas Products, and Air Arc Supply.

Industry consolidations have led to independent players finding key companies in markets to buy to expand their market reach.

“They've done very well,” Villarreal said.

“However, what all this has done is that it has reduced the pool of choices. Airgas was in a feeding frenzy when the fish were plentiful, but by the time the others joined in, the fish were fewer. Now the independent distributor has more flexibility. Praxair, Air Liquide, and the others are actively seeking distributors for their products,” he said.

In Villarreal's view, it is attractive for independents to sell to another independent.

“It's always been an ‘us against them’ mentality. But, the independents always found a way to maintain their market. The independents are a tenacious lot,” he said.

All the merger and acquisition activity has changed the face of the industry and the way it operates.

Villarreal said that when Airgas purchased BOC the affect on distributors was not immediately apparent.

The independents just moved to Air Products.

“Then, months later, Air Products disappeared. So those distributors had to move again. It changed the mindset of the distributors, and they said ‘I don't want to be a ping-pong ball anymore. I want control over my future.’ So, they began doing for themselves what the distributors had been doing for them,” he said.

That led many distributors to go into medical gases, even though major companies discouraged them by indicating that FDA regulations would be too difficult to deal with.

“But now, every successful independent does their own medical gas. They also were told that low-end specialty gases would be difficult, that entry into this arena would be expensive. However, the independents got tired of getting smacked from one major to the other and tried it anyway. Most have been very successful,” he said.

Villarreal noted that a distributor takes risk when they move from one major supplier to another, but that when a supplier disappears the situation is forced.

“From Weldcoa's point of view, we've helped the independents to be more independent, and we've helped the majors to become more efficient. We sell more equipment to both the majors and to the independents, so we're reaping the benefits of the activity,” Villarreal said.

Separately, William Kroll, chairman, president and chief executive officer of Matheson Tri-Gas, said he expects the current economic conditions will make it more difficult for distributors to sustain internal growth, so mergers and acquisitions can be expected to continue as companies look for other ways to develop growth.

“For Matheson Tri-Gas, growth through acquisitions will be key.”